Automation in logistics – why are companies hesitating to invest?

tonyenglish

A growing shortage of labour, an explosion in demand from online retailers, and new technological advances; automation seems to be the answer to these three issues that logistics companies face. This article examines why that is, and why most logistics companies still haven’t taken the plunge.

Shortage of workers

The employment rate in the UK is currently at a record high and sourcing staff is tough. As an example, some of the largest ecommerce facilities requires several thousand full-time employees and even more during the holiday peak season when labour is the most scarce. Implementing automation processes, for example robotics, is a way to tackle this issue.

Ecommerce boom

Rapid growth of online sales and customer expectations has reshaped the logistics industry entirely. Not only in terms of the need for increased efficiency, but the fact that it breaks the barrier of geographical location.

New technology available

Automation technology has come a long way the past decade and many new offerings have been rolled out;

  • Automated Guided Vehicles (AGVs) that move cases and pallets
  • Forklifts that can be handled manually but that can become autonomous during peak season
  • Advanced automated storage / retrieval systems (AS / RS)m for example robots that build pallets and move shelves with goods to picking stations
  • Conveyor systems that can pick up bar codes on any side of a package to determine the appropriate action

So, why are businesses hesitating to invest in automation?

Logistics companies are intrigued by the potential of automation, but cautious due to the many risks. Some of the concerns are:

The unusual competitive dynamics between ecommerce and logistics;

  • The logistics market is crowded and ecommerce businesses have a lot of buying power
  • Many large ecommerce companies have built their own logistics capabilities
  • Ecommerce demand is spiky and logistics companies are challenged to fulfil customer expectations during peaks

Uncertainty around which technologies to adapt;

  • Which ones will yield the greatest ROI?
  • It’s a big decision; removing and replacing equipment is expensive

Difficulties obtaining these new technologies;

  • Warehouse-automation manufacturers can’t meet today’s demand
  • Suggested equipment is often more advanced and expensive than necessary

Rapid changes in omnichannel-distribution networks;

  • Retailers and e-tailers have evolved their distribution networks into complex omnichannel systems; products can be purchased and received through multiple channels
  • Consumers also demand faster delivery than ever, which requires more local storage capacity

Logistics contracts are too short;

  • Most logistics contracts run for about three years. With a significant initial investment required, logistics contracts are often not profitable for two years. Big investments in automation would push the break-even point back further.