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The warehouses and distribution centers that play a central role within supply chain operations today have never been more valued. Operational teams are realizing that to keep manufacturing running smoothly and make sure retail orders are delivered accurately and on time, the right materials handling talent, equipment, and facilities are required.
But despite the gains made in how brands view their supply chains, warehouse leaders who need to improve existing facilities with automation or build new ones face greater scrutiny and longer due diligence periods than ever before. Competition for the funding of capital projects is fierce.
The reasons are varied. Uncertainty reigns and planning for demand is increasingly complex in light of consumers’ increasingly paradoxical buying behaviors – from saving on staples to simultaneously splurging on luxury items. The cost of capital also remains relatively high, a top-of-mind issue in boardrooms.
As a result, capital and operational expenditures are being closely scrutinized as organizations strive to balance flexibility, costs, current requirements, and future warehouse needs. For leaders looking to new automation to solve challenges like the endemic shortage of warehouse labor and the need for higher throughput and greater storage capacity growing brands need, the takeaway is clear. To attain the required capital, they must create a comprehensive business case that definitively shows how an improved or new warehouse will make the business more successful.
Business Case Basics
So what considerations, factors and steps should warehouse leaders consider to ensure they create and present the most compelling business case? Keeping the following in mind is a great first step.
- Define ROI goals: The ROI of all automation can be summed up by determining if the costs associated with it outweigh those of manual processes. However, numerous expenditures must be factored in, such as the modernization of an existing facility, building a new facility, the desired automation, labor rates and the injuries associated with manual work, the value of capital, and numerous other factors. All of these must also be balanced against the timeframe required to achieve ROI. For example, a 3PL may require an automation project to pay for itself in three years, while a retailer looks at the impact of a new facility over two or three decades.
- Include the right people: Most projects to improve brownfield warehouses or build new, fully automated greenfield facilities will by default involve the CEO and CFO. Additional departments, among them finance, human resources, legal and procurement should be informed that a business case is being developed, and that their input may be needed. As with all capital projects, a comprehensive business case addresses not only the automation required, but also the people and processes involved.
- Consider the basics: The most basic metrics of warehouse operations, including throughput needs, the number of SKUs processed, and the amount of storage space required should be factored into the business case for new automation. Warehouse leaders should also endeavor to determine how these metrics will change over time in light of expansion efforts and other long-term strategic goals.
- Gather data: Every organization is unique. Data on what comes into your warehouse and when, how it is moved, how long it remains, and how it exits helps determine what automation is needed and what processes are optimal. Brands that are transitioning from fully manual warehouses understandably may not have detailed data. Automation providers should spend time observing and quantifying how existing facilities operate and can be improved. This includes analyzing existing processes, defining and analyzing potential concepts for improvement, selecting the optimal concept, and exploring it in detail in the business case.
- Consider potential “gotchas”: No one has a crystal ball, but the business case should account for potential contingencies, and their impact. Questions such as “what happens if we exhaust our storage capacity in five years instead of ten,” or “what if we no longer need three shifts” need to be factored into any comprehensive business case for warehouse automation.
- Don’t spring automation on decision makers: Many leaders and board members are not familiar with automation. Proactive action should be taken to educate decision makers on the basics of automation, its value, and how it works before the business case is presented.
- Remember that automation is not automatic: Even the most advanced, fully automated distribution centers require OpEx spending. Yes, state-of-the art warehouses radically decrease labor and real estate costs by doing more with a smaller footprint, but they require maintenance and the oversight of skilled engineers. Such factors must be included in the business case.
By considering these factors, warehouse leaders can begin their efforts to create an effective business case for warehouse improvements and new automation. Perhaps most importantly, it must be remembered that automation is not a simple, one-time purchase. Whether installing a new automated case-handling mobile robot or creating an entirely new distribution center with the latest shuttle-based automated storage and retrieval system, automation should be looked at as an investment with long-term implications – something best addressed collaboratively with a true partner rather than a one-time vendor.
This post was originally published on here
