Warehouse Automation: Assessing its Value in the Supply Chain

Autonomous robots in order fulfillment
© [Monopoly919] / Adobe Stock - Autonomous robots in order fulfillment

Rising labor costs and shifting customer expectations have made warehouse automation a hallmark of modern supply chain operations. With transportation and logistics costs soaring, businesses are turning to automation solutions to help offset unavoidable expenses. While automation technology can offer tremendous potential, businesses must assess its value to the supply chain before making any major investments.

All too often, businesses invest in automation solutions without considering whether it’s a good fit for their operation. Given the large price tag typical of warehouse automation, costs can spiral out of control if the technology isn’t well-suited for the job. This is where a Warehouse Automation Assessment comes in.

A Warehouse Automation Assessment is a process designed to evaluate the value of automation technology for a particular operation. It involves analyzing data, including the scope of the warehouse operations and factors such as throughput, inventory levels, SKU complexity, and labor costs. This data is then used to identify areas of potential improvement and to map out a cost/benefit analysis for implementing automation.

With a well-designed Warehouse Automation Assessment, businesses can make informed decisions about automation investments. Responses can help inform purchasing decisions, providing the financials needed to determine payback periods and savings projections. Assessments often also include an installation timeline, allowing businesses to better plan for a successful implementation.

Following the completion of a Warehouse Automation Assessment, businesses should be able to answer key questions about the value of a particular solution, such as:

  1. What are the costs of implementing and maintaining the proposed automation technology?
  2. What operational improvements are expected in terms of labor costs, throughput, inventory levels, and storage density?
  3. How long will it take to see a return on the investment in automation technology?
  4. What are the potential risks associated with automating warehouse operations?
  5. Are there any areas that require more attention or training to ensure successful implementation?
  6. How will automation affect employee morale, health, and safety?
  7. How will this affect customer service levels?
  8. How long will the installation and implementation process take?

With a better understanding of their automation needs, businesses can make informed decisions and avoid the costly mistakes that often come with poor planning.

Steer Clear of Common Mistakes in Warehouse Automation ROI


Warehouse automation is an attractive option for reducing labor costs, but businesses must understand their options and be aware of the potential pitfalls. Common mistakes include:

Investing in Too Much Automation Technology

Businesses should conduct a thorough assessment of their needs and consider all potential solutions before making any investments. Falling for a “quick fix” or investing in technology that is overkill for the job can erode returns.

Upselling and overcharging are all too common in the automation market so before signing off on any solution, the costs and features of different suppliers should be compared. This is where a Request for Information (RFI) and Request for Proposal (RFP) process can be invaluable. Combined with a weighted scorecard, these processes can ensure that the best supplier is chosen for the job.

Evaluating ROI Using Inflated Throughput Rates


ROI can be calculated by comparing anticipated throughput rates with the cost of the automation solution. However, suppliers often quote inflated throughput rates that can’t be replicated in real-world operations. The result is a rosy ROI projection, leaving businesses disappointed when the reality fails to match the hype.

To ensure accuracy, businesses should ask for independent proof of these claims and consider running a test run with their own staff before making any commitments. Case studies and third-party validation are also valuable sources of information when assessing automation solutions.

Failing to Account for All Costs


When it comes to automation investments, businesses often underestimate the total cost of ownership. Hardware and software purchases are only a small portion of the overall costs; things like energy consumption, maintenance fees, staff training, and system integration should all be considered when assessing the long-term value of a solution.

Before committing to any purchase, all costs associated with the implementation of an automation solution should be taken into account. Once one-time costs are accounted for, the overall cost of ownership can be calculated by including recurring expenses like annual licensing and maintenance fees. If additional labor is needed to manage the system, that should be taken into account as well. A five-year projection of total costs can then be used to make more informed decisions about the value of automation solutions.

Not Considering Fully Burdened Labor Rates


When assessing labor cost savings associated with automation, businesses should consider fully burdened rates rather than just wages. Fully-burdened rates account for payroll taxes, benefits, and other indirect labor costs such as overhead. With the goal of most automation solutions being to reduce headcount, reduced onboarding costs must also be taken into account. This should include the time and cost associated with recruiting, onboarding, and training staff for manual labor roles. These often overlooked costs can add up, so an accurate assessment of labor costs is essential.

Overlooking the Advantages of Enhanced Order Accuracy


While the focus may often be on labor cost savings, the impact of enhanced order accuracy should not be overlooked. Automation technologies can improve order accuracy and reduce errors and re-work costs that impact the bottom line. This is especially true in a competitive market, where customers are more likely to switch away from suppliers with a poor track record of accuracy.

Improved order accuracy can also boost customer satisfaction, leading to repeat business and improved margins. With fewer returns and customer complaints, businesses can scale back on quality control costs and focus on driving customer loyalty. Automation also makes it easier to track and trace inventory, which can be invaluable when dealing with recalls or disputes. These cost savings should always be taken into account when assessing a solution’s worth.

Misjudging the Time and Effort Necessary for Implementation


The implementation of any automation solution requires a significant investment of time and effort. Businesses should be aware that this can and often does, take much longer than anticipated. Given that implementation times are dependent on the complexity of existing processes and IT infrastructures, it’s important to build a buffer when assessing ROI.

Case studies can provide insight into the implementation times and processes of similar solutions under similar conditions. While every automation solution is different, these insights can be valuable when combined with a carefully planned implementation timeline. For added peace of mind, service-level agreements (SLAs) should also be in place to ensure that delays are addressed in a timely and cost-effective manner. 

Lack of Familiarity with Current Labor Metrics


The labor cost savings associated with a shift to automation are not always obvious. Businesses must understand the current labor metrics and workflows that will be affected. Failure to do so can lead to costly mistakes when selecting the wrong automation solution based on the wrong metrics.

For businesses with existing systems in place, understanding the current state of the system before launching an automation project is critical. Labor rates for manual jobs must also be known, and the labor requirements for each job should be documented in terms of time and effort. Doing so will allow for an accurate comparison of existing labor costs and projected savings from automation.

Failing to Account for Intangibles


When assessing the value of automation solutions, businesses must look beyond the tangible benefits to consider intangible factors as well. Automation can lead to improvements in employee morale and better safety outcomes. This is especially true when implementing solutions that reduce tedious manual labor, freeing staff for more rewarding roles.

While not as obvious, warehouse automation can help create a more diverse and skilled workforce. By embracing automation technologies, businesses can open up new career paths for staff, allowing them to focus on higher-level tasks that require more technical skills. With upward mobility, employees often stay longer and help reduce turnover costs – a win for both the employees and the company.

Why a Warehouse Assessment is Essential for Calculating ROI

Every business is unique, with different needs and expectations when it comes to automation solutions. By performing an in-depth warehouse assessment, businesses can identify their specific needs and determine which solutions are the most suitable. Without a clear understanding of the current workflow, it’s difficult to assess the value of automation solutions.

Such assessments should include a detailed analysis of existing systems and processes, as well as an assessment of the organizational readiness to embrace automation. Using this data, businesses can map out their current state and project potential labor savings from automation. The assessment should then be used to develop an implementation plan that includes a timeline, budget, and key performance indicators. Only then can businesses make informed decisions about the value of a warehouse automation solution.

With Optichain’s Warehouse Assessment, businesses receive a detailed overview of their current system and an action plan for automation projects. Our experienced consultants help uncover hidden costs, analyze labor metrics, and develop an actionable roadmap for implementation. By partnering with Optichain, businesses can confidently move forward with automation projects knowing that they are getting the best value for their investment. 

Contact us today and let us help you unlock the full potential of your warehouse.

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