Warehouse automation and software usually are touted as a solution in order to improve productivity and reduce costs in a distribution centre. Increasingly, automation also gives companies new tools in coping with the never-ending competition for labour and, in many rural markets, chronically small pools of labour.
In a classic case of "there's good news, and there’s bad news," an improved economy is increasing consumer and business-to-business expenditure - especially online, where an increase in sales has significantly added to the demands placed on distribution centres. At the same time, the unemployment rate continues to reduce. During the recent end of year holiday sales period, when many retailers needed to recruit 15 to 20 percent more staff, unemployment had fallen to its lowest since 2008. The struggle to fill positions in nearly 17,000 warehouses and distribution centres in the United States has become a major risk to the supply chain.1
In addition to this, and as more companies battle for the remaining workers that are available, the pressure on wage expenditure is building so much that, based on their latest corporate earnings reports, company executives from nearly 20 S&P 500 companies singled out labour costs and shortages as major challenges for 2016.2
Automation will be installed at more picking, packing and sortation operations. Advanced warehouse execution software (WES) and robotic systems that can potentially reduce the need to recruit more staff, or significantly increase the productivity of existing employees, will be high on the list of priorities this year. Here is what to expect.
Big Cost to Labour Shortage
Traditionally, Distribution Centres (DCs) have proved to be extremely labour-intensive operations, staffing up or down at short notice as SKU volume and throughput changes and seasonal orders fluctuate. Even with advanced automation available on-site, most DCs still very much rely on manual picking and put-away due to the capital to make investments in software and material handling equipment not being readily available.
This is changing due to new labour market realities. Automation no longer requires a quick ROI exclusively on saving costs. Return on investment calculations used to depend on automation systems allowing a member of staff to perform the requirements of two, three, even more employees. Realistically, companies are not in a position to hire those additional employees. Prospective staff are simply not available. Therefore, companies that fail to automate more of their distribution operations tend to become increasingly inefficient and create more expenditure on overtime pay. There is also a limit to how much overtime employees can physically work, creating a downward spiral where short staffing starts to impact on service levels and orders cannot be shipped when customers require them.
What is Needed: Warehouses Redesigned with Leading Technology
As companies look for solutions to the lack of labour, they will inevitably turn to specialist solution providers who can design distribution facilities, software and material handling systems that require a smaller workforce. Automated storage and retrieval systems (AS/RS) and robotic equipment for direct picking and goods-to-person picking will be increasingly utilised, according to a new report from VDC Research. Among the group's findings:3
- Material handling systems will assist in companies make their DC workforce more productive.
- Data capture systems which provide real-time visibility will be a key competitive differentiator. In the future, we will expect to see more use of imaging solutions for quality checks, bar-code scanning and dimensioning systems for cubing of products for high-density storage and transportation. Traditionally utilised so business management can make better-informed choices and manage their resources, data-capture technology can also help DC managers do more with a smaller workforce.
- Wearable tech devices that generate augmented reality and voice technologies can assist order fulfilment. This provides more relevant information as and when warehouse workers need it in order to improve picking efficiency and order accuracy.
- Robotics and AGV’s ( autonomously guided vehicles ) will become more widely relied upon for not only palletising and de-palletising, but also for single item picking and packing.
Automate to Stay in Control of Growing Orders
Many companies learnt in 2015 that seasonal labour is extremely hard to come by, especially if your warehouse is located on large industrial estate, close to a number of other warehouses. Every other DC operator is in the same boat and looking for the same workers. As a result, payroll costs are rocketing. In smaller, remote markets in much of the country, there is a similar shortage of labour as the economy improves. Most people looking for a job, and are capable of working in a warehouse, are already in employment.
As a consequence, adopting automation in distribution operations is seen not just as a cost-reduction solution, or a way to increase productivity, but is also seen as the way to go for industry to keep up with the market and the ever-growing orders for omni-channel fulfilment when additional staff are not available.
Automation Fixes Your Labor Shortage?’ Tom Rentschler, Vice President, Marketing and Business Development 02/11/2016
1 Krystina Gustafson, "Labor shortage could delay your online orders," CNBC, Sept. 4, 2015.
2Caroline Valetkevitch,"Wage pressures coming? U.S. companies start to sound the alarm," Thomson Reuters, Nov. 19, 2015.
3Shahroze Husain and Richa Gupta, "The Warehouse of the Future," VDC Research, Jan. 20, 2016.