Unlocking Distribution Resilience and Agility Through Automation

By: David Lamb, Consulting Manager ANZ at Dematic

It feels like the only thing we can be certain of these days is uncertainty. Over recent years, we have had extreme bushfires, the pandemic, flooding, a container ship blocking the Suez Canal for six days, and ongoing political instability. These events have caused a lot of uncertainty for both business and consumers, with interrupted supply chains, soaring costs, and fluctuating demand.

There’s a reason I’ve used the word uncertainty and not risk. Risk is the known unknowns and is measurable. When risk is involved, you first identify what it is and then come up with a strategy to prevent it. People are employed to measure risk, such as actuaries, and manage risk, such as project managers. Risk gets a dollar value, whereas uncertainty doesn’t, because it’s unplanned and exposes any weaknesses in a businesses’ resilience and agility.

Today, disruption has become the new normal and there have been many flow-on effects brought about by the uncertainty that comes with this. First, let’s look at some of the macro trends that many businesses in Australia may currently be experiencing.

“Just in time” has evolved into “just in case”

An environment with so much uncertainty is leading to consumers ordering a bit more of everything just in case, and this makes orders slightly bigger. The switch from “just in time” to “just in case” has led to more inventory holdings where warehouses now hold a bit more of everything, just in case. This means warehouses need more capacity for maximum holdings, while also managing the big shipments that are on the way. With storage capacity demands increasing, there is a need for a larger footprint and smarter ways of handling greater inventory.

It's less about cost of land and more about availability of land

While there’s been much talk about the “just in case” trend, we haven’t heard as much about the issue of land. We used to stress that availability of land close to your customers is strategic for maintaining high service levels. But today that’s seen as a great luxury if you can secure it. Instead, what we are seeing now is the availability of any warehousing space diminishing. Therefore, as warehouse renters approach their end of lease period, they’re facing significant bumps in costs to start a new rental period, but still going ahead and signing up because there’s now more value in having the right space and location locked in.

This is also an issue extending beyond rentals and impacting greenfield projects as well. As businesses outgrow their existing place, there’s limited available land to build something bigger, so they must instead focus on doing more with what they’ve got.

Availability of labour is now more important than performance of labour

Labour performance used to be the basis for assessing the investment business case in a warehouse. What’s the pick rate, what’s the pack rate, how fast can someone move pallets versus a machine? What we’re seeing now is the high cost associated with not having enough skilled people to turn up and do the job, as businesses struggle to find talent during a time of low unemployment in Australia.

The issue now is less about manual labour performance rates and more about the business costs of low labour availability. What’s now evolved its way into the business case is attendance rates, agency fees and error rates. There’s training for new workers and then a ramp-up period before they’re productive. If they don’t like the work, they move elsewhere, and the turnover cost cycle starts again.

Industry Trends

In addition to the broader trends, there are also industry-specific trends that have arisen recently.

In Electronics, customers are loyal, until they aren’t. They want speed of delivery and will quickly move to a new distributor to save even a small amount of time.

Pharmaceutical customers order the same product from three distributors and then keep the first delivered, keep the cheapest, then return the third for free. That means if you’re not the cheapest, and not the fastest, you’ll pick, pack and ship the order, only for it to be returned the next day to be unpacked, sorted and put away all over again.

In Food & Beverage, some operators are experiencing an ageing workforce, but many of the bigger players are more preoccupied with handling growth in stock holdings and SKU proliferation, as customers acquire divergent tastes. This means they need to do more with the existing space they have. They also face customers with very high expectations on delivery and need to have full control over their inventory – because grocers will not accept deliveries out of date sequence.

In Australia, we’ve seen movement from 16% to 19% of consumer transactions being eCommerce, with close to 30% in the UK, and 50% in China. This is putting pressure on brands to have the products ready, plus fast delivery and being able to manage returns, which are a big challenge. Brands are also having to step up to compete with online-only retailers who are starting to really step up their game in Australia.

The importance of scalability and agility in building resilience

In my experience, the businesses that have been able to manoeuvre most effectively through the challenges and trends that have surfaced over recent years are those that have considered the scalability of their operations and the agility they require to adapt.

These businesses have achieved scalability and agility through the use of robotics and automation. This may be in the form of automated guided vehicles (AGVs), at the introduction to automation level, Multishuttle systems that move smaller products and orders around the warehouse, AutoStore solutions for high density warehouse storage, right through to automated storage and retrieval systems (AS/RS) at the much higher level of storage automation for pallets.

While specific robotic and automation technology may vary from business to business, the fact remains that those who have built in this level of resilience to their operations have best positioned themselves to be able to trade, transact and maintain relationships at a time of endless disruptions and uncertainty.

Not only can smart warehouse design and operation strategies shield businesses from the potential pain of disruption, but we’ve also seen that it can help them to take a larger market share from those who don’t have the same agility and scalability.