Labor is typically more than 50 percent of an operating budget, so escalating labor costs have a direct impact on margins. Companies are looking to automation to increase efficiencies in distribution and drive higher margins. But justifying investments isn't just about reducing labor. It's about speed - driving top-line revenue from service improvements and taking inventory out of the supply chain through faster replenishment. It's about efficiency - reducing capital costs through efficient use of space. Ask yourself, what’s the value of accessing your entire catalog every shift, improving order accuracy, reducing inventory across the entire network and reducing the footprint of your operation? All of that, in addition to anticipated labor savings, is your justification for automation
Pharmaceutical wholesalers took the early lead in implementing automation in their fulfillment centers. Why make that kind of investment?
1) They have an extremely short window to serve a large amount of orders - and automation allows them to fill those orders with a later cutoff and early dock-out times
2) It maximizes the cubic usage of the facility with dense aisles and high storage
3) And it drives significant operating cost reductions for the facilities that use them.
But there are also cautionary tales on the other side of that coin. Companies that invested early on in the Kiva technology were forced to find new options when the company was sold to Amazon. Others found the technology, while groundbreaking and innovative, couldn’t meet their business requirements. Processes were bootstrapped around the system to support order and SKU profiles, and ultimately distribution happened in spite of the technology, rather than driven by it.
There's a right and wrong way to make investment decisions.
Here are some things to consider:
• It's all about the business case. Define your business requirements, conduct research and build a robust justification based on your unique needs. Don’t overlook older tried-and-true technologies just because they’re not shiny and new.
• Choose best-of-breed technology. Automation is more flexible than ever and with today’s warehouse control software you’re not tied to a single supplier. Choose best-of-breed solutions and integrate them to provide the optimal solution for your business.
• Look at the full lifecycle of the equipment. Does the supplier have a development road map? Ask tough questions about lifetime support and future plans. Invest in automation that not only meets the needs of your organization today and tomorrow, but is flexible enough to adapt to changes in the business down the road.
The decisions you make today will live with you for years to come. You may want to enlist the help of a neutral third party with experience across technologies and suppliers to validate assumptions, vet suppliers and build consensus among stakeholders.
Automation investments can now be tied to the highest level business drivers – incremental revenue, customer service improvements and expanded market share, as well as reduced labor requirements. As technology costs come down and the cost of labor increases, smart companies will invest in automation to fill the gap and increase efficiency. But high-growth companies that don’t invest in automation wisely may find themselves making additional investments down the road.
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