Last week Dan Gilmore and I spent two days exploring ProMat 2011 in Chicago. We hope that by now you have had a chance to view our Day 1 & Day 2 summary reports from the show floor. These quick reports are full of new productivity innovations that are ready for primetime in your DC.

The show was well attended. Automation was on display with AGVs and Robotic Palletizing at the forefront. Automated Case Picking (ACP) solutions were presented with a variety of technologies to drive them. No doubt the interest in material handling automation is growing as more new technologies come on-line.

Recently, the Integrated Systems and Controls (ISC) Council of the Material Handling Industry of America (MHIA) which is the trade association that produces the ProMat trade shows conducted a study of manufacturing and distribution professionals to uncover if changes in automated solutions have led to changes in the perception of automation in the marketplace.

The results lead to several conclusions:

• There is a high degree of satisfaction among users of material handling automation – 81% of manufacturing respondents and 86% of warehousing/distribution center respondents are satisfied, very satisfied or extremely satisfied with their systems.

• More than 90% of users report that automation is an asset to their operation, a career enhancer and a competitive advantage to their company.

• Of these facilities with automation, 76% plan to add more automation in the next 18 months.

• Despite a challenging economy, 61% of manufacturing users and 53% of warehousing and distribution center users say current business conditions are influencing their plans to buy more automation hardware. Meanwhile, 42% of manufacturing users and 50% of warehousing/distribution center users say the economy is influencing their decision to buy software.

• Among non-users, however, the perceived cost of automation is still the number one reason why non-users say they have not considered automation or considered and rejected plans to automate (53%). Forty-seven percent (47%) say automation is tough to justify to top management.

What this points out is that while all of the buzz about material handling automation can be infectious, logistics companies contemplating moving towards higher levels of automation will find that economic justification requires that steps be taken which go far beyond the traditional methods.

Techniques such as Present Worth, Annual Worth, and Return on Investment 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: systems that enhance communications between material handling personnel and supervision; improve the quality of working life; reduce operator training requirements; improve the system’s flexibility; track the efficiency of mobile assets; or offer improved processing accuracy or quality can be difficult to justify economically.

Many of these benefits never existed or needed to be considered when “focused projects” were made up of a single piece of equipment or some combinations of equipment designed to accomplish a single well defined task.

Identifying Strategic Benefits Associated with an Automation Project

As the survey points out - while 63% of professionals at facilities without automation say they are not considering automating in the next 18 months, 37% will consider automation if business conditions continue to improve.

So, roughly a third of non-users believe that automation may be considered for their facilities in the next 18 months due to increased sales, business growth and an improved economy. The financial managers of these companies need to understand that traditional cash flow models do not provide a true picture of all the benefits that a company can realize through its investment in automation.

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

Strategic Benefits of Automation

Automation Remains a Mixed Bag – Well Worth it for Some, Challenging for Others

According to the ISC survey:

Users of automation are finding value from their systems and seeing improved performance metrics. Over 80% of the unaided comments were positive.

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

Despite a challenging economy, 76% of users plan to add more automation in the next 18 months.

That said, among those not currently using automation, the perception remains that automation is too costly and a challenge to justify to management.

Final Thoughts

Calculating non-quantifiable factors associated with an investment alternative 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 alternatives financial worth unless one considers the long-term strategic implication.

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.

Agree or disagree with Holste's perspective? What would you add? Let us know your thoughts for publication in the SCDigest newsletter Feedback section, and on the website. Upon request, comments will be posted with the respondent's name or company withheld.

You can also contact Holste directly to discuss your material handling or distribution challenges at the Feedback button below.