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TriFactor Home > TriFactor Learning Center > White Papers > Top Five Signs that Indicate Material Handling Automation Should be Considered

Top Five Signs that Indicate Material Handling Automation Should be Considered

By John T. Phelan, Jr., P.E.

So you aren’t Walmart or Dell and have at your disposal some of the world’s most advanced supply chain infrastructures with multiple highly automated distribution centers and an inventory and order tracking system that can identify where every single widget you store and sell is located in real time.  In fact, you are the exact opposite.  You have a single warehouse or maybe a couple warehouses and although you are doing the exact same processes and systems that allowed your business to grow in the past, you seem to end your days scratching your head saying to yourself ‘why was today so difficult?’

One of the great benefits of being a material handling systems integrator is that our company gets to go inside so many other businesses, learn about their operations, listen to their struggles and ultimately recommend and implement new methods to operate.   Although every distribution center is unique, even when they are distribution centers for the same company, the bottom line is that no matter what business or industry they are in, they all pretty much accomplish the same mission: deliver goods quickly, accurately and at the lowest cost possible.  Because no matter how much distribution center managers hate to admit it, their business adds zero value to the product.  In fact, they can only take away value by not fulfilling the mission effectively. 

So if you have found that you have been fortunate enough to grow your business using traditional manual processes but you are at a point where it just seems like it is harder than it used to be, here are five signs that would indicate you should consider taking that next step in your business growth by implementing some automation in your operations:

Number 1, Your Cost Per Unit Shipped is Going Up.  If any indicator could actually slap you in the face, it would be this one.  Additionally, this one is extremely easy to determine and can be done so as long as there is some type of fluctuation in shipments, whether up or down.  By figuring out your cost of operations over a specific period of time, say a week or a month and then dividing by the total number of units that were shipped, you can establish a baseline to measure against.  Just be consistent in your methods.  In times when demand increases and your units shipped has gone up, then the cost to ship the increased number of units should go up proportionately.  On the other hand, if demand slips and the number of units decreases, the cost to ship the smaller number of SKUs should go down proportionately as well. 

There are many reasons why the cost per unit shipped would go up with the majority based on inefficient labor activities associated with receiving, storage, order picking, replenishment, and shipping.  In general, if you look at the lifecycle of a product in your warehouse and count the number of times it gets touched, if there is more than one touch per major activity, then you are probably wasting labor.  

As an example, many businesses that have grown using completely manual warehouse processes and have seen an increase in their cost per unit shipped use a man-to-part order picking method like an order picker with a cart, weaving through storage aisles and directed by a paper pick ticket.  A single order may require multiple ventures into the storage or picking area and when the order is complete, someone has to consolidate the batches and then audit the contents for accuracy.  After that, someone else or group of people in the shipping department must sort through all of the orders, build pallets or organize the orders in a logical manner for the delivery truck. This series of steps is effective for a company up to a certain point, but as the saying goes, you can’t fit 10 pounds into a 5 pound bag.  For example, if demand doubles that does not necessarily mean the doubling the labor will accommodate.  Pick aisles can only handle so much traffic, there is only so much room for staging and manual consolidation on the shipping apron and room on the receiving dock is limited. This means overtime or additional shifts are added, which impact the cost of operations.

Concepts that could drive the cost per unit shipped include an automated receiving dock with truck unloaders and a conveyor system that scans receipted goods, places them in inventory and directs them to the proper storage area or crossdocks them to shipping.  The order picking process could improve by having a forward pick area using a wave or zone picking method where pickers work in close proximity to the items that they pick along with a conveyor that sends the picked products through a sortation system and diverts them automatically to the appropriate shipping lane. 

Number 2, Your Returns are Increasing.  If any indicator would cause your customers to actually slap you in the face, it would be this one.  Handling returns is hardly ever an efficient process as they require a lot of manual labor to support.  Therefore, if you notice that your return processing area is getting bogged down or is requiring more and more effort, then it would probably be beneficial to do a root cause analysis.  Or simply the best indicator might be the increasing amount of negative customer feedback due to inaccurate shipments.

Typically inaccurate shipments and their subsequent returns are due to mispicks in the form of either the wrong number of SKUs in the order (and usually too much is not an issue) or the wrong SKUs were sent with the order.  Not only does this have a negative impact on customer satisfaction, the mispicks also wreak havoc to inventory accuracy, which can affect the proper fulfillment of future orders with other customers. 

