Automation is Key to Solving Labor Challenges

Until recently, companies invested in technology primarily because it improved productivity and reduced costs. With demand for labor outpacing supply, companies are implementing automation as a requirement for business continuity.

Today’s distribution automation projects are almost all driven on some level by the need to optimize fulfillment using the workers already on the payroll. As the industry shifts from just-in-time to just-in-case, more warehouses, and warehouse jobs, are needed more than ever. The labor gap continues to grow at the same time as the shift to e-Commerce is requiring more labor to support demand. In today’s tight labor market, simply sustaining profitable fulfillment operations will require more automation support. Additionally, supply chain executives will need help building a strong, independent point of view on the implicit trade-offs of higher automation versus traditional modes of distribution optimization.

Labor at a Pivot Point

Distribution managers are struggling to fill the labor gap in a highly competitive market where workforce participation is at its lowest level since 1976. Despite a 21% increase in average hourly wages for logistics employees over the last decade, Millennials show little desire to work in warehouse jobs. They bring a different set of values to their career choice.  Warehouse work just doesn’t tick the right boxes for them. With alternative labor pools tapped and earnings adjustments addressed, labor elasticity has been stretched to its virtual limit. Demand for labor has simply outpaced supply.

Investments in Technology Are Needed

The bottom line: Distribution is a labor-intensive industry and the shift to e-Commerce is increasing the burden on companies to hire and retain more workers at a time when workers are scarce, and turnover is high. Compounding the problem, e-Commerce fulfillment operations require 2-3 times more labor than traditional warehouse operations. Companies must look to automation technology alternatives to meet the operational requirements. The time for transformational change is now. Supply chain leaders must pivot quickly to future proof their organizations, making them robust and resilient to the next disruption.

What they do next and how quickly they act could make or break the future of their organizations. Supply chain resiliency has emerged as a true differentiator in business performance and long-term viability.

When you translate growth projections into the number of people needed, it doesn’t take long to realize you can’t get there from here.  Investments in technology are required to reduce the risk to the enterprise.

New Rules for Technology Justification

Investment decisions that used to be based solely on ROI and payback period, now include the opportunity cost of not being able to secure labor and fulfill orders quickly. The value of resilience and future proofing the business must be factored into the business case.

Automation can still be justified by the savings in labor costs (wages, recruiting, training, safety) and accuracy. However, there are now new levers to consider. Today’s supply chain is no longer a cost center to be managed, but rather a key enabler of the business, responsible for revenue lift and business growth. Automation unlocks the value of delivering on the brand promises and competitive advantage. Additionally, certain technologies lend themselves to capital savings as they reduce the space required for storage and order processing.

As part of a holistic business case, consider, and seek to quantify, the value of:

• Competitive advantage that comes from increasing fulfillment speed, expanding the offering or opening new markets.
• Customer loyalty that comes from improved service levels and additional value-added services.
• Flexibility to react or scale quickly in response to changing market dynamics.
• Orchestration and optimization of resources by intelligent software using real-time data.
• Working capital reduction that comes from sharing inventory across channels, centralizing inventory and/or fulfilling smaller orders, more frequently.
• Human-centered Savings. Automated buildings don’t require large breakrooms or restrooms, gyms, childcare, cafeterias. Automation doesn’t need performance reviews, sick days, culture enhancements, team meetings, PPE equipment, sanitation stations, or physical distancing to operate.

Determining the Right Automation for Your Business

Making the decision to automate is only half the battle. With so many new technology suppliers in the market – it can be hard to know where to begin. Begin with the end in mind. Holistically define the business outcomes at the forefront of the operating calendar and strategic plan. Start with the business requirements which should always drive the solution. Next, look at a range of solutions. Don’t be seduced by technology because it is new and shiny. Consider viable alternative technologies, including more mature, proven technologies that have been tested and exposed to the rigors of peak demand. Look for the solution that meets the goals with the lowest investment possible.  Higher investment options might deliver negligible returns.

Next, look hard at the flexibility of each technology option. The last couple of years have taught us that we can expect disruption to continue into an unknown future. Change the parameters of the business case and see if your design is flexible enough to adapt to a different set of business conditions. Change the throughput rates, labor costs, growth projections, order profiles, channel mix – and see how sensitive each technology is to changing conditions.

Consider what it will take to successfully adopt each new technology.  How much change is required of the business to achieve the intended results, and are your people prepared to make the type of changes required?  This should also include looking at changes needed to IT infrastructure and any re-skilling or technical skills required to run and maintain the new systems.

Finally, don’t over-invest when the future is still so uncertain. Focus on resilience. The goal should be to “no regrets” investments in automation that allow you to pivot as circumstances change.

FORTNA Can Help

FORTNA helps companies design and implement warehouse automation solutions and labor strategies overcome the challenges that stand in the way of growth and profitability. Advanced technologies including robotics, goods-to-person and other automation tools are easier to justify than ever in a tight labor market. Are you looking for new ways to address labor challenges? The Distribution Experts at FORTNA can help. Contact us today.

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