The Warehouse Revolution Automate or terminate The Warehouse Automation Journey: Moving from understanding to action
When writing our book The Warehouse Revolution – Automate or Terminate, we were committed to creating a comprehensive overview of the warehouse automation space. We knew
a rapidly growing number of companies were soon to embark on a challenging journey, yet they had no way to get up to speed quickly. Since its publication, and after multiple
conversations with readers and corporate leaders, they most commonly ask: “Ok, now I understand the context and the technologies, but how do I turn it all into action?”
For the last ten years, Logistics, Warehousing, and Supply Chain operations have been severely strained and continue to be today. Some of this strain can be attributed to episodic events like the pandemic, geopolitical conflicts, or recent disturbances in significant trading routes. The main cause, however, has been a permanent transformation of the role that supply chain operations play in the global economy and, more directly, in company business performance.
On the distribution side of logistics, e-commerce has changed the business metrics by which logistics centers and professionals are measured. Order fulfillment lead time and order accuracy measurements replace shipping volume and cost per shipment metrics. We have gone from order lead times of weeks or even months to hours. On the supply side, just-in-time manufacturing has reduced in-transit inventory quantities, which, combined with globally stretched supply chains, result in very fragile supply lines.
To compound the problem, qualified labor has become scarcer, more expensive, and less attainable where it is needed most, near large urban areas that drive the need for shorter shipment and distribution times.
Despite the increased use of air freight, the speed at which we can transport goods economically has not improved enough. In the case of distribution, improvements in physical speed
have been negligible. The nodes in the supply chain (ports, distribution, and fulfillment centers) bear the brunt of the needed changes. Industry leaders are applying a blend of automated
equipment and advanced information systems to tackle these challenges. It used to be the case that executives could tolerate suboptimal performance of their supply chains without putting their company’s survival in danger. This is no longer the case. If shipping times or order accuracy are uncompetitive, customers will go elsewhere. Even minor hiccups in supply chains may result
in production disruptions that break commitments or impair product availability.
In The Warehouse Revolution, we discuss the case for automation in detail and describe the many processes and technical options that should be focus areas for companies of all types and sizes. The risk and complexity of automation may be daunting for many small- and medium-sized businesses. Breaking down the components of risk is critical. To achieve this and ultimately address the risks, it is crucial for companies to execute multiple non-trivial, internal sub-projects:
1. Operational Process Assessment: Once the operation crosses a threshold of volume and complexity, logistics and material handling systems show behaviors that are difficult to understand and predict without the help of sophisticated analytics and optimization tools. Identifying bottlenecks, the impact of order mix in volume, determining multi-product and multi-echelon inventory policies, order release, batching, etc., requires specialized knowledge and non-trivial effort.
2. Technology Assessment: By their very nature, material handling projects deal with the intersection of the physical world with the information world. They require expertise in building construction, including fire and other regulations, mechanical equipment and layout, electrical power, electronics and communications, real-time and enterprise software, human factors, and ergonomics. Technology in all these disciplines evolves rapidly and needs to be selected, applied, and integrated together.
3. Project Execution Assessment: No individual or small team can master all required technologies, and very few organizations can either. Professionalized project and program management becomes a critical element in the success of these projects. In many cases, this capability is provided by the project’s primary systems integrator. Only very large companies implement a sufficient number of projects over time to justify the development of this capability in-house.
4. Organizational Change Assessment: Even projects with stellar design and execution will fail if the organization that needs to implement them is not ready or is unwilling to embrace them. In extreme cases, some even suffer from active sabotage. Organizational communication, training, and change management cannot be ignored or relegated to an HR topic. They need to be an integral part of the project.
While these challenges are very real, they are not insurmountable if appropriately addressed, but the investment required will be significant, and the executive team must understand the associated
ROI clearly.
The ROI may be realized by reducing the overall operating costs or enhancing revenues. Cost reduction is by no means a certain outcome of an automation project. The real effect of automation projects is a change in the operation’s cost structure. There will be a shift from variable costs associated with direct hourly labor to indirect costs based on a combination of financial investments, equipment maintenance, operational expenses, and salaried labor. This means that the per-unit costs before and after the project depend heavily on the volume at which the system will perform. Lower volumes favor an operation with a more variable cost structure, while higher volumes can more easily justify a larger investment.
