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September 20 , 2007 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

The Two Paths for DC Automation

Here is a provocative comment: distribution operations in the US will morph into two extremes when it comes to automation. One group will invest in highly automated systems to get rid of the costs and headaches of DC labor; another group will, in large measure, eschew automation altogether, and use more manual systems for their flexibility and in some cases better results. The mid-level approaches – moderate levels of automation – will see their “market share” decline.

Gilmore Says:

"Very few companies have yet taken the highly automated path, but I believe the interest in doing so is growing."

What do you say?

Send us your comments here

When we listed our Supply Chain Megatrends a few weeks ago, I included “Distribution Center Automation” as one of the emerging trends we considered, but didn’t include in our top 10 list. The main point was that we may see a growing number of companies over the next ten years that start to heavily automate their DC environments.

Distribution centers in Europe are known to have, in general, much higher levels of automation that those in North America. Why? In general, higher labor and land costs make automation easier to justify. You need to be able to get more throughput out of less space, and each employee adds a lot of cost and is simply a lot harder to downsize or fire if needed in many European countries.

We don’t yet really have the high cost of land here in the US, though a friend was recently telling me about some onerous land tax in Toronto that was driving his company to build its new DC more up than out there. (Anyone with details on this tax, please let me know.)

In talking with Logistics executives, however, I find an increasing number that would love to automate their perceived labor costs and headaches away. Earlier this year, I spoke with a director of distribution for a well-known consumer packaged goods company, who told me that was increasingly his company’s line of thinking.

“We have never been big on automation in the past,” he told me this spring. “Now, we are looking first to automate everything until we show we just can’t justify it. It’s a real change of mindset” The catalyst for this change in attitude – labor headaches and turnover. Despite paying above average wages, in tough labor markets, DC employee turnover for the company has been running at 50%.

A few years before, the VP of Supply Chain at a major brewer shared his vision of a “lights out” DC operation with me. Laser-guided vehicles would perform almost all of the movements, with very few employees required.

In the early 2000’s, the logistics team at Beringer Wine had a well-developed plan to build a highly automated DC. When completed, it was supposedly going to be capable of moving more than 10 million cases of wine per year, using a staff of something like 18 people. I remember suggesting, somewhat sarcastically, to a member of the management team that they probably ought to pad the estimated number of employees a bit to 30 or something, just to give them some cushion in case the automation didn’t completely deliver the expected results.

I don’t believe that project ever got off the ground. Whether it turned out to be infeasible or died for other reasons, I am not sure – it was certainly at the extreme end of the risk curve and, in part, involved automated case picking using some kind of suction cup device.

It’s interesting, though, that there really have been important developments of late in case pick automation. As those technologies mature, I believe they will be a real driver of increased DC automation. The lack until now of any highly automated alternatives for case picking has been a big barrier to the “lights out’ vision of many companies.

Let’s now swing back the other way. I also hear lots of folks tell me they’ve had enough of automation. Factors often cited: big capital expense, inflexibility down the road as things inevitably change, and too often less than stellar results. One manager recently told me in all its new DCs, his company was moving away from automation after finding voice picking on pallet jacks delivered superior results over more automated approaches.

Path one: highly automated DCs to dramatically reduce labor costs and headaches. Path two: optimization of processes, layout and technology (WMS, labor management, voice, etc.) to drive productivity with little or no automation. The middle ground – a big investment in automation, but not enough to significantly reduce headcount, gets squeezed. Very few, I’ll admit, have yet taken the first path, but I believe the interest in doing so is growing.

I solicited some opinions on this from a few real experts, who offered some interesting thoughts, but am out of room this week. Will share their perspectives in a future column, and would love to hear from SCDigest readers as well.

Do you also see a trend of companies moving towards a highly automated distribution vision, or one that has relatively little automation? Will the middle approach get squeezed? Is the “lights out” vision a potential reality – or just mostly wishful thinking? What, if anything, can we learn from the Europeans? Let us know your thoughts at the Feedback button below.

Let us know your thoughts.

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Dan Gilmore


New Certified Lean Masters Lean Supply Chain Training and Certification Schedule Released


This Week’s Supply Chain News Bites – Only from SCDigest

September 19, 2007
Supply Chain Graphic of the Week: Is Oil Price History about to Repeat Itself?

September 19, 2007 Supply Chain by the Numbers: September 19, 2007


Leading supply chain experts
will share best practices and strategies for coping with natural disasters, geopolitical risks, volatile fuel prices, as well as operational challenges such as forecast accuracy or sourcing problems

Learn More Here or Call 888-265-4706 for more information.


