Often, the fastest distributors win. That's one reason why many distributors are adding automation.
“It all changed with the expectation of two-day and next-day shipping,” said Grant Thornton Growth Advisory Director Brad Hulbert. “That moved from a nice-to-have to a consumer requirement.” Automation can help distributors process, pick, pack and ship orders faster to meet that customer requirement.
However, automation is not a plug-and-play solution — it’s an incredibly useful tool that can help in different ways, depending on the needs of the business. To understand how and where it’s best for you to use automation, you need to identify your biggest needs, plan your approach and prepare your people.
Why you need it
Efficiency and speed are usually the top drivers for warehouse automation. Efficiency and speed are related, but not always the same.
Distributors usually look at two types of efficiency; space efficiency and labor efficiency. Sometimes, these efficiencies can drive the speed of order fulfillment. By improving labor efficiency, distributors can also address another issue: Workforce recruitment and retention.
“Getting skilled workers is a challenge for almost every facility we talk to, and it's been more pronounced since COVID,” Hulbert said. Often, distributors need to balance an inverse relationship between available space and available workers. “You don't typically build warehouses in the center of town. You build them in areas with low population density, because the land is less expensive. But you have to balance that with the challenge of finding workers in that area,” said Grant Thornton Growth Advisory Senior Manager Ben Abraham.
So, your warehouse location is one of the factors that can define your needs for automation. “When we work with clients building warehouses in more remote areas, they can usually get space. The problem is attracting and retaining people,” Abraham said. “They need to focus on automation for the labor. If you have an existing warehouse in New Jersey to serve New York City, you might have people, but space could be a constraining factor.”
Once distributors identify and analyze their needs, they might feel anxious to achieve the benefits of automation.
“What we found is that some companies really want to jump into heavy automation when they see that big, pretty ROI,” Abraham said. “But they might not fully understand how difficult it is to do this well, and achieve that ROI. You need experts to install this equipment, plus you need to integrate it into your WMS, update your standard processes and train your people. Many underestimate how difficult these projects really are, especially if this is something that’s fairly new to you.”
Another thing that distributors might not understand is the cost. Abraham explained, “It's the price tag, and what comes along with that — they sometimes find that the return on investment is longer than they would have expected.” Hulbert added, “We often see anywhere from a five-to-seven-year ROI for the final return on these kinds of initiatives.” Most distributors want some return, and some sign of success, sooner than that. That’s part of why it’s important to plan a structured approach.
How you plan it
You need to build out a roadmap with a crawl-walk-run approach. That’s a huge part of it,” Abraham said. “When we've seen things go wrong in warehousing, it’s often because companies get in over their heads with automation, thinking it's the solution. In reality, automation is a tool to make operations more efficient. It’s not your solution.”
“When we've seen things go wrong in warehousing, it’s often because companies get in over their head with automation and think it's the solution. In reality, automation is a tool to make operations more efficient. It’s not your solution .”
To create the right plan, you need to assess your needs, goals and where you are today. “It really starts with an assessment, and an evaluation of your current technology,” Hulbert said. “Understand your as-is state to get a good overview of your business objectives, your automation goals, your areas for improvement, and a thorough analysis of your current processes. Do a cost forecast that determines the cost, the benefit and the ROI, to see if it is a valuable exercise for your organization. Work with the business to identify automation goals and business objectives, and the right roadmap to get you from point A to E, stopping at B, C, and D along the way.”
Your roadmap can achieve benefits incrementally, Hulbert said. “Start to chip away at those goals and maybe say, ‘In year one, we're going to look at this section of the warehouse and we're going to implement this section of automation. Run it, test it, and ensure that the employees have the right engagement and training to go along with the technology. Then, continue to roll that out over two to three years, so you're not doing everything in a big bang, with all your automation on a one-day cutover and suddenly things are not working.”
Abraham offered an example:
“A distributor was having challenges with increasing inventory levels and declining EBITDA. We conducted a strategic analysis using transportation costs, labor costs and many other factors. We identified an opportunity for cost savings by moving to a centralized distribution and replenishment strategy. The client was on board, but they didn’t know how much space they needed or what to invest in labor and equipment, as they had not operated a true distribution center before.”
