Executive Briefings

Is America Ready for the 'Lights-Out' Warehouse?

Deadlines have a wonderful way of generating creative, even bizarre, solutions to a problem. Take the distribution center being built for Teva Pharmaceutical Industries Ltd. at Ben Gurion International Airport near Tel Aviv, Israel. To keep on schedule, the project manager installed the material-handling equipment before the roof was put on.

With revenues of $13.9bn last year, Teva is one of the world's largest producers of generic drugs. It already has a manufacturing plant and warehouse in Jerusalem, but the facility isn't big enough to meet the company's distribution needs. Teva wanted to combine product from multiple stocking points into a single, highly automated location.

The builder and integrator of the new distribution center, the largest ever constructed in Israel, is the same company that's responsible for creating the Jerusalem plant - Unitronics. It's coordinating every aspect of the $100m-plus project, involving a facility covering more than 500,000 square feet and able to handle 75,000 pallets and 700,000 orders a year in its first stage of development.

Teva made it clear that it wanted the initial phase of operations to kick off on December 23 - just 18 months from the time construction began at a greenfield site in Ben Gurion's Airport City. Full operations are due to commence less than five months later, on May 11, 2011. The abbreviated timetable poses an enormous challenge for Unitronics, which is equipping the warehouse with a high level of automation. Included in the job are 82 truck docks, 1.3 miles of conveyors, 37 miles of sprinklers and pipes, 9.2 million pounds of steel racks and the usual complex software to run it all.

Of course, installing pricey handling equipment in a roofless building can only work in a country where it doesn't rain for four months out of the year. But that unusual decision was just one aspect of an immense undertaking, requiring Unitronics to pull together an army of designers and vendors in order to complete the facility on time and on budget.

Both of Teva's distribution sites in Israel rely heavily on cutting-edge automation for storing, picking and shipping of product. Watching such an operation at work can be a hypnotic experience: multi-storied cranes move smoothly between narrow aisles, with nary a human in sight. If there's any lighting at all, it's for safety or periodic inspections. The machines can see just fine in the dark.

Unitronics senior vice president Eyal Saban says the company "is seeing more and more demand for automated order-fulfillment systems." That can mean anything from voice and pick-to-light technology to the complete "lights-out" warehouse.

That last option is fairly common in Europe, less so in the U.S. But Unitronics believes Americans are ready for a higher degree of automation in their distribution facilities.

Why haven't they embraced it to date? One possible answer lies in differences among national labor laws. "It's very difficult to get rid of people in Europe," says Jim Barnes, chief executive officer of supply-chain consultancy enVista. "And when you do, it costs a ton." So European distributors jumped on the technology bandwagon early.

Sophisticated warehouse systems aren't cheap. But neither is the process of shutting down a labor-intensive operation in Germany or France and shifting to a low-wage country such as Poland or Slovakia. German companies must give laid-off workers three months' notice, says Barnes, then pay them for an additional six. Along with those nine months of transition costs, the business finds itself saddled with a worker who isn't exactly motivated to excel during his period of lame-duck employment. Or, for that matter, to make way for a robot.

In the U.S., by contrast, distributors have tended to shy away from the most dazzling automation. Many operations are non-union, and the most complex material-handling systems aren't always suited to companies' changing needs. "When you have a spike in demand," Barnes says, "you can't throw more labor at it." He cites a large food distributor in Arizona that spent $50m on automation, only to be "constrained by the amount of cases they can run through their conveyor."

Automation works well in facilities where processes are standardized and volumes steady, such as those of big consumer products manufacturers, says Barnes. But that's not always the rule in industries such as grocery, where retailers are driving the shift from full cases to smaller units and more frequent replenishment.

Kiva Systems sells precisely the kind of automated material-handling setup that Unitronics hopes will catch on in the U.S. Kiva has had a number of successful engagements here, but it has also seen as least one reversal. Among its biggest customer wins of recent years was Zappos, the popular internet merchandiser of shoes and clothing. In 2008, Zappos installed a sophisticated split-case picking system and shipping sorter from Kiva at its distribution facility in Shepherdsville, Ky. But when Amazon.com bought Zappos last year, it swapped out the Kiva system at the Kentucky distribution center for a manual picking operation.

Mark Rosenberg, Kiva's vice president of marketing, says the change wasn't made because Amazon has a particular aversion to automated systems. "Zappos went from automation to manual because the Kiva system had been brought in to add apparel to an otherwise shoes-only warehouse," he says. "What Amazon has done is consolidate shoes in that warehouse and take the apparel out.... As I understand it, it's more a story [of changing] from a multi-category warehouse to a single-category warehouse."

Rosenberg agrees that automation can place constraints on a warehouse operation, but he insists that's not the case with Kiva's technology. "Our robotic systems are very flexible and adaptable," he says. "Unlike bolted-down automation, you can change workflows at a moment's notice. It's all software - add a few more robots to the pool, and the system goes faster."

Whether American warehouses are indeed ready for more automation remains to be seen. Unitronics, which has already made its mark here with automated parking systems, certainly hopes so. But the ambitious project integrator might have to show some patience. "I believe there is such a trend [toward automation]," says Rosenberg, "but it's a very, very slow-moving trend. Industry in general works at a relatively slow pace. People don't throw away old warehouses before they need to."

