When the Coronavirus began its scary, unpredictable trek across the US in March and April, Joe Dunlap, head of Supply Chain Advisory for CBRE, checked in with his clients, who are supply chain, logistics, distribution and warehouse industry professionals.
Perhaps not surprisingly, they kept raising the same questions.
They would ask, ‘had I been ready for this and had more of my operations automated, would I have less of a strain with labor?’ Dunlap says. Another question: If part of my workforce were out of operation for being ill, would I have been able to process better?
As the pandemic wears on, this hyperfocus on automation continues.
When cataclysmic events happen, that kind of introspection isn’t surprising, according to Rich Thompson, international director, supply chain and logistics at JLL.
“Whenever there’s a pandemic or some big national disaster, like the tsunami in Japan several years ago, it puts a big spotlight on the global supply chain and, in many cases, how fragile that supply chain can be,” Thompson says. “That’s what we see again with this awful pandemic.”
While in other cases the answers to such existential questions might be complex, in this case there’s little doubt that more automation would seem to benefit warehouse operators in times of turmoil. That’s why many logistics experts think COVID-19 will trigger an increase in automation and robotics investments in the warehouse sector. “It [COVID-19] puts the spotlight on companies and how they’re set up to handle these kinds of disruptions,” Thompson says.
But the driver for investments won’t just be patching over the vulnerabilities of humans. The impetus will also come from opportunity. Now that the pandemic has helped untapped the potential of e-commerce, specifically in the grocery area, there is little doubt that investments that make the process more efficient will come in the future. While larger firms made progress eliminating some of the inefficient tasks performed by humans, there is still room to grow and automate. Investment in innovation, however, won’t be universal across the sector.
ACCELERATING OR DECELERATING CHANGE
Already, COVID is prompting investment. The pandemic has forced a wide variety of industries, including healthcare and grocery stores, to automate rapidly. The supply chain isn’t far behind.
“I think that, given the spotlight that the pandemic has put on the fragile nature of our global supply chain, automation and robotics will gain a lot of attention,” Thompson says. “And for anyone interested in those investments, it will just accelerate that interest.”
Will O’Donnell, managing partner, Prologis Ventures, thinks COVID-19 has also highlighted the need to rethink global supply chains and their adaptability to meet today’s unprecedented challenges.
“As part of this major supply chain evolution, I expect to see companies continue to optimize the operations of their logistics facilities, as well as increased investment in robotic systems to enhance processes, as they seek to create environments that prioritize the health, safety and well-being of employees,” O’Donnell says.
For the big players, increasing their investment in automation is a no brainer. NKF’s chairman Thad Mallory points to companies like Amazon, Costco, Walmart, Lowes and Home Depot leading the way with automation.
“Those companies are going to double down their investment because they’re making money right now, they’re getting more market share and they’re going to come out on the other side stronger,” Mallory says. “I don’t think they’re going to be afraid to make an additional investment.”
Over the past decade, consumers have become more and more comfortable with ordering products online. Total e-commerce sales for 2019 were estimated at $601.7 billion, which was an increase of 14.9% compared to 2018, according to The Census Bureau of the Department of Commerce. At the end of 2019, e-commerce sales were roughly 11% of total retail sales. In 2010, they were approximately 4% of total sales.
Coronavirus promises to supercharge that online buying.
“We’ve already seen this increase in e-commerce as a percent of retail sales, and now we’re projecting that increase to be more rapid,” says James Breeze, head of industrial research for CBRE. “As e-commerce becomes a larger portion of overall sales, it’s going to be a bigger part in overall investment for companies.”
Breeze says there’s little doubt that much of that investment will go into automation. “There’s going to be this need to improve efficiencies and to get products up quicker.”
While e-commerce has grown dramatically over the past decade, there was one item some people still were reluctant to buy—food. But weary shoppers, anxious about becoming infected with COVID-19 when visiting grocery stores, have grown more accustomed to shopping online during the pandemic.
The change in habits was apparent early in the pandemic. On April 27, the Brick Meets Click/Symphony RetailAI Online Grocery Shopping Survey revealed that online grocery sales grew 37% to a total of $5.3 billion compared to March 2020’s record-setting total of $4 billion.
Adam D Roth, executive vice president at NAI Hiffman, thinks this will be the catalyst for dramatic change down the road.
“You’re going to see a lot of innovation,” Roth says. “This will be driven by people continuing to do what they’ve started doing now, which is buying groceries online. They’re going to continue to do that after this is over.”
As online grocery shopping grows, warehouse operators should continue to adopt technologies to more efficiently ship food.
“Online grocery pickup and delivery services are a small segment of e-commerce today,” Thompson says. “But it’s one of the fastest-growing segments, and I think people would agree that the pandemic has accelerated acceptance and usage of online grocery [services].”
Automation could specifically benefit cold storage, where freezing temperatures can limit the amount of human exposure. “Cold storage is a classic situation for automation inside the distribution center because temperatures are so cold,” Thompson says. “When you have a freezer full of meats and other frozen food items, you don’t want your people running around in there with boots and gloves and hats. It’s better to have somebody else picking that for you.”
THE LIMITS OF AUTOMATION
Can robots make the cold storage process easier by picking up and moving frozen chicken nuggets and breakfast burritos? Yes, but there are also limits. Even if it’s harder for an automated system to catch a virus (at least, of the human variety), the consensus seems to be that robotics and automation are generally enabling people to be more productive.
“Robotics and automation today aren’t going to eliminate 100% of the needs of people,” Thompson says. “They’re augmenting and enabling a more productive use of human labor. Now, at some point in the future, it could be different.”
With something like autonomous robotic robots (AMRs), the machines can complement what the human is doing. During e-commerce fulfillment, Thompson says robots can find and bring the product to the packer versus the packer chasing down the item.
