Six Factors to Consider Before Automating Warehouses

Warehouse operations have become increasingly more complex as a result of various factors including global supply chain disruptions, shorter order-to-delivery cycles and greater product range and service offerings. Adding to the complexity is the expectation for warehouses to collect, organize and analyze a number of different data sources.

Automated systems can yield outputs as much as 20 times greater than manual processes while also reducing labor-related challenges, improving accuracy and potentially increasing safety. However, determining if this is the right time to automate your warehouse is not an easy process.

Here are six factors that should drive the decision to automate:

1. Technology readiness of operations
   
   Prior to senior leadership making automation decisions, it is critical to ensure you’ve examined existing technologies and processes and have identified and resolved any weaknesses or gaps in advance of an automation journey.
   
   IT partners should begin by assessing existing enterprise resource planning (ERP) and warehouse management systems (WMS) for any vulnerabilities and potential weaknesses. An outdated WMS or poorly automated processes could pose a significant obstacle to any automation efforts. Next, ensure there is a stable and capable system integration infrastructure. While many companies believe automation can resolve their challenges, it won’t fix gaps in existing systems and operations.
   
   When the decision to automate has been made, logistics and IT leaders should collaborate to explore the automation technology options. The team must ensure newer technologies are ready, stable and suitable for the specific automation situation the business requires.
    
2. Product volume growth projections
   
   Organizations facing capacity constraints should utilize their company’s projected order and product volume growth predictions to estimate forthcoming demand and to assess if this might be the time to automate. Automation can be justified if these growth projections show current operations would not be sufficient to achieve desired business outcomes.
   
   Automation investments can be highly cost-intensive and not justifiable for businesses that cannot demonstrate a cost justification over the period of investment in automation. Therefore, it’s crucial to consider the seasonal influence on your business and opt for a solution that offers the adaptability and scalability required to accommodate your evolving requirements.
    
3. Labor availability and cost
   
   According to Gartner research, 75% of supply chain leaders surveyed believe voluntary turnover will likely increase over the next five or more years. Finding and keeping a willing workforce is proving to be exceedingly challenging, with intense competition for labor.
   
   A good way to see if labor availability is becoming a challenge for your company is to look at the time-to-hire recruitment metric. This metric refers to the total time between a warehouse job posting and a candidate’s acceptance of the company’s offer. If you see the average time to hire becoming longer and longer and/or overtime hours increasing, it might be time to think about automation.
   
   Rising labor costs are another aspect to evaluate. Labor costs typically range from 60% to 65% of the total operating cost. If your labor costs exceed that range, it might be the right time to automate to reduce that percentage.
    
4. Accuracy and service levels
   
   Companies generally strive for 99.84% percent order-picking accuracy by order but the usual target is between 98% and 99%. If the percentage goes below 98%, it might be the right time to consider automating the picking process. The introduction of automation can bring improved precision and consistency, lowering the likelihood of errors and, in turn, elevating customer satisfaction.
   
   In high-volume, high-velocity environments, like e-commerce, the need for rapid order fulfillment and the demand for speed in processing and delivering orders has never been more prominent. In this case, order fill rate might be a metric that would give you the signal to evaluate automation. Organizations normally strive for an order fill rate of more than 99.7%, but the typical goal is an order fill rate between 97.3% and 98.9%. If it goes below 97.3%, it might be the right time to introduce some automation.
    
5. Health and safety
   
   If your organization is experiencing warehouse health and safety challenges, you might need to reinforce your health and safety standards. It is well documented that these concerns are dissuading potential workers from entering a company altogether and causing issues with the job satisfaction of existing employees.
   
   Repetitive injuries stemming from motion-related activities, injuries arising from heavy or awkward lifting, and worker fatigue might be indicators of problems that can be alleviated by the integration of robotics and automation. Wider adoption of these technologies can result in a substantial reduction in workplace injuries, additionally enabling employees to remain on the job and provide for their families while simultaneously reducing insurance premiums and workers’ compensation claims for employers. By prioritizing the well-being and contentment of their workforce, organizations can anticipate an increase in employee retention and enhanced attractiveness of warehouse jobs.
    
6. Expected time to return on investment
   
   In terms of automation, time to return on investment (ROI) is defined as the amount of time from moving the first item into production to the payback of the initial investment. Gartner has observed that time to ROI is between three to seven years for conventional automation systems and between six to 24 months for robots. If you calculate a time to ROI that extends beyond these times, it may not be worthwhile to automate at this time.
   
   If this is the case, another model to consider is robotics-as-a-service (RaaS), which allows for the rental of robots with a cloud-based subscription instead of directly purchasing the robots. RaaS is generally considered a protective financial measure for a client concerned about an automation choice that may not be the best fit. One of RaaS’s advantages is the reduction of the cost of maintenance. Similar to other servitization models, the responsibility and the cost of maintenance of the robot belongs to the vendor. This and other financial benefits of RaaS allow clients to achieve ROI within a shorter term.
    

About the author
Federica Stufano is a senior principal analyst in Gartner’s Supply Chain Practice where her focus area is supply chain execution technologies, primarily warehouse management systems and other associated technologies.

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