Of course, those questions have many variables to consider. “We helped them scope out what they needed for the new warehouse, in terms of square footage, dock doors and other critical operations requirements. We also scoped out their automation considerations. For example, square footage is heavily reliant on what automation will be used, as well as labor requirements. They had already set their sights on a highly automated solution, but once we did the analytics, we determined that the ROI for a highly automated solution would be five to seven years.”
“So, we developed a three-step program for this facility. First, we recommended they focus on just getting product out the door and being able to execute the basics. You need to make sure it works, or else you lose significant credibility both internally and with your customers. Second, you can be smart and roll out some of your more intelligent warehouse automation using base functionalities built in with your WMS, like directed pick, directed putaway, route optimizations and advanced slotting. Then, once you have your basics locked down and well understood, you can begin to roll out more automation to truly optimize your operations.”
“At the end of the day, the automation is only going to be as beneficial as the information that you're pumping into it.”
Warehouse automation requires careful planning because it needs to integrate and manage complex processes, dependencies and systems.
“You need to connect your ERP and WMS — warehouse management system,” Hulbert said. “All of those nodes of technology need to come in and aggregate the data, then tell the automation technology what to do. There's so much that goes into implementing automation with the right master data, the master data being clean, all of your different systems feeding information in. At the end of the day, the automation is only going to be as beneficial as the information that you're pumping into it.”
Your automation also requires careful planning to integrate your people — because your people will be the ones to make it work.
Who makes it work
Automation can add speed and efficiency. But, to maintain the speed and efficiency, you need to maintain the automation. That can require on-site support.
You need two different types of support: system support and hardware support. “A lot of automations essentially run on an isolated system that interfaces with either the WMS or ERP. You need people who understand this integration when things fail, or when things need to be updated or changed,” Abraham said. “Then, also, you need support for the physical equipment. The equipment is going to break. You need to have some capability to troubleshoot and resolve issues without calling someone else for service every time.”
Ultimately, you also need contingency plans. “You need to know what to do when things break, because you can't just say, ‘I guess we're not shipping today. This machine is broken, and it's going to take days to get service.’ Obviously, customers don't accept that,” Abraham said.
The contingency plan might involve all of your warehouse employees. This can’t be the first time you involve them.
It’s critical to involve your warehouse employees from the very beginning of your automation plan, because they’ll all be part of making it work. “One of the things we always advise companies to do is to ensure that there's strong employee engagement when you're making this large decision up front, because people can see what's going on and people know,” Hulbert said. “Involve employees early in the process, help communicate the benefits of automation, and address their concerns to get their support and cooperation during the transition.”
You need employees to do more than just cooperate; you need them to collaborate. “You have employees in your warehouse who have business knowledge,” Hulbert said. “How do you use your roadmap to spell out the places where you’re going to have conversations with employees and bring them along on the journey, empowering them to help you, because they're the ones that know that warehouse inside and out? You’re going to need their feedback, especially in defining the current state, and it is critical to bring them along in the journey.”
“Show them that there's a path at the end of this tunnel to keep them in your organization long term,” Hulbert said. “Look at how to upskill employees over the multi-year period while you're implementing the automation. Can they be some of the entry-level techs that work on some of the technology and troubleshoot some of the issues? Are there different office jobs where you can start to transition some of these employees?”
It's also important to communicate how automation is streamlining current jobs, rather than replacing them. That brings us back to the issue of recruitment and retention. “The biggest issue for a lot of warehouses is having enough workers, and warehousing is a tough job,” Abraham said. “The more you can do to make jobs easier, the more you reduce turnover. One of the reasons to do automation is to make jobs easier. If your typical pick path is walking all the way around the warehouse, you head home from a day with 20,000 steps. With automation and AGV robots that walk to the paths, you just walk on one aisle, grab product and set it on the AGV. That’s what we're ultimately trying to do — reduce unnecessary movements, reduce waste and make things more efficient.”
Identify your needs, plan your automations, engage your employees and manage the change all along the way. “The change management aspect of this is huge,” Abraham said. “That drives the original case for change in the roadmap, and how you plan to crawl, walk, run.”
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