“When you can have robots bringing a product to the pickers, that’s a huge time savings,” Thompson says. “While not every company is the same, the rule of thumb is that 20% of operating costs can be saved through robotics and automation.”
Machines that can limit the most inefficient tasks for humans have the biggest bang for the buck. “With labor, it’s the walking around time that’s the most unproductive and costly,” Thompson says. “A lot of the advances in the last five or seven years with automation and robotics have been around eliminating that travel or having the material handling equipment to travel.”
In other cases, some human functions probably won’t be eliminated anytime soon, such as actions that rely on eyes, fingers and wrists. “There are some functions that are very difficult to automate,” CBRE’s Dunlap says.
THE LABOR EQUATION
Before the COVID-19 crisis, attracting labor had become a huge issue. With unemployment hovering around 3.5% as recently as early February, companies had to pay up for workers. That’s why it was important to find ways to automate unproductive tasks, such as time spent walking.
“Pre-COVID, there was a quiet march toward as much automation as you could have, particularly in e-commerce with Amazon,” Mallory says. “I think it boiled down to how tight the job market had gotten.”
However, the Coronavirus may change the calculus around investments in automation and robotics, at least for the short-term. With millions filing for unemployment, Robert Kolar, executive vice president of the west Region for JLL, wonders if those people may be a new factor when companies consider automation and robotics investments. The traditional rationale for investing in these systems is that they won’t have to hire as many people in a tight labor market.
“If the labor pool changes, that may change people’s posture towards robotics if there are significantly more available workers,” Silverman says. “But that’s probably still only a temporary delay because the economy will ultimately recover, and the supply of human capital will be seemingly constrained even under modest economic growth circumstances.”
NKF’s Mallory thinks the uncertainty of employees not wanting to go to a factory or distribution center out of fear of getting sick may also accelerate investment in automation and robotics.
“We’re going to be in a fear-based environment likely until we’d get a vaccine or we have herd immunity,” Mallory says. “We’re talking about 12 to 24 months. So this potentially accelerates research and development or implementation of those processes to head off those concerns [of not having enough workers].”
PROCESSES RIPE FOR AUTOMATION
Automation in manufacturing has been around forever. Some peg the earliest usage of machines to the 11th century. The industrial revolution and then the introduction of electricity pushed the mechanization of manufacturing to even new levels.
“The automation in manufacturing is a lot of these articulating robots that are doing repetitive tasks on an assembly line,” Dunlap says. “If you imagine an automotive assembly line, the materials are coming down the line in the same place and location. The weld or the part gets added at the same place. It’s easier to automate.”
For the handling, distribution and storage of goods, automation has moved slower. The warehouse environment is much more difficult to automate with stock-keeping units carrying packages of different sizes, shapes, weights and temperatures.
“The attributes of these SKUs have become so diverse,” Dunlap says. “Trying to automate it with a single solution is nearly impossible. Applying a particular type of automation to a segment of that volume is how most companies tend to proceed.”
But there have been improvements. In the past, JLL’s Kolar says there used to be a backlog of a few days when orders came in. “Today we’re working on the orders we received yesterday.”
Warehouses have improved by doing a better job of consolidating orders and getting them ready to go out the door immediately. “They have all these small pieces of technology that have come together and can be integrated to support that requirement in the operation,” Kolar says.
Outside of the warehouse, there are places still ripe for automation, including opportunities to gain visibility into arriving shipments.
“If I can see what’s coming in that container that has been on the water for 30 days, I can get a manifest of what SKUs and how many cartons and how big and what shape they are,” Dunlap says. “That helps me anticipate what’s going to hit the door and have a more configurable form of automation.”
Over the last several years, Dunlap says there has been a surge in AMRs, which helps handle the product once it arrives. But there is still room for improvement. He says cross-docking is a vast area that’s mostly manual today. But it could be automated with longer-term contracts with clients, more visibility upstream of what’s about to hit the door.
“I think things like that are ripe for automation, but they have a few other hurdles to overcome before we see a benefit from it,” he says.
THE BIG GET BIGGER
Traditionally it has been large companies, such as Amazon and Costco, that were the ones paying for these products. “You had to have a critical mass of product running through, and you had to be a pretty big company to afford those investments,” Thompson says.
Now JLL sees mid-market and even smaller-sized companies making more significant investments in robotics as innovations have come down in cost. “You don’t have to make a huge, sizable investment to get in the game,” Thompson says.
As technology and robotics improve and costs continue to decline, those investments should become more accessible for different sized companies. “The operating cost savings certainly would justify doing that [automation investments],” Thompson says.
But automation can remain painful for firms that operate on short-term contracts. For instance, Dunlap cites an ocean freight company he works with that has trouble with this investment.
“Some companies tend to contract 3PLs for a relative term basis—for a year, two years or maybe three years at a time,” Dunlap says. “Until you hit a certain tipping point with that contract, a company is going to be reticent to make a capital investment in automating. If that contract’s only a year or two long, the company can’t pass that [cost] through at an economical rate to the client as easily as they could with more manual processes.”
Smaller firms, which may be facing financial challenges from the pandemic, may not be able to make these investments in the near term.
“For smaller companies, it’s going to take time, but they’re not necessarily the ones that are going to be leading the charge anyways,” Mallory says. “They’re not going to have the internal research and development division or resources to be able to invest. So they will be more reactive, and just kind of adapt to what other companies do on a second-generation basis.”
At least momentarily, that could create a two-tiered group of companies—ones that can afford to invest in robotics and automation and ones that don’t. “With liquidity issues for most smaller companies, they’re going to be looking at every dollar,” Mallory says. “For the near term, I think people are just going to kind of scale back on that investment on the smaller level.”
— to www.globest.com