05/14/2024
Is Warehouse Automation Right For You?—GEODIS Insights
Learn about the pros and cons of warehouse automation and if it will provide your business with a good return on investment.
Warehouse automation and robotics can provide significant benefits for businesses that choose to invest. But, the question of whether to invest in warehouse automation isn't an easy one to answer. In this deep dive, we talk to experts across the logistics industry about the advantages and limitations of automation to help you decide if investing makes sense for you.
Key takeaways
- Many businesses aren't taking advantage of warehouse automation, often due to high costs or long implementation times
- Warehouse automation works best when its well-integrated with a human workforce
- Despite the costs and limitations of automation, it can still provide a strong ROI provided it's implemented correctly
- Vendors and experts can help to future-proof automation and ensure it has a long shelf life
Welcome to GEODIS Insights. These longer pieces provide you with deep dives, research, and industry authority for logistics and the supply chain. Use our findings and expertise to help decide what's right for your business. In this article, we're sharing research originally published on Multichannel Merchant in 2022, lightly edited and republished here with their kind permission. Visit Multichannel Merchant to download a PDF of this content.
Many businesses don't take advantage of warehouse automation
The case for introducing automation and robotics into retail and ecommerce operations seems an easy one to make. Labor is tight and expensive, and demand for rapid order fulfillment and delivery is high. Yet, despite the buzz around highly automated mega players like Gap Inc., Walmart, and Amazon, most company warehouses remain largely manual affairs. In 2022, Modern Materials Handling found that many warehouse operations have no automation at all. Drew Bailey, VP of design engineering at global 3PL GEODIS, said that figure might be slightly skewed, with Amazon and Walmart combined representing over 50% of eCommerce volume. “However, most organizations of average size still don’t utilize automation technology,” Bailey said. “There are significant opportunities to solve problems by making automation more affordable and scalable.”
High costs prevent businesses from investing in warehouse automation
Automation costs remain a significant barrier to entry. Joel Rampoldt, managing director at retail consultancy AlixPartners, said it’s a classic case of opex vs. capex, with the high cost of capital being a major factor. He thought adoption would be much higher at this point. “It’s the high cost and a lack of flexibility,” Rampoldt said. “The risk of not doing it is high, yet it’s nowhere near being the dominant way that distribution centers operate at this point. I personally thought as penetration increased, costs would go down much more rapidly than we’ve seen. We’re moving in that direction, but only a minimal number of facilities have these installations.”
Discover how GEODIS automates warehouses for best-in-class logistics services. Talk to GEODIS to learn more.
Warehouse automation isn't an answer by itself
Automation sometimes doesn’t play nice with order personalization—something only human associates can do. Lori Jackson, SVP of operations at Hims, an online health and wellness brand, said companies may invest in an auto boxer, only to find six months later that a new product is launching that won’t fit any of the boxes. “You may think, we have to automate this, we don’t have enough labor, but if we do, here are the parameters all other departments must work within,” Jackson said. “It’s almost like a backward shift, driven by operational needs. The business case is there, but there are still things to be decided on. Do we stick with personalization, or get away from it to increase efficiency and save costs? Those are the dividing lines for me.”
High-performing warehouses combine automation with a strong human labor force
While automation is impacting labor utilization across industries, from grocery self-checkout to table-side credit card readers and QR codes in restaurants and movie theatres, the human element will still be required, said Michael Smith, SVP of supply chain, logistics, ecommerce and call center operations for women’s apparel retailer Maurices. “Like these other industries, there will continue to be a need for human labor in distribution centers to complete tasks that automation does not currently address,” he said.
Even the vaunted "as-a-service" option for automated mobile robots (AMRs) has its limitations, such as how many units above base level can you manage at peak? Given all this, how are companies weighing the cost of automation against the risk of standing still? What are the performance gains they seek, and what are the conditions driving change?
Despite limitations, warehouse automation can provide a strong ROI and productivity gains
Even with headwinds and low adoption rates, the business case for automation remains strong, and experts agree that the ROI is there. More mid-market companies are realizing that the automation math works for them.
Case in point: Duluth Trading Co., a midsize seller of work and outdoor apparel with 65 stores nationwide. The retailer has an automated, 500,000-square-foot omnichannel fulfillment center near Atlanta. This enables optimized store replenishment from Texas through the South-Central states and up the eastern seaboard, together with delivery of online orders within three days.
Kevin Helmeid, VP of supply chain and logistics for Duluth, said the company is moving toward owning its logistics and supply chain network, seeing it as a value creator. This places a premium on automation to speed up processes and deliver an exceptional experience, including an AutoStore goods-to-person system at its new facility. “Everyone realized the need for speed, becoming nimbler in order to process orders click to door,” Helmeid said. “AutoStore gives us the flexibility to have a continual flow of orders into processing vs. batching, leveraging economies of scale. From a goods-to-person standpoint, it means labor reduction, eliminating pick sequencing that people did.”
