Warehouse robotics is embarking on a critical growth stage of its adoption. According to a study by Tractica, between the years 2018 and 2022 the number of shipments of warehouse and logistics robots will jump from 194k to 938k per year. As we approach the end of 2020, that puts us directly in the middle of the projected growth period while also in the middle of a world pandemic. While this pandemic has slowed other industries down, warehousing and logistics have not been impacted in the same way, nor has the growth in adoption of robotics. In fact, with social distancing becoming mandatory in places of employment, many retailers are now turning to rely even more on their robotic counterparts.
For those companies looking to invest in warehouse robotics for the first time, the task of calculating return-on-investment (ROI) may be daunting. There are so many options for investments, tangentially related costs, and a slew of labor components that need to be factored into the savings. In this blog, we will provide a simple outline on what to focus on for making sure your ROI calculation is as accurate as possible.
Initial Investment Options
The ability for robotics providers to offer their machines to a larger potential market has grown significantly in the past couple of years. Now that there are multiple case studies to lean on and more confidence in the ability to bring robots to production quickly, there have been major changes in the sales approaches.
Robotics-as-a-Service (RaaS) has become an industry standard offering, allowing companies to skip the risks associated with purchasing the capital and instead opt into a leasing agreement. Some companies are now so confident in their offerings that pilots with one or two robots can be negotiated for little to no fee, allowing for a test run of sorts. These options, compared with the traditional purchasing models, have reduced the risks in the investment and changed the focus of ROI calculation.
While the initial investment calculation is straightforward, there are other startup costs that you should be aware of. For example, when selecting your robotics providers, make sure to check their specifications for internet connection as you may need to invest in more network coverage to support the additional bandwidth. If you have cold storage or high value areas with automatic doors, additional door sensors may be necessary. A few other items that could inflate costs are additional signage for your DC, replacement parts, storage taking away capacity, and training of course. For training, make sure to account for all those roles affected: associates, supervisors, IT, and maintenance.
Setting Your Labor Baseline
Labor savings are almost always the main reason companies invest in robotics. Labor has historically been the highest cost for warehouses and now paired with high turnover and nationwide labor shortages, robotics is an obvious investment to replace the boring repetitive tasks. With the implementation of robotics, associates can work on the more engaging and dexterous processes. To fully measure the labor savings, a detailed work study on all the processes touched by the introduction of robots is required.
First, there will be the process(es) directly being automated. Secondly, there will be the indirect processes that are required to induct or extract product to and from the automated process. Thirdly, there will be ancillary labor to account for, including the supervisors and managers who spend time managing the module being automated.
When augmenting any processes with robots you will need to consider energy cost, such as lighting and temperature control. If your warehouse is fully run by robotics, you may be able to use dimmer light and non-tradition temperatures thus generating savings. However, the extra usage of power for charging stations or direct power may offset those savings. The expected reduction of stock theft and an increase in inventory accuracy (when compared to static shelving picking systems) should also be calculated and included in your ROI calculation.
Calculating the Business Case
Unlike traditional automation implementations, the design horizon for robotics projects will be comparatively shorter for flexible robotics implementations. Requiring only a 2.25 years of growth calculation rather than the typical 5 to 10 years. There will also be a shorter project window which will be beneficial in markets that are facing unpredictable demand fluctuations. The same benefits of flexibility and scalability also provide the ability to relocate robotics equipment if required.
The typical investment size ranges from 0.7-15 million for flexible automation compared to a 5-25 million investment for traditional automation approaches. The time value of money calculation should be included when measuring against larger investments to yield the comparative costs. With labor savings in hand, several system costs need to be considered with the same rigor. WMS complexity should see a decrease. Health and safety improvements could yield lower insurance premiums. Robotics control software should also be configurable and require less on the ground technical expertise to support. The latest hi-tech remote support approaches are also an option to consider with robotics implementations removing expensive residential support models.
Regardless of the type of robotics implementation you are considering, be it Cobot, Goods-to-Person, Robot picking, or Sortation focused, this decision is likely to be the first of many in the automated logistics environments that providers are building in the post pandemic world.
The principles for calculating the ROI remain the same.
- Identify the challenges driving adoption for your organization.
- Understand the investment environment and ways in which you can leverage finance options.
- Have a clear view of the current cost of each module to be automated, include and quantify all productivity gains.
- Consider the impact of demand shocks outside growth forecasts.
- Select a partner who can drive the realization of forecast productivity gains and ensure a robust operational approach while taking the time to stay closely aligned with the business.
The age of automation is upon us, but the validation of ROI to aid purchasing decisions still comes down to the age-old boy scout adage ‘be prepared!’.
For more information around how to implement warehouse robotics for supply chain engagements in your organization, reach out to our team at email@example.com.
Contributors: Jon Brashears, Senior Manager at Bricz
Mike McCloy, Director of Operations at Bricz UK