Patrick Daly's Strategic Context: Warehouse Automation, Yes or No?

In times past, major warehouse automation projects were largely the domain of big corporations. In the 1990s and early 2000s, the perception was that these projects were expensive and risky, required lots of technical expertise to operate and maintain, and introduced a high degree of inflexibility into operations. Additionally, they generally required large scale, preferably 24/7 operations for payback and return on investment to stand up. In an era of plentiful, and relatively affordable labour combined with low inflation, that was justifiably the case.

Since then, the world of warehouse automation and the competitive environment that business operates in have changed substantially.  Firstly, on the technological side, the variety, quality, and capability of the warehouse automation solutions available today have increased exponentially.

At the same time, advances in remote technology mean that maintenance and monitoring no longer require such high levels of technical competence on site at all times. Many solutions now include enhancements such as robotics, artificial intelligence, and data analytics that provide unprecedented levels of performance, control, and insight.

Another significant development is that the modularity and scalability of solutions now allow automation to be implemented on much smaller scale and to be added to in a flexible manner as the business grows and develops.   

On the financial side, the investment costs relative to the business benefits have evolved very favourably also. This means that warehouse automation can now be a viable option for many SMEs, even those with single-shift operations.

Additionally, the business environment we are emerging into in the 2020s is a very different one from the previous two decades. We now live in a world of generalised labour shortages driven by permanent demographic and social change. This means that firms are finding it increasingly difficult to fill positions in warehouse operations, which is putting sustained upward pressure on wages.

This trend towards higher labour rates is being exacerbated by rising inflation in the general economy and the ongoing process of deglobalisation in the wake of COVID and geopolitical tensions with China and Russia that will tend to unwind the great moderation of the previous decades.

Of course, embarking upon a warehouse automation project continues to be a major strategic undertaking and not an unsubstantial challenge for any business. It still needs to be underpinned by good business strategy, grounded in a sound narrative about the key advantages of the business, and a robust diagnosis of the competitive environment in which the company operates.

Whether or not warehouse automation is an appropriate strategic move for your business will be dependent on all these considerations but it is interesting to note that this higher inflationary environment may actually favour the acceleration of capital investment decisions in automation projects.

Quite apart from the impact on wages, if we have uninvested cash resources on hand in the business, the value of these cash reserves is being whittled away by inflation over time. A strategically sound automation project may provide a good return on investment option for these funds.

Likewise, for those firms not overburdened with debt, and with the capacity to divert cash flows to servicing new debt it may be a prudent decision to use such new debt to finance an automation project that provides a healthy payback. After all, inflation does allow borrowers to pay lenders back with money in the future worth less than when it was borrowed, and what is more, you will be contributing to moderating the overall level of inflation in the economy because technological innovation is inherently deflationary.

I have been advising clients in the manufacturing, distribution, and logistics services sectors over the last two and a half decades on the specification, selection, and implementation of warehouse automation projects. If you would like to discuss how I can help your business determine whether warehouse automation might be an advantageous strategic move, you can contact me directly on +353 86 811 6030 or [email protected], wherever you are in the world, to start the conversation.