- Robert J. Bowman, SupplyChainBrain

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Deadlines have a wonderful way of generating creative, even bizarre, solutions to a problem. Take the distribution center being built for Teva Pharmaceutical Industries Ltd. at Ben Gurion International Airport near Tel Aviv, Israel. To keep on schedule, the project manager installed the material-handling equipment before the roof was put on.

With revenues of $13.9bn last year, Teva is one of the world's largest producers of generic drugs. It already has a manufacturing plant and warehouse in Jerusalem, but the facility isn't big enough to meet the company's distribution needs. Teva wanted to combine product from multiple stocking points into a single, highly automated location.

The builder and integrator of the new distribution center, the largest ever constructed in Israel, is the same company that's responsible for creating the Jerusalem plant - Unitronics. It's coordinating every aspect of the $100m-plus project, involving a facility covering more than 500,000 square feet and able to handle 75,000 pallets and 700,000 orders a year in its first stage of development.

Teva made it clear that it wanted the initial phase of operations to kick off on December 23 - just 18 months from the time construction began at a greenfield site in Ben Gurion's Airport City. Full operations are due to commence less than five months later, on May 11, 2011. The abbreviated timetable poses an enormous challenge for Unitronics, which is equipping the warehouse with a high level of automation. Included in the job are 82 truck docks, 1.3 miles of conveyors, 37 miles of sprinklers and pipes, 9.2 million pounds of steel racks and the usual complex software to run it all.

Of course, installing pricey handling equipment in a roofless building can only work in a country where it doesn't rain for four months out of the year. But that unusual decision was just one aspect of an immense undertaking, requiring Unitronics to pull together an army of designers and vendors in order to complete the facility on time and on budget.

Both of Teva's distribution sites in Israel rely heavily on cutting-edge automation for storing, picking and shipping of product. Watching such an operation at work can be a hypnotic experience: multi-storied cranes move smoothly between narrow aisles, with nary a human in sight. If there's any lighting at all, it's for safety or periodic inspections. The machines can see just fine in the dark.

Unitronics senior vice president Eyal Saban says the company "is seeing more and more demand for automated order-fulfillment systems." That can mean anything from voice and pick-to-light technology to the complete "lights-out" warehouse.

That last option is fairly common in Europe, less so in the U.S. But Unitronics believes Americans are ready for a higher degree of automation in their distribution facilities.

Why haven't they embraced it to date? One possible answer lies in differences among national labor laws. "It's very difficult to get rid of people in Europe," says Jim Barnes, chief executive officer of supply-chain consultancy enVista. "And when you do, it costs a ton." So European distributors jumped on the technology bandwagon early.

Sophisticated warehouse systems aren't cheap. But neither is the process of shutting down a labor-intensive operation in Germany or France and shifting to a low-wage country such as Poland or Slovakia. German companies must give laid-off workers three months' notice, says Barnes, then pay them for an additional six. Along with those nine months of transition costs, the business finds itself saddled with a worker who isn't exactly motivated to excel during his period of lame-duck employment. Or, for that matter, to make way for a robot.

In the U.S., by contrast, distributors have tended to shy away from the most dazzling automation. Many operations are non-union, and the most complex material-handling systems aren't always suited to companies' changing needs. "When you have a spike in demand," Barnes says, "you can't throw more labor at it." He cites a large food distributor in Arizona that spent $50m on automation, only to be "constrained by the amount of cases they can run through their conveyor."

Automation works well in facilities where processes are standardized and volumes steady, such as those of big consumer products manufacturers, says Barnes. But that's not always the rule in industries such as grocery, where retailers are driving the shift from full cases to smaller units and more frequent replenishment.

Kiva Systems sells precisely the kind of automated material-handling setup that Unitronics hopes will catch on in the U.S. Kiva has had a number of successful engagements here, but it has also seen as least one reversal. Among its biggest customer wins of recent years was Zappos, the popular internet merchandiser of shoes and clothing. In 2008, Zappos installed a sophisticated split-case picking system and shipping sorter from Kiva at its distribution facility in Shepherdsville, Ky. But when Amazon.com bought Zappos last year, it swapped out the Kiva system at the Kentucky distribution center for a manual picking operation.

Mark Rosenberg, Kiva's vice president of marketing, says the change wasn't made because Amazon has a particular aversion to automated systems. "Zappos went from automation to manual because the Kiva system had been brought in to add apparel to an otherwise shoes-only warehouse," he says. "What Amazon has done is consolidate shoes in that warehouse and take the apparel out.... As I understand it, it's more a story [of changing] from a multi-category warehouse to a single-category warehouse."

Rosenberg agrees that automation can place constraints on a warehouse operation, but he insists that's not the case with Kiva's technology. "Our robotic systems are very flexible and adaptable," he says. "Unlike bolted-down automation, you can change workflows at a moment's notice. It's all software - add a few more robots to the pool, and the system goes faster."

Whether American warehouses are indeed ready for more automation remains to be seen. Unitronics, which has already made its mark here with automated parking systems, certainly hopes so. But the ambitious project integrator might have to show some patience. "I believe there is such a trend [toward automation]," says Rosenberg, "but it's a very, very slow-moving trend. Industry in general works at a relatively slow pace. People don't throw away old warehouses before they need to."

- Robert J. Bowman, SupplyChainBrain

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