It was a bit of a recovery week for stocks on Wall Street with many of our supply chain and logistics stocks benefiting from the more optimistic mood.

Software provider Ariba led the index with a gain of 7%. Both Intermec and Zebra in the hardware group were slightly off.  Canadian National led the transport and logistics group (up 6.0%).

See stock report.


News and Feature Stories Across Seven Key Supply Chain and Logistics Categories Each Week!

The S&OP Report

by: Tom Wallace

Do You Get Supply Chain Surprises?

Changes in Supply and Demand Will Never Go Away, but Sales and Operations Planning Can Make the Difference in Responsiveness and Results

Living Supply Chains

by: Dr. John Gattorna

John Gattorna It's People That Power Enterprise Supply Chains; But Where are the HRM Professionals?

Supply Chain Executives Need to Reassess their Approach to People and Culture to Achieve their Goals; How would you Respond to Gattorna's Six Questions?


Q. Name the top 5 largest private fleet operations in the U.S.

A. Click to find the answer below


Reader Question: Why Isn't Port Congestion at U.S.Ports an Issue Any More?

Reader Question: What Kind of Savings Do Companies See When They Implement EDI Transactions With Their Suppliers and CMs?

If you have supply chain or logistics related questions you need answered, ask our panel of experts

Share your insight.



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Feedback is coming in at a rate greater than we can publish it - thanks for your response.

We're really behind again - bear with us. But keep the letters coming!

We're catching up again this week. We're publishing a few more letters we received from our First Thoughts piece a few weeks ago on "The 50% Problem Revisited," which discusses the tendency of almost everyone to over rate their own supply chain and logistics performance. It's a good piece - take a look if you missed it.

Our feedback of the week is from T A Krishnan of Larsen & Toubro, who says the problem may be related to companies that start out with good supply chain strategies and designs, but which degrade over time without their being quite aware of it. We also have a letter from a supply chain manager who says this article caused her to rethink whether the companies she has worked for could all have been top 25% performers.

One writer likes our Labor Management System resource center, and another who wonders why it took Goodyear so long to figure out they had too much inventory.

Keep the dialog going! Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the Week – On the 50% Problem

Supply Chain Management in an Organization will have two distinct phases, the phase of strategic planning of the supply chain and then the  execution phase that involves roll- out and implementation phase, and latter, stabilizing execution and sustained operation.

The first phase before the roll out may be well thought out and crafted  -and drafted too in well-meaning Standard Operating Procedures -, the first time it is done, with of course the intention of continuous improvement.

Most claims to the "A "grade is based on the intelligent way in which the supply chain was designed and conceived in the first place, either for a greenfield project or a running company which re-designed the process mostly in  the context of an ERP implementation or a management change.  

The 50% problem may well be the deviation between the intented and the actual operation, the deviation accentuated by the lack of focus on corrections and improvements  -even when such need or opportunity is identified- under the weight of day to day operating load.This gradually results in the drift from an intended "A" to an unflattering "C" or lower . In the lack of measurements -analytics if you will- this gap is not highlighted , resulting in many managements perceiving themselves at the top 50% of efficient supply chains whereas facts would prove otherwise.. I feel the way to address this in organisations will be good analytics  and monitoring systems based on this input.  

T A Krishnan
General Manager-Corporate Supply Chain Management
Larsen & Toubro Limited-India

More On the 50% Problem:

I can honestly say I never quite thought about this issue in this way until reading your article. I have been with several companies, and thought our supply chain in each one was pretty good. I would have probably put each of them in the top 25%.

But I hear you that we can't all be in the top 25% .

I think part of the issue, besides wishful thinking, is that there may actually be not that much gap in absolulute terms between top performers and the next level down - so that your perception of pretty good performance is actually not that far off.

Supply Chain Planning Manager
High Tech Company
Name withheld by request

On Goodyear's Inventory Enlightenment

In my opinion, the main question is why a gigantic (sic) company like Goodyear started so late to discover the benefits of lean inventories and offshore production?????

Manlio  Gallo
Soluciones Logisticas Consultores

On LMS Resources:

GREAT video on LMS features and benefits.  I have invited all of our team at Supply Chain Visions to review it for background and advised our managing partner Kate Vitasek to consider forwarding the link to a group of warehousing clients.

Good work!

Steve Murray
Senior Research Analyst
Supply Chain Visions


Q. Name the top 5 largest private fleet operations in the U.S.

A.From first to fifth, ranked by number of tractors in the fleet: Sysco, Wal-Mart, U.S. Foodservice, Pespi Bottling Group (including Frito-Lay), and Tyson Foods, according to the most recent Transport Topics annual rankings.

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