First Thoughts
  By Dan Gilmore - Editor-in-Chief  
  September 20, 2007  

The Two Paths for DC Automation

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

Here is a provocative comment: distribution operations in the U.S. 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.

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 genera,l much higher levels of automation than 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 U.S., 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. (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.

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