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About the Author

Cliff Holste is Supply Chain Digest's Material Handling Editor. With more than 30 years experience in designing and implementing material handling and order picking systems in distribution, Holste has worked with dozens of large and smaller companies to improve distribution performance.

Logistics News

By Cliff Holste

August 14, 2013



When Justifying Automation in the DC - "Soft Benefits" Play an Important Role

Reduction in Headcount Alone may not be Sufficient to Satisfy ROI Objectives


Holste Says:

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Going forward, indications are that automation in the workplace will be a major factor in the hiring of future workers.
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Previous Columns by Cliff Holste

Sorting It Out: Achieving Sortation System Success

Sorting It Out: Optimizing System Performance

Sorting It Out: Shippers Looking For Small Footprint, High Density Storage & Picking Solutions

Sorting It Out: Shippers Searching For More Flexible, Adaptable, Scalable & Cost Effective Solutions

Sorting It Out: Ten Factors Driving Small Parcel Shipping Volume

More


Logistics companies who are expecting to increase shipping capacity through the adoption of higher levels of automation often find it necessary to go beyond the traditional ROI methods for justifying the project. They are looking to account for the “soft benefits” that are the byproducts of processing higher volumes with more efficient and comprehensive systems. They can be difficult to assess. For example:


 

  • automated systems that enhance communications between material handling personnel and supervision,
  • improve the quality of working life,
  • reduce operator training requirements,
  • improve flexibility and response time,
  • track the efficiency of mobile assets,
  • offer improved processing accuracy.

 


When purchasing a single piece of equipment, soft benefits are generally not a factor. A new piece of automated equipment that increases capacity and/or reduces labor – can easily be evaluated on a standalone basis.

However, the adoption of logistics system automation technologies such as, case picking and sorting, product-to-person, AGV, AS/RS, and robotic palletizing save large amounts of time through the elimination of redundant, overlapping or opposing activities. These soft benefits are the result of taking an integrated approach to planning and designing the material handling system and provide operational improvements that go well beyond increasing shipping capacity.


Identifying Soft Benefits Associated with an Automation Project

Financial planners need to understand that traditional cash flow models and justification time frames may not provide a true picture of all benefits that a company can realize through its investment in automation. For some companies, automation (such as robotic palletizing of mixed SKU items) may be the only practical way of satisfying customer demand.

If the company is going to take full advantage of advanced technologies that can expand the business, then a more comprehensive long-term justification strategy may be required.

The following chart identifies the most significant gains realized through the deployment of automation technology in the distribution center. The following lists important “soft” or intangible benefits, along with a suggested metric that planners can use when evaluating the justification of an automated system.


Strategic Benefits of Automation

Benefit:

Suggested Potential Metric:

Ability to respond to fluctuations in demand

The maximum level of throughput that can be achieved in a short period.

Ease of data acquisition

Time to acquire critical data

Improved speed to complete orders

The percentage of on-time shipments

Improved company image to customers

Ascending or descending sale curve

Improved Cost Control

Declining per piece handling cost

Automated information conversion

Accumulative time spent by analysis retrieving data

New product introduction

Time measured in months or weeks

Reduced software upkeep (maintenance)

Historical costs

Reduced production lead-time

Lead-time associated with an order

Reduce business risk

Flexibility to handle changes associated with customer demands and order profiles

Improved space utilization

Cost of expansion or building a new facility

Reduced setup times

The percentage reduction in set up for VAS

Improved communications

Sales forecasting speed and accuracy

Value of real-time information

Higher ship complete factor

Improved safety

Lower workman’s comp claims

Better working environment

Lower labor turnover rate

Less product damage

Reduced customer claims/back charges

Improved inventory security

Reduced shrinkage

Improved inventory accuracy

Accumulative cost of stock-outs and shipping errors

Improved throughput

Greater overall shipping capacity



Automation Remains a Mixed Bag

Based on feedback from various SCD and industry surveys most companies find DC automation well worth the risk, while others are not yet ready for the challenges:


  • Users of automation are finding value from their systems and seeing improved performance metrics.

• Those same professionals overwhelmingly say that automation has met their expectations.

• Despite a challenging economy, a growing number of users plan to add more automation in the near future.


That said, among those not currently using automation, the perception remains that automation is too costly and does not provide sufficient operational flexibility to accommodate rapid changes in customer order profiles.



Final Thoughts

Going forward, indications are that automation in the workplace will be a major factor in the hiring of future workers. It may already be a contributing factor behind the rapidly growing trend toward material handling automation among grocery, beverage, and pharmaceutical distributors, who traditionally have a longer planning horizon than general merchandise distributors. It is perceivable that automation in the DC will follow the same evolution as in manufacturing eventually becoming the standard model.

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