To Automate or Not Automate in Warehousing? A 50-Year Payback Period in the Making

“Our warehousing and distribution aren’t sophisticated enough” James said, as he shuffled through a pile of applications on his desk. “Our people are great, don’t get me wrong. But all we give them to work with are racks and shelves. No automation, no carousels, no flow racking, no conveyors. Our warehousing and distribution lack sophistication.”

Warehousing and DistributionA quick Gemba-walk with the manager uncovered two key truths about his feelings: The first was obvious; they didn’t have the warehousing and distribution automation that he wanted. The second was counterintuitive; his warehousing and distribution were actually too sophisticated.

Ad hoc interviews with team-members uncovered that warehousing and distribution activities were slower than they should be due to multiple rounds of down-stacking, up-stacking, and inspections. Information availability was low, not because the information wasn’t available, but because it was embedded and hidden in thousands of other data points. Paperwork was not flowing correctly due to the complexity and confusion of who needed to sign off on moves, paperwork storage during handoffs, and when supervisors needed to be engaged to troubleshoot or solve problems.

Upon conclusion of the Gemba-walk, it was clear that automation was not the immediate need. Rather, it would only add to the complexity and confusion while running the risk of costing more money than it actually saved.

“See, we need more sophistication in warehousing and distribution,” the manager said, as he plopped down at his desk and opened his e-mail.

At this point, the Socratic method would be the only way to get through to this man. “Let’s say were to sit down and create a capital expenditure request for warehousing and distribution automation. How much would you need to make this facility world class?” I asked.

“The last plan I put together called for $2.5 million dollars,” He said matter-of-factly.

“OK, great. Now let’s assume that plan is approved. What savings would it produce for your warehousing and distribution?”

He quickly shot back, “The math is done! I could get rid of all of my temporary labor, and using our current turnover percentages, attrition could reduce my current warehousing and distribution staff by two people. The total savings would be close to a quarter million every year.”

“What ongoing maintenance would be needed to keep the automation running?”

“I guess I would have to hire a maintenance technician, and increase my MRO budget by a few thousand dollars a year. But that’s just one person and the materials wouldn’t be expensive?”

“How would you handle seasonality fluctuations and product life-cycles?” I asked.

“I’d probably have to bring in an additional cycle-counter to do reslotting, but that’s just one person.”

“Your current plan looks to only handle your warehouse’s current volumes, what would you do if you experienced growth over the next few years?”

“Now that you mention it, we’d probably be better off spending an extra million to get the larger model, so we could grow into it.”

The conversation continued for another twenty minutes, and we concluded that yes, the automation would save the company money, but the payback period for the automation would be longer than the usable lifespan of the automation. We then went back out to the floor and I began asking him: “Why are there multiple inspections? Why is there constant over-processing?”

He responded with the words no lean practitioner wants to hear: “We’ve always done it that way.”

“Easy fix,” I said.

We started asking some of the employees how they could make information handoffs more visible, what information they needed to see, and what information was over-communicated and more confusing than helpful. It was very eye-opening for James; he had always assumed his problems were from lack of automation. At the end of our walk, he realized what true automation is.

Automation is just the way of making a process move faster. A process that is broken and overly complex will only be more complex and problematic with automation. If a process is simple, understood by all stakeholders, and optimized for maximum performance, it can be sped up and produce great results when automated. You just have to ensure the payback period does not exceed the life of the solution.

What are you investing in?

Posted by Derek Browning

Derek has ten years of supply chain and logistics experience, including transactional transportation management, performing logistics network and route designs, supply chain and facility assessments, lean cross-dock and distribution center projects, people development, and the deployment of lean principles and practices in cross-functional areas. These areas include: logistics and warehousing, purchasing, human resources, creative design and marketing, accounting and finance, sales, and executive leadership teams. Derek has trained thousands of students and professionals in lean, six-sigma, and supply chain through LeanCor’s Training and Education courses as well as the University of Kentucky, Saint Louis University, Georgia Tech University, and Monterrey Tec’s Extension Campus in Mexico City, Mexico.

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