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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

April 15, 2015



Logistics News: Justifying Materials Handling Automation in the DC Can Be A Tricky Business

Traditional Cash-Flow Analysis does not Provide True Picture of Benefits Derived from Automation


Holste Says:

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Many of today's automation technologies save large amounts of time and money through the elimination of redundant, overlapping or repetitive activities.
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Previous Columns by Cliff Holste

Logistics News : How to Avoid Losing 4 Months of Non-Productive Labor Per Year

Logistics News : Understanding Expedited Deliver Services Impact on DC Workers

Logistics News : Reducing DC Operating Costs thru the Adoption of Automation Technologies

Logistics News : Calculating Inventory Levels Complicated By Shorter Product Life Cycles

Logistics News : Is Your DC Order Fulfillment System Out-of-Date?

More

While all of the buzz about automation in the DC can be infectious, companies contemplating moving towards higher levels of automation will find that economic justification requires that steps be taken which go far beyond the traditional cash-flow analysis.



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Methods such as the above, that take into account only the actual cash flows found in the accounting statements of a firm, will almost certainly be ineffective when attempting to justify an automated system or an alternative that primarily generates strategic benefits, which are generally intangible. For example: automation that enhance communications between material handling personnel and supervision; improves ergonomics; reduce operator training time; improves the operation’s flexibility and adaptability; tracks the efficiency of mobile assets; or offers improved processing accuracy or quality - can be difficult to justify economically.

These kind of benefits typically do not need to be considered when improvement projects consists of a single piece of equipment/hardware or some combinations of mechanized equipment designed to accomplish a well defined task.

Many of today’s automation technologies save large amounts of time and money through the elimination of redundant, overlapping or repetitive activities. These benefits are the result of taking an integrated approach to planning and designing the material handling system. In other words – a WMS and/or integrated material handling system does not standalone. They have a strategic impact that increases overall performance.

The following chart lists important soft or intangible benefits, along with a suggested metric that system planners can use when evaluating the justification of an automated system.




Calculating non-quantifiable factors associated with a DC automation system investment is a tricky business. On the surface some of these factors appear to add to the attractiveness of an investment alternative, but in reality they may not actually add to the financial worth unless one considers the long-term strategic implication.

The Material Handling Industry of America (MHIA), which is the trade association that produces the ProMat trade shows www.mhia.org , has developed a user-friendly software decision support method called JUSTMAT® “Justifying Material Handling Investments” which can assist with the evaluation of benefits that go beyond the traditional accounting methods. If interested go to the above websites Learning Center and under Keywords enter Justmat. Of course many of the leading industry consulting firms can assist with calculating the benefits derived from a material handling investments and recommend how best to justify them.



Final Thoughts

By now it should be fairly obvious that the current and future generations of workers are more likely to be attracted to operations that are automated as opposed to non-automated. This factor alone should drive adoption of automation for progressive logistics companies. It may in fact 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.

 

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