He added that automation won’t equal layoffs, as the company is planning additional hires based on projected growth, but it will require fewer seasonal staff. Helmeid said Duluth is looking for better a better customer experience, faster, more accurate inventory management, servicing ecommerce and store replenishment, greater throughput and less reliance on seasonal labor. This all pointed to making the Georgia fulfillment center a greenfield project, with engineering and design partner Bastian Solutions, instead of introducing highly complex automated systems into an existing facility.
The company’s other fulfillment centers in Belleville, WI, Dubuque, IA, and Salt Lake City, are mostly manual, but learnings from Georgia will eventually be expanded throughout the network. Duluth is targeting $1 billion in sales by 2025, and automation is a key piece of getting there. Ecommerce has grown from 50% of sales pre-pandemic to about 60% today. “One of the benefits we have is the ability to make step-change investments,” he said. “Frankly, we don’t have the existing invested capital [in automation] like other businesses do. So, on this evolution of becoming a Duluth network, this allowed us to go forward into advanced robotics.”
Discover how GEODIS automates warehouses for best-in-class logistics services. Talk to GEODIS to learn more.
Automating a warehouse involves multiple, complex factors
Drew Bailey from GEODIS said that retailers need to weigh both quantitative and qualitative elements in automation decisions. The former includes types of products, inventory locations, and current vs. projected volumes. The latter includes considering what you’re trying to solve for: battling competitors with multiple nodes reaching the entire U.S. in two days, cost containment, or the ability to scale rapidly. “Maybe you’re projecting 20% year-over-year growth and you can’t invest in all the necessary automation now, but you’re projecting to be at 2x sales in five years,” he said. “Historically, major automation meant significant capex, and bolting significant infrastructure to the ground for some far-out year. The problem with that for high-growth companies is that you can’t bet the company on five years of 20% growth.
Getting warehouse automation in place can be difficult
For all the advances in technology, system complexity often dictates integration complexity. Lead times are getting longer, due to supply and demand plus the scarcity of key components like chips, steel, and resins for plastic parts. The triad of hardware, software, and controls in any automation project is often akin to the fast/cheap/good dilemma: many vendors are great at one or two elements, but not all three.
“You could end up with a company that has great hardware and software, but the controls that tie the integration pieces together are awful,” Jackson said. “Before purchasing automation you need to know about the integration touchpoints and how many connections there are. Maybe middleware can alleviate some of the pain points.”
Rampoldt said that some vendors may talk a good game about plug-and-play, but the reality is often quite different. Still, he said, advances in modular architecture for automation software have shown some promise. “With them, you can take piece of code and plug it in, making integration a lot easier,” he said. “But it’s still a big challenge, where to draw the line in terms of keeping legacy systems vs. a rip and replace, a critical decision early on that drives cost down the road. Typically, your WMS and ERP drive a lot of the financial outcomes.”
Helmeid said Duluth worked closely with Bastian to create an 18-month time horizon for go-live in Georgia, scheduling it for minimal impact on peak. “AutoStore can be stood up quickly, but it took a lot of investigation in terms of lead times on equipment and manufacturing,” he said. “Bastian was a great partner, helping us plan equipment and ordering.”
Many warehouse automation solutions require extensive customization
While companies like SVT Robotics with its Softbot platform use pre-built apps and APIs to make it easier and faster to connect disparate automated systems, Bailey said many implementations still require a good deal of customization. He added that the scarcity of highly specialized talent with engineers, developers, and project managers is also a problem. “That ultimately makes lead times longer,” he said. “WMS, WCS, and WES partners have bandwidth constraints. They simply can’t hire and train enough people fast enough. Most people think of software development in terms of the technology itself, but there needs to be a huge effort to recruit at the university level to increase awareness that distribution and fulfillment is an attractive career choice that is fulfilling and rewarding.”
Smith said that GEODIS and Bastian have integrated a new AutoStore GTP system, at the Maurices distribution center in Groveport, OH. The 404,000-square-foot omnichannel DC handles replenishment to more than 900 stores and all its eCommerce fulfillment. “Their collective experience, combined with our internal IT resource commitment, has allowed us to integrate this solution smoothly and successfully,” he said. Noting that every retailer has unique business requirements necessitating customizations, “there is growing synergy across many technology providers which has facilitated integrations and reduced stand-up times,” he said.
Lead times on the lowest-level automation systems can run to six months, Bailey said, while “anything of modest complexity” bumps that up to between 12 and 18 months. “A top 10 MHE system can be 24-plus months due to backlog,” he said. “In my view, it’s getting longer not shorter—not necessarily for lack of technology. Technology is enabling shorter lead times, but we are experiencing longer implementation times due to the shortage of highly specialized technical talent to stand up the automation.”
