The global warehouse or intralogistics automation market keeps growing and is estimated to increase from $18.81 billion in 2023 to $21.81 billion in 2024, and $95.45 billion by 2034. However, the growth could be much higher due to accelerating digitalization and its ample benefits.
Reaping the benefits does not come without manageable risks. McKinsey has shared a case study of a company’s $150 million investment in consolidating its warehouses that went south. Of course, these things can happen, but more importantly, they tell us that automation needs a comprehensive understanding, a good plan, and skilled people to deploy, run, and maintain the systems.
This article is all about warehouse optimization with tech. This contribution provides an overview of warehouse/intralogistics automation solutions and features while shedding light on how automation can improve or even transform warehouse operations and how investments and returns can be calculated.
Why and When Warehouse Optimization
Online shopping has been continuously growing. In the U.S. alone, e-commerce sales account for 22% of total retail sales. Shoppers have high expectations: around two-thirds of global consumers say they want their items delivered within 24 hours. Warehouses grapple with labor shortages, with 10-25% of positions unfilled, according to a recent survey of over 1,000 supply chain professionals.
Increasing demand, labor shortages, and the need for speed pressure modern supply chains. Automation is an obvious relief. However, 76% of companies have never installed automated guided vehicles (AGV), and 70% have yet to implement autonomous mobile robots (AMR). High costs are regularly cited as the major concern. However, a considerate solution selection, a gradual approach to implementation, and a sound assessment of the financial implications should convince professionals and executives of the value such systems create.
We expect adoption to accelerate. The pioneers of intralogistics automation solutions have laid the foundations for rapid expansion. Market conditions are becoming highly conducive to exponential growth. Now is the moment to benefit from faster material movements, increased storage density, higher order fulfillment rates, lower operational and recovery costs, and fewer errors, accidents, and vacancies.
Warehouse Automation, What It Is
Warehouse automation, also known as intralogistics, refers to technologies and systems that automate and optimize the operations of moving and storing goods. Warehouse automation requires hardware to deal with the physical aspects of warehousing and software to control the action. Technology comes in various shapes and forms on both levels, often in bundles. The list of examples below shows the spread of solutions on the hardware side:
- Automated storage and retrieval systems (AS/RS). These solutions are designed to automate the receiving and transportation of goods to their designated storage spots and retrieve items from storage when orders come in. An AS/RS makes the most of the available space.
- Automated guided vehicles (AGVs) and autonomous mobile robots (AMRs). They help move goods throughout the facility. AGVs follow predefined paths, while AMRs navigate autonomously using artificial intelligence (AI) and sensors like LiDAR, cameras, and ultrasonic sensors. Both improve productivity and safety.
- Put-to-light and pick-to-light systems. These systems use LED lights to guide workers during picking or replenishment tasks. These lights indicate where to pick or place items, making the process quicker and more accurate.
- Robotic picking systems. Robotic picking significantly speeds up the order fulfillment process and reduces errors. Picker/person-to-goods (P2G) automated fulfillment includes smart cards, AMRs, or collaborative robots powered by software. Goods-to-person/picker (G2P) is a solution in which products are brought to a person by fixed systems or AMRs
- Collaborative robots (cobots). Cobots work alongside human workers, assisting with tasks like order picking and packing.
- Automated sortation systems. These systems identify goods on conveyor belts and redirect them to designated locations using barcode scanners, RFID, or sensors.
The above solutions are usually integrated with a warehouse management system (WMS). A warehouse management system is the most common example of warehousing automation on the software level. A WMS is a central hub that connects and manages all aspects of warehouse activities, from when goods arrive until they are shipped out. They commonly include and combine the following features:
- Real-time inventory tracking. A WMS tracks where every item is located within the warehouse, providing full inventory visibility.
- Order management. A WMS integrates orders from various sources in one system, whether they come from online platforms, APIs, or manual entries. This makes it easy to manage orders, allocate inventory, and track order statuses as they move through the fulfillment process.
- Picking and packing optimization. The system generates efficient pick lists, guiding workers to retrieve items in the best sequence. Pick-to-light systems and mobile scanning devices enhance the accuracy and speed of packing.
- Goods in and out management. Advanced shipment notifications and delivery calendars ensure that goods are received and put away efficiently
- Reporting and analytics. Data and key metrics help warehouse managers make informed decisions about all operational aspects.
Integrated with solutions like AS/RS, AGVs, AMRs, and robotic picking systems, WMSs create seamless automated workflows that enhance productivity, increase safety, and reduce errors.
Earning Through Automation
Warehouse/intralogistics automation offers many advantages, ranging from cost reductions to customer satisfaction, space and inventory level optimization, and improvements in safety and employee satisfaction and retention.
