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Comment: Is warehouse automation the solution?

With the rise of online shopping, retail logistics professionals are faced with an increasing set of challenges from their rapidly growing eCommerce fulfilment operations.

An ever increasing SKU base with a long tail of slow movers with minimal inventory, compressed order cycles integrated with a wide range of transport options, products with different handling types which need to be merged to form customer orders, and orders with customisation to meet customer or channel requirements, are just some of the challenges.

Another is reverse logistics, which is especially important for fashion retailers where returns can be in excess of 30% of orders. Customer returns must be processed quickly to refund customers, and refurbished and made ready for sale to maximise availability and minimise markdown and shrinkage.

Omnichannel retailers also need to adapt their supply chains to deal with eCommerce as a channel, as volumes rapidly surpass those of the largest single store and customer returns becomes the single biggest supplier. This typically has profound implications for the entire network and often leads to the redesign of retail distribution centres.

Overcoming these challenges in a cost-effective manner is essential as order numbers grow. Over reliance on manual operations at scale will reduce the ability of the logistics function to consistently rise to the challenges, support growth and improve margins.

Warehouse automation can provide a solution to handle both the scale and complexity of retail logistics as the business matures, and this has been used with great success by many leading retailers. Assessing the suitability of automation for a logistics operation and the type of automation to use are the starting points; understanding how to implement the solution is the key to success.

When warehouse automation works best

Warehouse automation is proven to significantly reduce unit costs, increase stock accuracy and visibility, and enable the fulfilment function to provide the highest levels of on-time in-full deliveries, but only when the automation solution has been carefully matched to the business. Automation works best for:

1. Large scale, high volume operations

Large scale, high volume operations, typically centralised with a significant level of singles picking. Warehouse automation often involves a substantial level of capital expenditure and requires high volumes to provide a good business case.

2. Mature retailers with sales insight

Mature retailers that can demonstrate a thorough understanding of seasonality, product mix and order profiles. Automation can provide flexibility, but this is typically within certain parameters. For example, a retailer that significantly changes the product mix from flat format to hanging format will find converting automated storage from one format to another a great deal more work in an automated warehouse than with a manual racked solution.

3. Retailers with control of supply chain

Retailers with control of product presentation. Automation usually requires a greater degree of control over unit and bulk packaging. Retailers with a higher degree of supply chain control and good levels of supplier compliance will get the highest benefits from warehouse automation.

4. Retailers with sufficient finances

Retailers with high labour costs that have the finances and capability to undertake a large multi-faceted project that requires business-wide support.

There is a large range of automation options that can be selected to suit all steps in the fulfilment and reverse logistics processes. (These will not be covered in this feature.)

Steps to a successful implementation

Some of the most important (and often neglected) steps of a successful implementation are as follows:

1. Collect and analyse data

Collect and analyse historical transactional data and inventory snapshots to ensure there is a thorough understanding of the logistics profiles and their seasonal variability. Ideally use two to three years of data to understand any past structural changes in logistics profiles.

2. Ensure business-wide sign off

Ensure business-wide sign off of future volume forecasts and detailed service requirements. Warehouse automation is typically a large investment that provides flexibility but inevitable comes with constraints. Investigate any such constraints before the project begins and include these as well as the capabilities in the business sign off.

3. Define the system architecture

Define the overall system architecture as early as possible and ensure there is a clear understanding of the functional splits and performance requirements for each system and interface.

4. Consider the transition strategy

Consider the transition strategy as early as possible and ensure that any functional requirements are understood in good time. Avoid 'big bang' implementation if at all possible. Ensure the solution can effectively support the transition; the logistics profiles during transition are often vastly different to the end state.

5. Allow time and resource

Prepare for testing and allow for adequate levels of time and resource. Consider when testing will end and live production at low volumes will begin.

6. Ensure the solution has been 'operationalised'

Ensure the solution has been 'operationalised' so there is a clear understanding of how the system can be used to provide high levels of visibility and control to manage the prioritisation and progress of inbound and outbound tasks. Ensure there is a thorough understanding of the required KPIs and the parameters that can be changed to manage the process, including any necessary housekeeping routines required to optimise the material flow.

7. Plan for a culture change

Consider and plan for a culture change, especially if automation is new to the operation. Automation typically requires a manufacturing mentality – throwing people at a problem is no longer a solution. Ensure the leaders and workforce understand the automation solution and are trained to use it. Involve the operational teams as early as possible, identify knowledge gaps and recruit where necessary.

Will Treasure is the director of the Operations & Technology Consulting practice at Javelin Group, a specialist retail strategy consultancy. www.javelingroup.com