Making the Right Investment in Automated Technology

Introduction

If you are a distribution and fulfillment professional, we are at an exciting time in history where our work has become a competitive advantage to many business leaders instead of the necessary evil it once might have been. With this change, we are experiencing an unprecedented demand for technology. In response to that demand, there is an influx of talent and investors that are all in a race to create and find applications for, technology that maximizes the advantage over the competition.

While not exhaustive, this whitepaper will help to identify the key factors that should be considered when selecting the right application of technology for your business. We have found that the emphasis placed on the following sections is unique to each business and what they are seeking to achieve. While the “we want it all” approach is understandable, it is not realistic as some of these items can be in direct opposition to each other. Therefore, depending on how a business views each of these items, it can lead to a different technological fit or even a different application of technology. In summary, there is always more than one technology that will work, finding the “right one” depends, at least in part, on how the following items are prioritized.

Labor (OPEX and availability of labor)

Labor is becoming increasingly scarcer and more expensive, which is impacting the business case for automation. In certain labor markets where sourcing labor required during a peak period presents significant challenges, technology can be a necessity to ensuring business continuity.  Even if scaling up labor is a possibility, there are other challenges (e.g. training, reduced efficiencies due to new associates, etc.) that can lead to significantly lower productivity rates (e.g. 50% to 75% of standard). In order to attain the highest level of customer satisfaction, protect the brand, and to lower overall costs, it may be important to target technology that can help reduce the dependency on labor during peak periods as it becomes more and more difficult to source.

Capital (cost and access to capital)

Capital investment environments (i.e. appetite, availability, cost of capital, finance hurdles, etc.) vary from business to business. While a given technology may offer a strong financial return when compared to alternative options, understanding the organization’s perspective on capital can be a critical component in making the selection. Although the most common approach is to evaluate the investment for a financial return inside the four walls, it’s also possible that business leaders might be less concerned about achieving a certain financial hurdle inside the four walls of the DC, but may consider the investment as a “cost of doing business”. The business leaders could take the position that an investment in the DC is required to gain or increase market share, increase top-line revenue, etc. thereby achieving financial justification outside the four walls themselves. This might be likened to the fact that creating distribution and fulfillment capability is simply a cost that must be incurred to operate a business that has a physical product that must be moved at scale. There are more options available to finance capital assets today than there have ever been, such as RaaS (robot as a service) and leases through major financial institutions, etc. These models can ensure limited or even no cash outlay and create a 100% OPEX approach for the business. It is important to have these conversations with business leaders to understand if technologies with certain levels of capital intensity should be eliminated from the start.

Considering all the factors outlined in this whitepaper will help you ask the right questions when considering the many and always increasing number of technologies that are available in the market.

Scalability

Scalability, in this context, is defined by buying what you need, only when you need it. When a business is in its early stages or is experiencing significant and uncertain growth, they are generally focused on the scalability of technology and how it might allow them to react as the business evolves without having to make a wholesale change to different technology in future years. On the other hand, the conventional approach would have been to pick a design year (e.g. 3-5 years into the future) and make an investment in that technology upfront to prevent major construction projects or business interruption on a frequent basis. When the business is forecasting a very high YOY growth rate, it can be critical to have the ability to defer investment to future years, both to minimize risk and to help avoid high initial investments that may burden the P&L with expensive depreciation or other asset costs that the more immediate forecasts don’t justify. Different technologies offer varying degrees of scalability and it’s important to understand this prior to making an investment in technology.  

Appetite for Risk

The warehouse robotics market is a fast-growing industrial segment where new start-ups are emerging with significant talent and financial backing. Because these companies are often early in their lifecycle with limited proof sources, business leaders may prefer a more risk-averse approach and choose to partner with more established providers that have demonstrated the ability to achieve certain throughput requirements. Sometimes business leaders may be willing to take a risk on new technologies due to the potential for a greater return on investment, or to capitalize on competitive pricing, etc. Understanding the business leader’s appetite for risk vs. potential return up-front can immediately eliminate some options from consideration.

Desired Service Level

Changes in consumer expectations (e.g. delivery times, returns, etc.) are well-documented and are creating additional challenges for supply chains.  In the last decade, much thought has been given to how to accomplish the shortest amount of time possible from the placement of an order to the customer receiving notification of shipment. That speed comes at a cost, which can be significant. 

Considering peak and average volumes is important in balancing the appropriate service level requirements against other related business priorities such as customer satisfaction. Some business leaders may allow for a lower level of service during the peak period to reduce the investment required or the dependency on labor, while some may choose to make the investment required to maintain the same service level year-round. Defining an organization’s stance on this factor is critical to determining how much capacity, and therefore the related investment, is required to meet the business goals for customer service level. 
 

Ability to Relocate or Redeploy

When companies are uncertain about future growth plans and network strategies, they may prefer technologies that can be relocated or redeployed to a different site as business needs dictate. This is generally difficult with any significant investment in technology, but recent market entrants are making this more feasible as less and less of the overall infrastructure is bolted to the floor or hard wired to an energy source (e.g. solutions with Autonomous Mobile Robots – AMRs).

Conclusion

Considering all the factors outlined in this whitepaper will help the business leaders ask the right questions when considering the many, and always increasing, number of technologies that are available in the market.  The goal should be to narrow down the list of candidates and choose the technology most aligned to your current and future business needs.