How to calculate a realistic ROI for your warehouse automation? (Part 2: value)

Summary

There’s one point about warehouse automation all analysts agree on: this decade will bring unprecedented increase in automation across sectors, and the question isn’t so much whether or not to automate, but which technology brings most value to your business?

But let’s start the a bigger view: why is automation getting traction? Which values does it offer, that made the needle move to this new momentum?

What’s in it for me?

If you ask people what comes to mind when they think of automation, instinct will let them associate automation with redundancies and unemployment. And yes, I’d be lying if I told you automation won’t let existing jobs disappear. But, the truth is warehouses are struggling to keep enough workers to do the job, especially during seasonal and holiday spikes in demand… This is still very much an emerging trend, but it’s a trend that works in [robotics’] favor.

So, are these robotics and automation systems cheaper or a better investment than human personnel (FTEs)?

Yes, costs are going down. Yes, RaaS models are making an entry. Yet still for most businesses, automation will require considerable investments. Businesses take risks, by replacing something that works fairly well (human labor) with something new. And even the fastest ROI stilll means businesses need 3~5 years to recover their investment cost.

So if robots are not (yet) cheaper than FTE’s, what do they bring, that human labor cannot offer?

Top 5 reasons companies choose for automation

Companies who jump on the automation train could be looking for one or several of the following wins:

  • Warehouse real estate (m2) costs are rising, pushing the need for denser storage.
  • Consumption trends push for a wider range of SKU’s on storage, again increasing the need for more storage space.
  • Increases in production efficiency push for faster picking and 24/7picking.
  • Trends like e-commerce push for faster picking and 24/7picking.
  • Covid19 crisis impact on human labour in warehouses.

There’s also a survey made by Logistics Management where they asked companies:

No 1 reason is picking

In short, the real value behind automation is:

  • Getting more value for my m2, by increasing storage density.
  • Achieving faster picking and packing, 24/7.

Having clarity on the two main values automation offers, the next thing for you to do is, getting your priorities right. What’s most critical for your operations? Storage density? Or fast picking and packing?

Storage vs Picking

The three main factors when considering both storage and picking efficiency of your automation solution are 「2B/2C operational flow」 , 「SKU type」and 「warehouse height」. Do you get full pallets in and out? Or do you deal with smaller orders? Can your SKU’s fit in a tote? How high can you build in your warehouse?

Distribution centers with full pallets in and out can achieve high storage density through VNA automation systems. Business cases could range from Ikea furniture storage to Walmart F&B pallet storage. The higher you go, the more storage you pack in the same number of ㎡.

Fulfilment centers for e-commerce, spare parts, retailers on the other hand, will probably have smaller orders with a very diverse range of SKU’s. This means SKU’s need to go to a work station, where SKU’s are picked and orders consolidated.

For warehouses under 3m, shelf AMR’s could offer a low-cost yet robust automation solution. These same robots would lose efficiency in a higher warehouse, as their max load height is limited to +/- 2.5m. In warehouses up to 11m, an AMR shuttle or ACR could be a great solution, offering both high storage density and flexible picking. If you build even higher, you might want to look at ASRS solutions.

Two of the most often used metrics in calculating value for money are 「cost per location」and 「cost per pick」:

  • (amortized CAPEX + yearly operational costs) / locations
  • (amortized CAPEX + yearly operational costs) / yearly picks

Here’s an interesting graph from STIQ research, which summarizes cost vs performance of different G2P systems. Picking speed is lower for shelf AMR’s, middle to high for ACR’s and highest for ASRS systems.

Integration flexibility

We’ve talked about storage and about picking operations. Lastly, many companies will consider integration capabilities as a key factor in their search for a fit automation solution.

In the automation sector, we talk about green fields and brown fields. Green fields means you’re building a brand new warehouse from scratch. And brown fields, means you’re renovating or redesigning your existing operations, to fit in a new automation solution.

If you’re moving to a brand new warehouse, most hardware will be new, so integration is less of an issue. But if you’re automating an existing facility, you’ll have to think carefully about which parts of the infrastructure you can reuse, and what new investments you need to make. Robotic’s high integration flexibility often makes them an attractive solution, as they maximize reuse of existing infrastructure, and minimize impact on current operations.

But also, even in a brand new warehouse, you have to think ahead and be prepared for expansion. A system that allows that level of flexibility and integration with other components, at the end of the day saves you time and money.

Wrapping it up

There is no one-size-fits-all automation solution. When looking at the value of any automation solution, businesses need to select valid solutions based on how they with their business operations, SKU parameters and warehouse parameters. Next, they need to assess the value of each solution based on how much they cost, as well as what they bring in terms of storage density and handling efficiency.

A question for everyone

What is your main KPI when you look for an automation solution?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: