Time to automate your DC?

Jul 01, 2009 9:30 PM  By

Most multichannel operations these days are under pressure to reduce labor and improve efficiency and overall accuracy while spending less money. The best way to do this typically involves some automation help in the warehouse.

But automation is not a magic bullet. In some cases, results don’t meet expectations. Budgets are exceeded, timelines are not met, and expected savings don’t materialize.

Most merchants could use some help in determining when to automate, how much to automate, and what types of automation solutions make sense in various operations. Here are some guidelines to consider.

For starters, we should note that the key characteristics of a typical pick/pack, less-than-full case, highly seasonal business model have changed in recent years, affecting warehouse operations. Among these changes:

  • Disappointing sales and corresponding reductions in future sales plans

  • More attention placed on managing inventory

  • Shorter lead times for processing orders

  • Getting the biggest payback

    More severe and later seasonal spikes in volume

  • Increased “free shipping” offerings

  • Higher customer expectations of service levels

Both large and small businesses are facing these problems, and they are not limited to one type of industry. So systems must be sized appropriately, as well as designed to fit the specific needs of each company.

There are many automation options available today. The key to success is finding one that is both scalable and flexible, and also cost effective.

You must also have the necessary infrastructure to support the level of automation you are considering for your facility. Having the facility, staff and system support in place is critical to making the technology work for you.

You’ll probably know when it’s time to automate: When your ability to meet order volume or accuracy requirements is compromised; you can no longer meet service levels; and overall operating costs are rising, you have reached the basic threshold. But first, make sure that you are optimizing as much of the existing conventional operation as possible.

Choices and options

In many cases, you can make significant improvement without investing in automation. Also, comparing an automated solution to a sub-optimized operation in place will result in calculating an inflated return on investment.

To make sure your current operation is running as effectively as possible, focus on slotting, replenishment; location and inventory tracking; vendor compliance; and picking and packing productivity. These key areas represent opportunities to maximize processes and ensure they are well managed before investing in automation.

The most labor-intensive areas can usually support some level of automation justification. In the typical direct-to-consumer business model, the areas of picking and packing can represent up to 50% to 60% or more of total warehouse labor cost.

Because of this, many automation options are designed to address these high labor cost areas. Most justifications for automation are centered on the reduction of warehouse labor. Be aware, though, that in many cases this will not justify the expenditure.

The basic objective is to always select the proper level of automation. Most companies today are looking for a 12- to 18-month payback; that’s easy to say, but not so easy to do.

To develop the best ROI case, you need to have solid data and be able to measure the impact of automation on the operation. Many companies do not have good measurable data or operating standards in place to use as the basis of measurement for investment or improvement, but this is crucial to making good decisions about the proper level of automation.

The pick/pack environments lend themselves to certain types of warehouse automation or technology applications. The need to quickly process a large number of small orders of less-than-full-case quantities with a high fourth-quarter spike is a key difference from a traditional full-pallet processing operation.

Having to track, store, and process thousands of SKUs of vastly different sizes and shapes presents additional issues. Key variables are product type (weight and cube), order volume (peak and average), and the number of units required to fill orders (order profile).

Remember that one size rarely fits all; you must define your unique business and operating requirements before evaluating automation options. Without a detailed set of operating metrics and requirements, the chances of finding the right system are slim.

Here are three examples of technology options, with potential “best fit” and budget costs.

  1. Pick/pack to light

    This technology uses location lights to direct activities such as picking and packing. It eliminates the need for paper instructions, as the employees follow the lights to complete their tasks.

    The lights indicate the activity to be performed and require confirmation that the correct task was completed. A good fit in many applications, successful implementations of the pick-to-light model usually occur where:

    • Orders are multiline
    • A relatively few SKUs are in the product line — usually less than 2,500
    • A large number of SKUs per order
    • A high degree of order accuracy is required
    • A medium- to high-order volume
    • A potential for high-density pick area

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  1. One potential application is the concept of zone picking in a pick-and-pack environment that simulates an assembly line. Fulfillment operations with 5,000 or more orders per day with five or more SKUs per order, and five or more full time employees in the picking function, are good candidates for a pick-to-light application.

    Total costs — hardware, software and implementation — can range from $350 to $450 per light (with one light per SKU/item). Production rates of 350 units per hour are doable vs. conventional pick rates of 100 to 150 units per hour; some applications reach 500 units per hour.

    Most pick-to-light applications result in reduced picking labor, improved service, faster order turnaround times, and increased accuracy levels. They can also be helpful in multilingual environments.

    Many applications are tied to other technologies, such as carousels, voice-cart picking or package sorters. The concept is somewhat flexible and scalable if properly designed during the initial planning phases. With the right applications, a 12-month ROI should be possible.

  2. Voice-directed picking

    Activities directed by headset and voice directions are relatively new to the pick/pack fulfillment world. Instructions are given via voice to warehouse workers who perform a variety of tasks and, through different methods of confirmation, complete the assignment tracking process. The concept can be economical for an operation with:

    • Large SKU base
    • High-volume of orders
    • Large facilities
    • An operation that’s heavily paper dependent

    The advantages of eliminating paper-based activities are clear, and there are several other benefits of the voice-directed concept:

    • Hands free operation improves productivity and safety
    • Training times are generally quicker
    • Real-time updates are possible
    • Paperwork is minimized or eliminated
    • Errors are reduced dramatically through a forced confirmation process

    Cost is usually driven by the number of operators using the system. Budget costs of about $100,000 for a five- to seven-user system are available, with additional users added for $5,000 to 7,000 each. It is flexible and scalable and has multilingual capabilities.

  3. Carousels

    The use of carousels in the pick/pack world is relatively small, but where they fit, the savings can be dramatic. High-volume, slow-moving, small parts is an ideal situation for a carousel concept. A carousel application is a good fit if you have:

  • Large order volume
  • Low to moderate SKUs per order
  • Low to moderate picks per SKU per order
  • Slower moving products of smaller size and weight

The advantages of carousels are reduced walk time for pickers for slower selling items, a smaller footprint in the warehouse, and increased visibility and control by supervisors. Most carousel installations are horizontal types with multiple pods or sections.

Carousels are usually combined with some other technology, such as light-directed instructions, to improve efficiency. One requirement is to have a relatively large order queue to maximize the efficiency of the carousel software providing directions to the system.

Production rates of 300 to 600 lines per hour are possible with carousels. Investments for the technology generally run upward from $50,000.

Automation can help your operation become more competitive, provided you do your homework when evaluating opportunities to automate. The path to selecting and implementing effective systems can be troublesome, but also well worth it.

Curt Barry (cbarry@fcbco.com) is president of F. Curtis Barry & Co., a multichannel operations and fulfillment consultancy.