Potential four-wall savings are often top-of-mind considerations for retail executive teams, but teams should not be trapped into thinking that these savings are the only source of value from automation. Warehouse automation can also enable improvements to the broader supply-chain network and, even more dramatically, enable a range of previously unimagined strategic options. (See Exhibit 1.)
The potential benefits of warehouse automation exist throughout the supply-chain network. Consider these examples of benefits at three key points in the network:
Warehouse. Dramatically improved utilization of storage space reduces the need for new construction as greater warehouse capacity becomes needed, and facilitates centralization of warehouse operations and closing of buildings.
Transportation. The ability to assemble denser pallet cubes through automation means more tightly packed trucks and lower average shipping costs per item, reducing transportation costs by up to 10 percent.
Store Backroom. Store-specific pallets (assembled to reflect the layout of a particular store) can reduce shelf replenishment labor, with store operations savings estimated at up to $0.02 per case.
Beyond such network improvements, warehouse automation can be used to open up new strategic options and initiatives for retailers. For example, automation can enable growth by allowing a distribution center to service more stores and increase product offerings. Sobeys, a Canadian grocery chain, for example, cut case-handling costs in half while adding capacity by constructing a state-of-the-art automated distribution center. The new facility positions Sobeys to invest in low-cost growth in the future.
Reducing cycle time through warehouse automation is another strategic benefit. By speeding up the queuing and batch-planning, order-picking and packing, and transportation processes, automation can dramatically reduce order-to-delivery cycle times. This improved cycle time in turn reduces inventory, improves fill rates, minimizes lost sales that can reduce customer satisfaction and loyalty, and can even eliminate the need to maintain distribution center stock altogether.
Finally, automation can be a key lever for strategic growth and is particularly well suited to help unlock the value of retail e-commerce. Traditionally, e-commerce has presented daunting problems associated with complexity, cost per order, and customer responsiveness, and automation can mitigate some of these challenges. For instance, automation solutions can reduce the costs and complexity of SKU growth through the use of dynamic or virtual pick slots.