Automation and process improvements that can affect order accuracy and reduce returns are mainly associated with the order picking process.  By implementing a pick to light or voice picking system in the forward pick area, not only does productivity increase compared to paper-based picking, but accuracy does as well.  As an example, the industry standard for paper-based unit picking from carton flow ranges from 45 to 150 lines per hour while light directed unit picking from carton flow ranges from 75 to 330 lines per hour.  Even with this doubling of productivity, 99.9% pick accuracy can often be realized with pick to lights which is typically far greater than the accuracy associated with paper-based picking.  

Number 3, Your Inventory Accuracy or Inventory Control Process is Getting Worse.  It doesn’t matter if you do cycle counting or periodic physical inventories and reconcile the results with a spreadsheet, if the inventory accuracy rate decreases or the process required taking the inventory increases, you might want to consider addressing the issue with an automated process.  Another test might be as easy as watching the warehouse operators do their business, whether they are storing or picking product.  If they are going off of memory as to where the product should be located and not being directed by some type of real time system, then as business grows and inventories grow, the number of headaches will grow. 

There are very low level warehouse management software (WMS) programs that won’t break the bank but can provide huge benefits to the efficient operation of a fulfillment center.  Implementing either dedicated storage or random storage methods driven by a WMS system that tie into the receiving operations, inventory control  system and order management system will take away the reliance on institutional knowledge and allow for greater flexibility, capacity for growth and a more accurate inventory. 

Number 4, Your Warehouse is Getting Messier and More Disorganized.  If you are embarrassed to walk your boss around the warehouse, or if you are the boss and you are embarrassed to walk a customer around your warehouse, then you might want to consider ways to tidy things up.  As the British Navy coined the phrase, “Ship-shape and Bristol fashion,” everything should be in the proper place and in the proper condition in order to run smoothly and effectively.  However, if you don’t have that knack for noticing a lack of ship-shape in your warehouse, some clues include shrinking aisle space in the floor-stack storage areas, pallet staging is taking up all of the room on the shipping apron, you are noticing a lot of travel and less picking by your operators or it takes longer to put away staged pallets on the receiving apron. 

Many times when warehouse managers face this issue, the answer is to acquire more floor space by either facility expansion or actually moving locations.  This is often not necessary and sometimes, by reconfiguring the warehouse to utilize more of the cubic vertical space, some of the floor space can be recaptured and freed up for other operations.  Cubic space utilization can vary by using simple means such as static storage rack or a mezzanine or it can become more complex through ceiling supported conveyors and multi-level pick modules.  By taking advantage of all of the open space in your facility and maintaining a disciplined routine of tidiness, you will not only be more productive, but also add pride to the culture.

Number 5, Your Business is Losing Market Share.  Market share is defined as the percentage of the total sales of a given type of product or service that are attributable to a given company.  Therefore, it doesn’t matter if the economy is booming or busting because the calculation is a percentage of the total sales in that specific market.  In other words, if during a booming economy you have 30% market share, you should also have the same amount of market share in a busting economy. The only difference is the total number of products sold is different, but the relative percentage is the same.  So don’t be fooled if your sales figures are increasing as that doesn’t necessarily mean you are gaining market share.  In fact, if the market itself is growing at a rate faster than your sales growth, you are actually losing market share. Therefore, the trick to uncovering this indicator is to understand your position in the market.  Ways to benchmark your company’s total sales in a specific market include industry associations, government reports or through consultants.  In any way you chose, just be consistent so that a baseline can be established and measured against properly. 

If you notice that market share is diminishing, the reasons could be the result of some of the inefficiencies in the warehouse.  If your costs per unit shipped are going up, then you are either absorbing the reduced margin by maintaining pricing with your customers or you are increasing your prices to maintain margin.  Both events could have negative results.  A reduced operating budget usually follows a reduction in gross margins.  Loss of customers usually results in increases in prices.  Customers also switch suppliers when supplier shipment accuracies continually get worse.  Additionally, customers may switch to a competitor if the competitor can offer better services such as quicker lead times or later order cutoff times for the same delivery dates.  As discussed in previous indicators, these causes of reduced market share can be combated through process improvement and system automation.

With all that said, you may have come to the conclusion that material handling automation could be just the answer you’ve been looking for.  The technologies to utilize and the possibilities to envision are endless when it comes to automating a warehouse or distribution center.  The gained efficiency, organization, and possible customer satisfaction can eliminate your current headaches and position your company for success for years to come.

John T. Phelan, Jr., P.E. is Chief Operating Officer of TriFactor, LLC, a material handling systems integrator based in Lakeland, Fla. He can be contacted at 863-577-2243 or jjphelan@trifactor.com. For more information visit www.trifactor.com.