The Cost of Not Automating Your Warehouse
Guest blog by Drew Stevens from MHI Member Company OPEX® Corporation
While warehouse managers everywhere are considering what it will cost to automate their warehouses, the question they should be asking is, what is the cost of NOT automating?
In today’s landscape, the numbers speak loudly. Labor comprises 60 to 65% of the total cost of warehouse fulfillment, excluding shipping. Industry headcount has increased by 14% over the previous year, but productivity levels have not kept the same pace. Human error in warehouse picking hovers between 1 and 3%, with the average cost of an error ranging from $50 to $300. This equates to an 11 to 13% drain on profitability. And the rising cost of warehouse space, as well as underutilized vertical space, are of significant concern.
So, what is the cost of not automating? It equates to the inability to capitalize on growth strategy, a distinct competitive disadvantage, and substantial issues regarding finances and labor. With all of this in mind, an increasing number of companies are beginning to recognize the cost of not automating far exceeds the cost of implementing an effective warehouse automation strategy.
Setting the stage for growth
When it comes to capitalizing on a company’s growth strategy, one of the key questions is always: Where? Automation can provide unparalleled cubic storage capacity, meaning smaller warehouses and reduced pricing in leases and ownership. Automation is also indifferent to location. It is applicable in both urban and rural areas
Another key question regarding growth is: How? Automation unlocks the ability to increase capacity and throughput requirements in a market where labor is difficult to find. And it allows management to quickly train new staff, creating a more reliable and stable environment.
A distinct competitive advantage
In what has become an on-demand culture, if you cannot do it quickly, accurately, and efficiently, you are losing market share to your competition. Automation has a powerful impact on service levels, resulting in faster order cycle times, allowing more orders to be processed, and enabling the ability to expedite orders. Faster order cycle time + the ability to expedite orders = increased market share. And faster pick times open the door to same-day shipping.
Automation also leads to higher efficiency and accuracy. Approximately 23% of customers issue a return because they received the wrong item. The estimated cost to process that return is 66% of the product price. It is staggering.
In addition, automation enables increased product control, providing the ability to closely track inventory across the entire cycle
Financial considerations
The financial upsides to automating are numerous. They include direct savings in real estate and utility costs, as well as in wages. And they lead to increased revenue due to enhanced service levels.
Automation means reduced financial risk in terms of absences and unpaid leave, comp claims, and turnover and training costs. And it creates such opportunities as greater bandwidth for more business, amplified storage to accommodate additional products, and the ability to capture greater market share.
What so many companies find most surprising is that ROI on automation can be met in as little as two years, even with a multi-million dollar spend.
Labor considerations
Finding and retaining competent team members has become an increasingly significant challenge. Automation allows for a much more predictable costing model for equipment, labor, and maintenance. It allows businesses to retain their highest quality labor, and train new team members quickly and efficiently. In fact, automation can reduce labor by up to 50%, addressing such challenges as a limited workforce, absence, and low productivity.
Further, it fosters a futuristic environment that employees can take immense pride in. And it challenges your workforce in positive ways that build engagement and allow employees to thrive.
It is far easier to scale up automation than it is to scale up personnel and their production levels.
Should you automate your warehouse?
Ecommerce sales continue to grow at over 15% annually in the US. Warehouses are managing an ever-increasing number of SKUs. An analysis conducted by Deloitte reports that 79% of companies with high-performing supply chains achieve revenue growth superior to the average within their industries.
The key questions you should consider are:
– In what ways does your business need to scale and manage fluctuations in demand?
– Can you utilize your brick-and-mortar to get closer to your customer?
– Are you able to reduce shipping costs, improve delivery time, and provide an enhanced customer experience that increases retention?
– Are there steps in your current process that are not bringing value and can be eliminated?
As warehouse managers search for solutions to meet unprecedented demand and rising consumer expectations, automation is an absolute game-changer. The bottom line is, the cost of NOT automating is just too high.
As Vice President of Global Business Development and Marketing at OPEX® Corporation, Drew Stevens oversees Warehouse Automation solutions for companies around the world and leads all Marketing initiatives across OPEX. Stevens works directly with new and potential clients, conducting extensive operational analyses and designing customized automation solutions that solve the most significant business challenges of today and in the future.