It is essential to consider how costs change if the volume begins to exceed an operation’s capacity. The change may be incremental in less automated operations and addressed with overtime or extra labor. For automated operations, the limits to the system may be much more strict and require upgrades or significant reconfiguration of the system. Executives and project leaders must determine the performance profile of the operation (order and item variability, volume, etc.) and decide on its design capacity. As shown in the figure taken from the book, the capacity may differ significantly from the simple average of expected volumes.
On the revenue front, apart from the apparent effect of capacity increases to support more business, automation can improve customer satisfaction by increasing order accuracy, reducing order lead time, and making order fulfillment more consistent and predictable. This may enable a company to commit to more aggressive delivery times.
Cost reductions can be achieved in all functional areas of a warehouse (receiving, put-away, storage, picking, packing, and shipping). Outbound processes are often automation targets in fulfillment centers, while storage and inventory automation may offer significant gains in warehouses with floor space constraints. Automation of inbound processes is not as common, although this is changing with the availability of flexible systems that can be shared and repurposed easily, like AMRs and other mobile technologies.
It is clear that hiring external consultants, no matter how knowledgeable, cannot substitute for an executive team’s involvement and leadership in the first phases of an automation project. Once
the project is defined from a business perspective, a company needs to assess the level of risk in each category and determine whether they have the expertise, staff, and capability to reduce it to
an acceptable level. The specialized knowledge required across all disciplines is significant. Capabilities must be available to define and streamline operational processes, design an automation system, and implement complex construction and technology projects. These may include constructing new buildings and integrating new mechanical equipment, electronics, communication protocols, and software, requiring skills rarely found in small and medium companies. This explains the broad ecosystem of consulting services, systems integrators, and contractors that exist in the industry.
Successful project execution usually includes a combination of the following:
1. Strong executive sponsorship, with clear decision authority and oversight.
2. The company’s core team, including a project leader and various stakeholders, focuses on execution and financial outcomes.
3. One or multiple consultants or contractors with the required specialization and skill to ensure successful execution.
Knowledge is paramount when embarking on a warehouse automation project, and the more people within the organization appreciate the underlying motivation, challenges, costs, and technologies, the better. The Warehouse Revolution was written with this in mind. We believe no other books have been written that adequately cover the subject. The knowledge gained will help level the playing field across team members as it offers an easy-to-read ramp-up guide, enabling the right conversations to happen in an organization naturally.
About the Authors:
Pete Devenyi
Pete Devenyi spent his 40-year engineering career in software and technology development, leading large technical organizations at global companies like BlackBerry and Dematic. He earned bachelor’s and master’s degrees in Electrical Engineering from the University of Toronto. Currently, he consults in Warehouse Automation and Logistics and teaches engineering leadership at the University of Toronto.
Miguel Pinilla
Dr. Miguel Pinilla has over 30 years of experience in the supply chain information systems industry. He held leadership positions at Dematic, RedPrairie (now Blue Yonder), SmartTurn, and Navis. Originally from Spain, he obtained a Senior Engineer Degree in Industrial Engineering from ICAI. He came to the US as a Fulbright scholar, receiving a Masters in Engineering degree from Carnegie Mellon and a PhD from Stanford in Manufacturing Information Systems. Currently, he is the principal of Salduba Technologies, advising clients in the field of Supply Chain Automation.
Jim Stollberg
Jim Stollberg has business experience spanning over 35 years. He held senior executive roles in the automation and management consulting industries, including leadership positions with Dematic, HK Systems, and Accenture. He earned his bachelor’s degree in Mechanical Engineering from Marquette University, where he also serves as Executive in Residence and as a member
of the Supply Chain & Operations Management Advisory Board.
About The Warehouse Revolution Book
This book is a must-read for technologists, retailers, and investors who seek to understand the warehouse automation industry and the tradeoffs of the various technologies. It walks through an array of automation options using understandable terms. It describes the industry’s history and how e-commerce catapulted warehouse automation to the forefront of supply chain operations.
The Warehouse Revolution will also interest those just curious and seek to understand what’s happening behind the curtain–the highly choreographed movement of people and machines that enable packages to show up at our respective doorsteps in less than a day.
Available at Amazon and other major booksellers: https://amzn.to/46keEJ9
