How do you weigh the cost of warehouse automation?

Warehouse automation has a lot of benefits improved efficiency, reduced labor cost, customer satisfaction due to speed up delivery among other things. The initial setup cost for warehouse automation are very high as compared to traditional warehouse operation but in the long run it proves to have a lot of benefits especially when you are dealing with a lot of different types of transactions. Points to consider when automating;1.Volume of transactions, cost benefit analysis of automation, roles that will be automated and affected staff, Warehouse space

Important to add here: Most countries worldwide face severe labor shortages and rapidly rising labor costs. Investing in automated warehouse solutions can help to ease labor shortages by increasing the productivity of the existing workforce, provide a more flexible organization to absorb business fluctuations, and reduce monotony by automating repetitive non-value-added tasks. In essence, automation increases the resilience of the warehouse operations which is so crucial in the VUCA world of today.

The article is good but lacks real life examples that help to really understand the implications of implementing warehouse automation. General guideline: WH automation is suitable for operations with big enough volume (bigger volumes carry potential for bigger savings) and higher labour cost (automating activities and reducing headcount generates bigger impact compared to low-cost labour countries). This is why you will see highly automated warehouse in Europe VS very big manual operations in Asia. Three main KPI drivers: 1. Cost reduction 2. Capacity optimization (you can store more goods in less space physically) 3. Execution Speed + quality (they are usually considered hand-in-hand). Check real life examples in the next section.

The full process of preparation and decision making can be longer than you can imagine at the start. And adding the time for building and implementing the automation system yo may need between one and two years. From this perspective there are two important points: 1. Automation is short to long-term project 2. There's a quicker solutions, but you must be careful not to go wrong with a hurry. In such project you can't go with the startup mantra of MVP (minimum viable product) and go step by step, piece by piece. The scope of an automation project is in the field of the change management - it can be a change in the whole company. Not only because you exchange people for machines, but because automation can change the company culture.

Weighing the cost of warehouse automation involves a comprehensive analysis to determine whether the benefits of automation justify the associated expenses. Here's a step-by-step approach: Identify Automation Goals: Clearly define your automation objectives. Are you aiming to increase efficiency, reduce labor costs, improve accuracy, or enhance customer service? Cost Assessment: Calculate all costs involved in automation. This includes initial investment (equipment, software, integration), ongoing expenses (maintenance, training), and potential changes in operational costs.

Benefit Analysis: Estimate the benefits automation can provide. This might include increased throughput, reduced errors, faster order processing, improved inventory accuracy, and enhanced scalability. Return on Investment (ROI): Calculate the ROI by comparing the projected benefits to the total costs. Divide the net benefit by the total cost and express it as a percentage. A positive ROI indicates potential value. Payback Period: Determine how long it will take for the automation investment to pay for itself. A shorter payback period is generally more favorable.

It has to solve a problem either of productivity or efficiency, or it should aid in scalability of the operations, since the cost is an investment for the long term.

Consider the overall business strategy when assessing your current situation. For example; if the organisation wants to export to other countries in the future you can include WMS automation solutions that support multi-language SSCC labels. Also, consider short and long terms operational changes that might affect future processes in the warehouse like introduction of products with limited shelf-life or items that require warehouse special equipment. In essence, ensure to include current and future requirements when assessing the current situation

We need to identify if our automation will bring benefit for our customers and consumers. Then compare with the initial investment and expect ROI, the cost of man power, because cost man power in Asia compared to the EU has a big gap. It's really necessary to do the automation today or wait a little bit longer. And don't forget the rate of the technology update, it's still in range with the ROI analysis?

Risk Assessment: Identify potential risks and uncertainties, such as technology obsolescence, integration challenges, or unexpected disruptions. Consider the impact of these risks on cost and benefits. Scalability: Evaluate how well the chosen automation solution can adapt to changing business needs and increased demand. Consider whether it can accommodate future growth. Comparative Analysis: Compare the cost of automation with alternative solutions, such as hiring additional staff or outsourcing certain tasks. Consider both short-term and long-term implications.

While choosing warehouse automation, there is a need to adopt and adapt: -Adopt best practices and emerging technologies that drastically improve your current operations and bring you on par with the market, competition and industry - Adapt to your sustainable business environment without a major disruption that threatens the foundation of your business. Some businesses go in for automation because they see that it is a trend others have gone for, or to be among the frontrunners in industry newsletters, without due diligence of the inherent need of automation.

You can be able to prepare as more comprehensive data as possible to simulate what happens with your productivity and cost in every scenario of automation equipment. Typically one of the most important jobs of the suppliers if such an equipment is to simulate their solutions with your data. Don't forget this simulation is like a promise and yo need always to search for a proof. Go and visit facilities where the solutions work and talk to the users - the clients of the solutions. The simulations give you the data necessary to compare and choose.

Hidden Costs: Take into account any hidden costs, such as training, downtime during implementation, and potential adjustments to workflows. Qualitative Factors: Consider intangible benefits like improved employee morale, better customer satisfaction, and the ability to reallocate human resources to more value-added tasks. Vendor Partnerships: Assess vendor partnerships and support. Reliable vendors can offer assistance in implementation, maintenance, and addressing challenges. Pilot Testing: If feasible, consider piloting automation on a smaller scale before full implementation. This can provide real-world data to refine cost and benefit estimates.

Costs and returns is everything, when it comes to supply chain, warehousing and logistics. If this is not justified, you will end up with a white elephant. Automation that is a revelation today becomes obsolete suddenly when new emerging technologies take over, hence you need to study the roadmap and future transitions carefully.

I agree. It will also depends on the kind of commodities the warehouse will meant for . If the items that are imported & exported in large number the warehouse cost of automation is likely to outweigh the cost.

Don't forget to estimate and compare your actual processes costs. And be as precise as possible because sometimes you don't have a clear view of the real cost of your own daily routine. In the base it is the initial economics concept of opportunity cost. But you can play with figures by Total cost of ownership, comparison of unit costs, return on invested money, time for buyout of the investment - choose what best suits your company decision making process. Don't forget to involve the finance department.

Long-Term Perspective: Evaluate the long-term impact of automation on your warehouse's competitiveness, market positioning, and adaptability to industry trends. Decision-making: Based on the thorough analysis, make an informed decision. If the projected benefits outweigh the costs and risks, automation could be a sound investment. Remember that each warehouse is unique, and the cost-benefit analysis should be tailored to your specific circumstances. Regularly reassess the impact of automation to ensure it aligns with your evolving business goals.

One thing we should consider is the Efficiency of the new Warehouse Automated System. Maximum capacity, Optimal Capacity, Minimal Capacity concepts. Many machineries assessment is made based on the maximum capacity to full the eye of the new Warehouse Automated System buyer, but in reality, very minimal times this maximum is achieved. I would rather look for a more realistic "optimal" capacity to make forecast of what to expect at the end of the new automated system.

Integration Capabilities & complexities with current systems (WMS, ERP, TMS, etc.), integration costs and potential disruptions should also be factored in. This is a crucial consideration because successful integration is essential for reaping the benefits of automation and minimizing disruptions to the operations.