Shelf life and future-proofing for warehouse automation
A prime consideration for any major technology investment, including warehouse automation, is how “future-proofed” is it? And what’s my ROI timeframe? Jackson said that in her experience, automation equipment investments have paid out over time, and substantial, innovative change doesn’t happen so fast that you can’t catch up. Projects she’s been involved with include pick and put walls, picking and packing stations, sortation systems, conveyors, vial fillers, box builders, and AMR and AGV bots.
“In a five-year horizon, they may launch a slightly better machine, but that doesn’t happen that often,” she said. “When I think about growth and scale, the least complex thing is equipment purchases. Innovation is step changes, and you generally have enough time to plan for that ahead of time. I never feel like I’m making a decision, will this date itself? Currently, the revenue it brings in before it dates itself is there, and unless there is a huge change in supply chain, it may always be there.”
Rampoldt said that the picture changes when it comes to automation software. He said he always advises clients to look for companies with a proven track record of innovation that continue to support the software with upgrades. “If you keep it current and refreshed, it’s very reasonable to consider a 10-year shelf life,” he said. “The hardware is not evolving that fast, but the software is, affecting your ability to customize and have flexibility. That’s where the buyer has to look for someone who’s moving the ball forward.”
Helmeid said that Duluth planned the new Georgia facility for a 10-year horizon in terms of capacity and ROI, and to scale with business growth. Its existing fulfillment centers are in the 200,000-square-foot range. The new building will be able to process eCommerce orders within two hours, drawing both online and store replenishment from the same inventory pool. “Because of the size of the investment, we’re looking at a longer-term plan horizon in terms of value creation,” he said. “Labor and speed are a big part of it. It’s also about speed of replenishing stores. If something is out of stock, we can get it to the stores quicker, leading to more full-price sell-through and creating greater time value of inventory. Those are things we looked at and built into the ROI. It’s necessary to look at all that to get a full scope of the strategic value creation and future proofing.”
Discover how GEODIS automates warehouses for best-in-class logistics services. Talk to GEODIS to learn more.
What's coming next for warehouse automation
Experts listed picking, order assembly, crossdocking, and inbound putaway as key areas where automation and robotic technology can provide big advantages. While providers like RightHand Robotics and Ocado have significantly advanced the state of the art in grasping and picking items into a tote, they’re still far removed from the dexterity of a human hand.
There are other practical limitations, including what can fit into those totes, although small-enough items make up the vast majority of ecommerce orders. “Due to the lack of technology available today that successfully mimics human dexterity, we had to ask a customer of ours to put their products in polybags to be picked by a robot,” Bailey said. “However, they told us that was not aligned with their sustainability initiatives. That’s one of many examples of how automation has restrictions that aren’t placed on humans.”
Automating order assembly, packing and upstream tasks like inbound putaway top Bailey’s wish list for solutions on the market. “These are all things being worked on and piloted,” he said. “We’re really just scratching the surface.” Instead of specific functions, Jackson said more can be done to make solutions more adaptable, to ease collaboration among partners. Providers could also do more to listen to listen to business needs, not just coming in with a savings figure, she said. “They need to understand the business and help companies design something that does save money,” Jackson said. “Not every vendor can do that for every company, but there has to be pathways. It would be great to see more future building, coming to me with a real ROI, like making integration touchpoints a lot easier.”
Helmeid said he’s looking forward to advances that enable “goods to robotic arm,” instead of to person. “It’s an opportunity to convert that function to a robotic arm in the near future,” he said, adding the company is testing out three Kindred arms at its Dubuque, IA facility. Unloading and bulk putaway, as well as each picking, are places where “unique and cool stuff” in testing can become tomorrow’s solutions, Helmeid said. “The focus should be more on the picking/packing side,” he said. “Each picking is the majority of what do, and where most of the labor is spent, where it’s necessary to address the biggest efficiencies.”
How GEODIS can help
GEODIS is one of the biggest warehousing and logistics providers in the U.S. and around the world. Here's what you can expect when you work with us:
- Strategically located warehouses and distribution centers throughout the U.S.
- More than 50 million square feet of storage space
- Reach 99.5% of the continental U.S. in two days or fewer
- A choice of multi-customer sites, logistics campuses, manual or automated warehouse solutions, and storage that's close to logistics hubs and your customers
- Comprehensive value-added services
- A wide and deep national, regional, and local carrier network
- Integration with the full range of transportation, warehousing, and freight forwarding GEODIS services
- Real-time visibility throughout the supply chain
Get in touch today and learn how GEODIS will optimize your warehouse and distribution services.