The rapid expansion of e-commerce has been the primary factor contributing to the transformative transition of the supply chain over the past decade. To cope with the increased complexity and volume of orders, numerous organizations have implemented sophisticated automation technologies. Nevertheless, automation is not a panacea; it requires a meticulous and comprehensive assessment of its advantages and disadvantages, as well as a design approach that is segment-specific and data-driven.
Why automation is in high demand in the e-commerce sector
The e-commerce sector has experienced a solid growth rate, with sales figures reaching $6.31 trillion in 2023, a 10.4% YoY increase. This surge has significantly increased the demand for advanced automation technologies to effectively manage the heightened order volume and complexity. Modern solutions, such as unit sorters and put-to-light systems, have become more prevalent over the years as they have replaced traditional discrete-order selecting methods.
How automation has evolved from simple tasks to complex systems
Automation has experienced a significant supply chain shift from handling simple, repetitious tasks to integrating complex robotic solutions and goods-to-person technologies. The widespread adoption of goods-to-person technologies by 2015 and the introduction of robotic picking systems in the early 2010s have underscored this evolution. These developments are expected to profoundly impact the future of supply chain automation.
What are the benefits and drawbacks of automation
While automation offers numerous opportunities for cost reduction, value creation, and operational efficiency and effectiveness, it also comes with significant challenges. Organizations must ensure that KPIs such as ROI, NPV, IRR, Inventory Turnover, and Supply Chain Cycle Time are correctly and appropriately measured against Automation initiatives. Manual operations must be optimized “first” before deciding and choosing the technology to Automate, not vice versa.
A recommended approach includes the following steps:
Evaluate Current Effectiveness: Assess how effective your operations are without significant capital investment, focusing on productivity, throughput, cycle time, error rate, space utilization, and injury reduction.
Understand True ROI: Only after understanding the base case effectiveness and efficiency can you accurately determine the true ROI and other measures of any automation investment.
Credit Automation Appropriately: Give credit to automation only where it is due, ensuring that the benefits are directly attributable to the technology.
Data-Driven Design: Utilize a data-driven approach to design, considering reserve storage, forward pick, engineered layout, and capital analysis.
Consider Alternatives: Review and evaluate alternative designs, understanding their impact on labor, space, added value creation to customers, and capital investment.
Develop Recommended Design: Formulate a recommended design development plan based on evaluating alternatives and their ROI.
How to choose the optimal technology for your objectives
Next, evaluate various technologies by function and build your ROI model based on input such as WACC (Weighted Average Cost of Capital), tax return, wages, cost per sq. ft/meters, and working capital reduction. Then, conduct a rigorous sensitivity analysis. Then, determine the optimal technologies combination for your objectives following the process:
Identify Unique Automation Challenges: Recognize the requirements of different business segments that a one-size-fits-all technology cannot meet.
Segment-Specific Analysis: Thoroughly analyze each segment's size, volume, handling needs, and customer cycle time.
Develop Tailored Solutions: Create customized automation solutions for each identified segment to address its specific needs.
Strategically Assemble Solutions: After developing segment-specific solutions, logically integrate them to achieve the most efficient order assembly process.`
To achieve optimal logistics automation, three critical components are essential: segment analysis, solution selection, and strategic assembly. These components enable smart and efficient automation decisions, address the e-commerce demand for new technology, and reflect the evolution of automation from simple tasks to complex and interconnected systems.
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