December 14, 2016

Sorting It Out : Two Factors Drive Decision to Automate – Cost & Justification

Adopting a Continuous Improvement Strategy is the Best Approach

Going into next year business managers will be once again evaluating the performance of their order fulfillment and shipping operations. In an effort to stay competitive while supporting growing customer demand they will be seriously contemplating the need to automate some or all of their processing operations. Initially, there are two basic questions that must be addressed; what will it cost and how can it be justified?

The answer to the “what will it cost” question depends to a great extent on daily shipping volume. This is due to the increased cost of higher capacity equipment. But cost is also impacted by the size of the facility. For example: it’s a safe bet that deploying a batch order picking and sorting system in 500,000 sq. ft. will cost more than in 100,000 sq. ft. facility. This is primarily due to the difference in the amount of conveying equipment required to transport product through the facility. For that reason it is important to keep the “footprint” of the overall conveyor system as small as possible.

For example: System planners looking to conserve space should consider picking solutions such as horizontal carousals and vertical storage/picking modules, both of which offer high density storage in a relatively small footprint while providing Goods-To-Person (GTP) productivity benefits.

Holste Says... The risk of obsolescence is far greater than the risk of overreaching. Commitment to a well thought-out, continuous improvement strategy is imperative to maintaining a strong and competitive operation. What do you say? Click here to send us your comments

Other factors that impact on cost relate to business metrics such as; the number of active SKUs, on-hand inventory and safety stock requirements, size and frequency of customer orders. In addition, there are many operational requirement such as; picking methodology, order assembly/packing/labeling and carton sealing requirements, number of shipping dock locations, ship on pallets or direct-to-trailer fluid loading, just to mention a few.

It is perfectly logical that business managers are interested in solutions that can be closely tailored to their needs. This is where stand-alone automation can provide a competitive advantage - automating only that part of the operation that is underperforming while providing opportunity for additional improvements in the future.

There are many stand-alone “automated” systems available from a variety of manufacturers. The following are just a few that come to mind:

• Horizontal and/or vertical storage & picking systems
• Carton erector
• Carton taping and sealing machines
• Shipping compliance print and apply systems
• Cubing and weighing systems
• Shipping manifesting (including auto DIM weight calculation)
• Palletizing and de-palletizing equipment/robots
• Pallet load stretch wrapping machines
• Trash compactor/bailer

All of the above equipment and system solutions are relatively quick and easy to implement. Later, as shipping volume continues to increase they can be integrated into a broader scope automation project that takes full advantage of high capacity system technologies.

Shipping deficiencies are most oblivious during peak volume periods. The additional cost incurred by those deficiencies impacts immediately on the company’s bottom line. Therefore, improving shipping capacity and efficiency is a common starting point. However, before investing in automation, it would probably be more productive to invest in an up-to-date Warehouse Management System.

With a basic entry level WMS order fulfillment will be able to interface directly with the company’s order-entry/host system to upload and download real-time processing data. This feature alone will reduce delays and speedup order processing. Once a WMS is in place, order processing operations will be easier to manage setting the stage for the adoption of technologies such as Batch-Order Picking and Sorting and/or more advanced GTP solutions.

If equipment justification is going to be based on payback from labor savings then there must be a realistic ROI calculation. If each production position cost on average $35,000 per year (including benefits) and the ROI period is 3 years, then (in a single shift operation) the company can justify an expenditure of about $100,000 for each production position eliminated. Therefore, some of the stand-alone suggestion listed above would be easily justified within the ROI period by reducing the need for one or two positions. Other suggestions will require greater reductions and/or a longer ROI period.

Final Thoughts

In this age of on-line, quick response, global marketing, it is critical that shippers stay connected and up-to-date on technologies that will keep them in the game. The risk of obsolescence is far greater than the risk of overreaching. Commitment to a well thought-out, continuous improvement strategy is imperative to maintaining a strong and competitive operation.

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