“Yes, warehouse automation is capital intensive, it can be expensive, and it’s a long term commitment. But, the payback for many companies is within two years and often times within one year. That’s pretty amazing compared to five or ten years ago.”
Naturally, many companies contend that they can’t afford to invest in warehouse automation. However, “It’s rare for us to look at an opportunity that doesn’t generate an internal rate of return of at least 15 percent,” counters Retrotech’s Hartman. “Where can you invest money today and make 15 percent?” he asks. “The answer, of course, is nowhere.”
Dematic’s Kotecki reports that companies are becoming more comfortable with longer payback periods. A poll he conducted a few years ago at Dematic’s annual user conference revealed that many companies were seeking an ROI in 1.8 years. “Now, many companies are saying that while they would still like to get that, they tell us that if they can figure out a way to get more accurate orders, faster, to the customer with less damage, with less people involved and less fingerprints on the product, then they’re willing to look at three, four, or even five years for payback.”
Meanwhile, “The actual electromechanical operation, things like robotic palletizers, conveyors, that type of equipment is generally available now at a level where smaller organizations can afford them,” adds Retrotech’s Hartman.
Although companies are understandably inclined to put the price tag at the top of their list when considering an investment in warehouse automation, an equally important, but often overlooked part of the equation is risk mitigation.
“We’re at a place where software and technology are so advanced that the risk level has never been lower when it comes to automation,” says Dematic’s Kotecki.
In the meantime, Kotecki advises companies “to make sure you’ve got someone good for the dance.” In other words, “Both the suppliers and the customers have an opportunity to be selective now. We’re seeing more people evaluating the skills of the marketplace, selecting partners that they’re comfortable with and that match their culture, and then really working together. It requires a heightened level of trust, transparency, and both have to take on some shared risk and gains.” However, in the end, the collaboration results in lower risk, increased productivity, and ultimately a lower overall cost.
Like risk, sustainability is sometimes difficult to measure in terms of dollars, yet it’s another component that relates to warehouse automation and the associated benefits.
“In most cases, when people look at overall energy consumption and stakeholder value, they tend to ignore savings in human energy [that results from automation]. But, they’re not doing that as often these days,” according to Kotecki. Moreover, when it comes to sustainability, “more people are focused on stakeholder value rather than just pure ROI,” he adds. Today, “People have the cash, the consciousness, and the responsibility to prioritize things like energy and consumables.”
Kotecki makes another, astute link between warehouse automation and sustainability. When it comes to a distribution center, for example, even though it may be LEED certified, it may not necessarily be “green,” he says. “You can build a big, flat warehouse on acres and acres and it may be LEED certified, or you can build a rack supported building that’s one-fifth the size with a much smaller footprint with less people, less lighting, less energy consumption. But, you don’t get credit for that alternative, which was really made possible by automation.”
Real estate is also a factor
In the meantime, while industrial real estate was generally cheap in most U.S. markets over the past few years, a turnaround is expected this year, which means using automation to help maintain a modest warehouse or DC footprint is becoming more important.
According to Randyl Drummer of the real estate research and marketing firm CoStar Group: “The vacancy rate for U.S. warehouses continued to decline at the end of 2011 as the property sector was buoyed by its strongest quarter for net absorption since late 2008,” led by a gradual return of economic growth, including higher levels of manufacturing and consumer spending.