Supply Chain Digest: The Two Paths for DC Automation
By Dan Gilmore, Editor-in-Chief, Supply Chain Digest
Through a special arrangement, what follows is an excerpt of a current article from Supply Chain Digest, presented here for discussion.
Very few companies have yet taken the highly automated path, but I believe the interest in doing so is growing.
Here is a provocative comment: distribution operations in the U.S. will morph into two extremes when it comes to automation. One group will invest in highly automated systems to get rid of the costs and headaches of DC labor; another group will, in large measure, eschew automation altogether, and use more manual systems for their flexibility and in some cases better results. The mid-level approaches – moderate levels of automation – will see their “market share” decline.
Distribution centers in Europe are known to have, in general, much higher levels of automation than those in North America. Why? In general, higher labor and land costs make automation easier to justify. You need to be able to get more throughput out of less space, and each employee adds a lot of cost and is simply a lot harder to downsize or fire if needed in many European countries. In contrast, we don’t yet really have the high cost of land here in the U.S.
In talking with logistics executives, however, I find an increasing number that would love to automate their perceived labor costs and headaches away.
“We have never been big on automation in the past,” a director of distribution for a well-known CPG company told me this spring. “Now, we are looking first to automate everything until we show we just can’t justify it. It’s a real change of mindset.” The catalyst for this change in attitude – labor headaches and turnover. Despite paying above average wages, DC employee turnover for the company has been running at 50 percent.
A few years before, the VP of supply chain at a major brewer shared his vision of a “lights out” DC operation with me. Laser-guided vehicles would perform almost all of the movements, with very few employees required.
The lack until now, however, of any highly automated alternatives for case picking has been a big barrier to the “lights out” vision. As these technologies mature, I believe they will be a real driver of increased DC automation.
Let’s now swing back the other way. I also hear lots of folks tell me they’ve had enough of automation. Factors often cited: big capital expense, inflexibility down the road as things inevitably change, and too often less than stellar results. One manager recently told me, in all its new DCs, his company was moving away from automation after finding voice picking on pallet jacks delivered superior results over more automated approaches.
Very few, I’ll admit, have yet taken the first path toward highly automated DCs, but I believe the interest in doing so is growing.
Discussion Questions: Do you also see a trend of companies moving towards a highly automated distribution vision, or one that has relatively little automation? Will the middle approach get squeezed? Is the “lights out” vision a potential reality – or just mostly wishful thinking? What, if anything, can we learn from the Europeans?