Efficiency and customer satisfaction: PickerWall for example, a dynamic wall for streamlined picking brings the goods to the pickers, boosting the pick rate by five times, and reducing mis-picks by 99.9%. Picking and delivering wrong orders frustrates customers and causes additional costs.
Optimization of space: Goods-to-person (G2P) picking can reduce the picking area by 75%. Automated systems like AS/RS, with their high-rise storage racks and automated shuttles, make the most of vertical space. AGVs can easily navigate narrow aisles, reducing aisle widths and freeing up space for storage. The AS/RS solution AutoStore with its cube layout for instance claims to boost storage capacity by 400% compared to conventional shelving solutions.
Optimizing inventory levels: WMSs also avoid overstocking and understocking. They suggest inventory levels, prioritize delivery, for example, based on expiration dates, and send alerts when the time has come to replenish stock.
Improving safety: Automation makes workplaces safer by reducing perilous human activities, like lifting and carrying heavy objects and contact with dangerous equipment. Bill Seward, president of UPS Supply Chain Solutions, known for its "completely automated hubs," confirms that robots can reduce injuries by 40%, reducing insurance premiums and medical costs for businesses.
Employee retention: Intralogistics automation takes over many repetitive tasks, allowing employees to focus on more interesting, less cumbersome work. According to a Vecna survey, about 70% of supply chain professionals say that automation improves employee retention rates.
A Worthwhile Investment
Investment decisions are based on the return on investment (ROI). When calculating ROI, we should include three factors: what we invest, the expected gains, and the time to realize them.
The investment entails more than just the cost of the equipment and software and includes:
- Setup costs. These are mainly deployment (software), setup (equipment), and configuration (both); for custom solutions, the development costs need to be added.
- Maintenance and support costs. Software-as-a-Service and Robots-as-a-Service solutions can neglect the cost of deploying and running the system.
- Consumables. The investor/buyer of the solution might cover the cost of replacement parts and materials.
- Energy consumption. The new equipment increases electricity usage.
- Changing process cost. This includes standardizing processes, consolidating data, for example, from Excel and other sources, and training workers.
Where do savings come from? AMRs might help reduce a workforce of six down to two to move 50 pallets per hour. Labor costs include salaries and additional benefits like health insurance and retirement plans. Space savings should also occur and be factored in. The ability to store more items in the same space can increase your throughput and positively impact the ROI.
The length of our payback period depends on some distinctive factors, which we have listed below.
- Number of shifts. The costs saved are closely tied to person-hours spared. Fewer shifts mean higher utilization of assets.
- Size of operations. In larger operations, fixed costs can be spread across many tasks. While the initial investment might be significant, the cost per unit can be low, leading to a quicker return on investment.
- The scale of automation. The type of automation solution also plays a role. Simpler systems, like basic packaging machines, may have shorter payback periods; we should expect one to two years. More complex automated setups can take over five years to pay off, but they often provide more significant long-term cost savings and benefits.
- Ecosystem trends. Payback periods of automation solutions tend to trend downward due to rising labor costs. As labor costs increase, the financial benefits of automation get even more pronounced.
Complete automation is not always necessary. Modern automation is all about finding the right balance between humans and machines to create the most efficient and effective operation. Starting with a smaller system allows expansion as needed or wanted. Options like Robot-as-a-Service (RaaS) or Picking-as-a-Service (PaaS) can be an alternative to capital investments.
Wrapping Up
While warehouse optimization can lift supply chain operations to the next level, the ROI will not occur by waving a magic wand. Intralogistics automation requires proper planning and a skilled workforce to unleash the magic. Although it might be counterintuitive, capturing the full potential of machines requires human considerations. Implementing technology is a socio-technological challenge, and the future of work will be a human-machine hybrid.
While automation offers ample benefits, humans are essential in many aspects. Skilled workers are more adaptable in dynamic situations and can easily shift roles when demands change. They excel in tasks that require a personal touch, such as packaging gifts, writing personalized notes, assembling kits, and handling packages of various shapes and sizes. Additionally, it is easier to scale up or down a human workforce than robots in response to volatile demand.
Our omnipotent human flexibility and creativity make the difference and sit at the root of improvements and inventions, including those that help the efficient storage and movement of any kind of goods into, within, and out of warehouses.
About the Author
Wolfgang Lehmacher is a partner at Anchor Group and advisor at Topan AG. The former director at the World Economic Forum, and CEO Emeritus of GeoPost Intercontinental, is an advisory board member of The Logistics and Supply Chain Management Society, Singapore, ambassador F&L, Brussels, advisor GlobalSF, RISE, and ElifTech, and member of the think tanks Logistikweisen in Germany and NEXST in Singapore.