Material handling companies often hear that automation is a surefire way to improve their bottom line, but may not know where to start in evaluating automation projects against their individual needs. Industrial automation means many things to many people, generally describing systems that perform work or make decisions in place of human effort. With so many possibilities, understanding different approaches to automation and – more importantly – when to pull the trigger on automation, can make all the difference between a fruitful investment and a missed mark. In this article, we’ll help define industrial material handling automation tiers, what factors compel companies to pursue automation projects, and how we might best evaluate when to launch into automation projects.
Levels of Automation
To set the stage for our discussion, let’s first review the common levels of automation and the business types that use them. Automation isn’t a monolithic solution, and can be delivered in small to massive packages designed to solve specific, well-defined needs. In reading the below levels of automation, keep in mind that you can mix-and-match approaches creatively, and can even upgrade parts of systems over time to higher levels of automation as needed.
Non-Automated Material Handling
At its core, a material handling workflow takes physical labor to perform. Picking, moving, placing, packing, tracking, and deciding are all actions initiated and performed by humans in a manual operation (with or without the assistance of powered tools, such as a forklift).
Non-automated material handling is typically selected by businesses striving after the lowest possible capital cost basis, often found in geographies where labor is plentiful and inexpensive, utility costs high, and/or production volumes low. Some business uses non-automated practices for company-identity reasons, conveying to customers an image of ultra-high quality, individual and unique, hand-touched, one-off production.
Semi-Automated Material Handling
Deploying automated solutions into a manual environment usually begins at the ‘task’ level. Particular tasks that are repetitive, routine, and repeatable make great candidates for replacement with an automated machine, such as applying labels to a case or wrapping a pallet of cartons. In these cases, a machine is placed alongside human operators, serving to perform the given task while humans continue to operate upstream and downstream of the machine. Multiple machines can be installed to further offload tasks from humans, creating a mixed environment of human-machine workflows and decision processes. We refer to this as ‘semi-automated material handling’.
Automation does not need to begin as a machine – it can instead take the form of software or logical automation. Software packages that automate warehouse decisions by applying logic criteria to data sets, which are then carried out by humans, equally qualify as providing a semi-automated environment. Such software might plan pick routes, print and assign pick tickets to operators, manage warehouse vehicle maintenance, and reorder stock as inventory gets low.
Semi-automated material handling is typically selected by businesses looking to improve efficiencies, lower operating costs, and improve quality (or said another way, reduce risk). The scale at which a company deploys automation is often predominantly a function of available capital, and partially a function of utility costs (to power new automation), available educated technical labor (to support new automation), and operational complexity (that is, simple, consistent operations are easier to automate).
Fully-Automated Material Handling
While ‘fully-automated material handling’ might sound as if all humans were removed from the workflow, that isn’t exactly the case. Full automation in practice means that entire workflows (or large proportions of workflows) receive automated software, machinery, and infrastructure intended to minimize the need for human intervention overall. Strings of individual automated machinery may be compiled into entire packaging lines; racking and storage systems may be augmented with robotic retrieval vehicles that fetch products autonomously; and even the managerial work of ordering, scheduling, tracking, and process optimization may be assigned to computerized systems.
Full automation is chosen by businesses looking for premium efficiency, very high-volume throughput, and minimal labor. Capital expenditures to implement full automation will be high, and payback will take many years, but when applied strategically, the benefits in yields and opportunity to handle very complex workflows can pay off quite well.
Automation Drivers – Determining ‘Why’ to Automate
Now that you’re familiar with the different tiers of automation (none, semi, and full), we can present the most common reasons and conditions that motivate businesses to explore automation. Answering the ‘why automate’ question has to precede ‘when to automate’, as you need a solid understanding of what particular problem or opportunity is being solved for before we can give it a priority amongst all of the other investment demands facing your business.
- Insufficient Labor – underperforming or under-available labor can directly be improved by replacing human workers with automated machinery, making up headcount as well as bolstering consistency/quality/throughput (for example, a machine can run 24/7, replacing three shifts of human workers).
- High Risk Factors – especially with physically-demanding and high-hazard tasks, employee safety can be best protected by removing the human from the task entirely. Automation can take a worker’s place, eliminating the risk exposure.
- Low Productivity – as order volumes increase, productivity and efficiency typically peak, and then steadily decline. Automation helps correct this downward trend by mechanizing work tasks while sustaining productivity around the clock.
- Looming Opportunity – when a chance to pounce on market share presents itself, few business owners would ignore the hanging carrot, except for those already operating at peak capacity with no hope to handle the additional volume. Automation is a very strategic approach to increasing capacity without having to add major investments such as additional building space or workforce, as would be the case in traditional expansion.
- Specific Constraints – carrying on the example above of automating additional capacity without the usual traditional land-and-building investments, very specific constraints make this approach appealing because it might be the only viable option. Take for instance a landlocked distribution center surrounded by other buildings, with no path to expand space short of moving buildings entirely. Automation can be used to optimize space in the warehouse, moving space-hogging workflows to small machinery, and trading the saved space for higher density storage.
- Evolving Complexity – being responsive to market demands often seems to introducing greater complexity as well. More products to handle, higher fulfillment rates, more variation in product mixes, more challenging technological requirements – all are examples of complexity increases that come along with growth in material handling workflows. Automation can easily tackle these types of complex and evolving needs.
- Market Pressures – a company may look at automation as a way to respond to market pressures requiring an identity change. Stepping up automation in order to freshly market a company as ‘modern’ or ‘cutting edge’ can be a very strategic decision. Likewise, launching automation can also attract new talent, providing an employment image intended to compete with other desirable employers. This topic can be executed in both reactive and proactive fashions – reactive in catching up to an ever-rising ‘cost of doing business’, and proactive in blazing the trail ahead of competitors.
- Regulatory Interests – this one is straightforward. Sometimes, regulatory bodies require increased safety, code-compliance, documentation, inspection, and/or special handling of certain goods. Automation can solve most of these types of requirements, regardless of the industry or application.
- Customer Complaints – if orders are taking too long to fulfill, are being completed with errors or not at all, or are in some other way not meeting your customers’ expectations, some piece of the process has to change for the better. Automation can provide reduced errors, in-situ quality control, multi-step order verification, lot tracking, delivery expediting, and many more quality-of-service solutions that improve how you serve your customers.
- “Money Left on the Table” – in high-performance businesses, most processes are already streamlined and optimized with some degree of automation. But, management may compare costs and performance indicators against benchmarks, discovering that there is still room for margin improvement. Often, this resolves into a feeling of leaving money on the table, and automation can help find where at. Speaking mainly of automated process optimization software, workflows can be enhanced, performance improved, and margins increased.
Automation as a Business Decision – Determining ‘When’ to Automate
The question of ‘when to pursue automation’ for material handling businesses can often be addressed using traditional managerial tools such as a SWOT analysis, a Risk Analysis, or a Cost Model. Understanding business performance metrics in quantitative terms is a great starting point, and then laying over automation options as potential opportunities can paint a picture of where the largest benefits may be realized.
For businesses facing strategic and external pressures such as increasing customer demands, encroaching competitors, and volatile market conditions, a SWOT (Strengths, Weaknesses, Opportunities, Threats) Analysis can frame such pressures in the context of internal and external variables. Automation would fall in as a potential internal Strength which could be positioned to address external Opportunities (such as growing client demand) and Threats (such as competitor expansion). Automation can also address internal Weaknesses such as slow fulfillment times and thin employee counts.
A Risk Analysis helps a company identify internal conditions working against business goals, usually in the form of compounding negative events that threaten becoming increasingly probable to exist into the future. In material handling businesses, the most common culprits identified involve safety, workforce instability, operational reliability, cost volatility, and customer satisfaction. For all of these hazards, automation can provide valuable benefit towards closing the window on risk exposure. For example, automated solutions can offset workers’ compensation expenses by reducing accidents, improve operational consistency by standardizing tasks, and stabilize employee churn by removing humans from tedious, undesirable tasks.
Cost Models are a third approach to business analysis where automation can squarely provide solutions. Labor, operating costs, rework/quality control (QC) costs, overall efficiency, per-unit overhead costs, and aggregate variable costs are all financial areas that can be easily compared pre- and post-automation, streamlining decisions towards cost reduction objectives. For example, automation cost savings may be recognized in labor reduction and capacity increases straight away, and when paired up with a capital expenditure (CapEx) budget for purchasing this automation, a payback period, by way of return on investment (ROI)/return on assets (ROA) can be quickly vetted. Approaching automation in project-cost terms like this can substantially simplify evaluating various options.
Using any of the tools above, managers should inventory their findings, poke holes in their hypotheses from every angle, shoot down automation projects that do not provide the necessary benefits, and then prioritize those remaining projects that appear viable. Knowing when to execute a given automation project is in many ways a matter of timing, so performing the upfront analyses and having options ready for the right moment makes decision time quite painless. ‘When to automate’ is then that point at which relative value of the project is highest, payoff is within expectations, and threats or risks are minimized to tolerable levels. Of course, be sure to check all soft variables as well – having the right staff, available time on the calendar, contingency for issues, and a backup plan make the ‘when’ decision even more airtight. We’ll never have perfect data, and implementing an automation project might always seem to be a mild gamble, but with the right preparation, evaluation, and stakeholder buy-in (which includes employees and third-party support staff), deploying automated material handling solutions can be some of the most positively impactful decisions we make.
We hope that this discussion of When to Automate has been helpful to your commercial material handling needs. Fairchild Equipment is the Upper Midwest’s premier Material Handling Equipment and Service resource, with headquarters in Green Bay, Wisconsin, and 11 locations in 5 states ready 24/7 to serve your needs. For more information or to discuss which Warehouse Optimization solution might be best for you contact us or give us a call at (844) 432-4724.