Will the pandemic accelerate automation in supply chains? Part 1: Labour shortages in a time of high demand
Crushing levels of inventory need to be shifted for many, even as workforces are pared back by the effects of COVID-19. Will automation provide some relief and is it here to stay?
It’s a world of extremes for supply chain managers. Shops shut down, but online operations in overdrive. Huge pressures on distribution centres, but illnesses ravaging workforces and distancing requirements reducing productivity horizons. Consumers desperate to get orders delivered to their homes but supply frequently constrained.
There is then the need for innovation.
One route, and an increasingly prominent one, is automation. Companies are now putting automation on a high priority footing as they look to drastically increase productivity per worker and per available unit of space in order to better cope with the COVID-19 crisis, risings costs and to compete long term.
We sat down with experts from a variety of high-tech robotics companies to understand the dynamics at play and how the pandemic is playing into the long-term trajectory of supply chain automation.
The COVID crunch for warehouses and factories
The pandemic has introduced a troubling dynamic for distribution centres and factories. One the one hand demand is returning for many products and soaring when it comes to e-commerce. One the other is the need to keep workforces safe and distanced and handle absentees hit by coronavirus, meaning understaffed facilities in many cases.
The boom in online shopping is also generating big demand for industrial space at a time where it is at a premium and is therefore placing upward pressure on costs through this expansion in warehousing floor space, as well as the expense of handling more products behind the scenes, both outwards to the buying consumer and in terms of return logistics.
E-commerce has accelerated probably 10 to 15 years ahead of schedule
This is causing many to ask how they can squeeze more productivity from what they have currently?
Most are finding that the only realistic answer is to invest in automation.
For those fortunate enough to have an online presence and fulfilment operation, the change in demand has been extreme.
“E-commerce has accelerated probably 10 to 15 years ahead of schedule,” believes Lior Elazary, Founder and CEO of inVia Robotics, as does Fergal Glynn, VP of Marketing at 6 River Systems, who notes that the kind of demand projections made in some industries for “2030 has arrived far earlier than expected.”
It drove a lot of pressure upstream into the warehouse
When 6 River Systems “Looked at the data from our platform at what was fulfilled in May of 2020 across our customer base, many of [our customers] were operating at their peak level." This led 6 River Systems to have conversations with their customers, as they’re “going to have another two- to three-X spike come November and December of 2020.” In particular, this has meant 3PLs are “looking to bring in automation into buildings that aren't automated right now,” and “doubling down” on automation according to Glynn.
It’s not just 3PLs who are looking at the demand spike with trepidation, as COVID-19 turbulence “Came as a massive wake up call to the retail brands about how they're going to deliver their goods to consumers” says Karen Leavitt, CMO of Locus Robotics. “It drove a lot of pressure upstream into the warehouse, because now there are consumers who still want to buy goods and services, but now they want to be able to get them online.”
They then had to figure out a way of doubling, tripling or quadrupling the direct-to-consumer volume out of their warehouses in very short order
For many retailers, they were looking at a complete switch in their business, from an overwhemingly physical sales base to “A 90% e-commerce-to-retail mix," notes Leavitt, “and that of course changed the volumes in the warehouse. So, they then had to figure out a way of doubling, tripling or quadrupling the direct-to-consumer volume out of their warehouses in very short order.”
This meant “Getting more productivity out of their associates, hiring more associates if they could, but of course, that was also stymied by social distancing concerns." Therefore "bringing additional automation into the mix rapidly became, became a major, major initiative.”
Covering the distance
The social distancing issue was noted across our interviewees as being a critical driver in more interest in automation.
“Just before COVID,” many of Fetch Robotics' customers “were already dealing with reducing headcount challenges or labour shortages,” notes company CEO Melonee Wise “and COVID only made that much, much worse. One, just due to artificial constraints, like social distancing reducing number of people you can have in the building people, and then [secondly] through real constraints of people being sick or unable to work.” This meant that robotics were often really the only real solution allowing companies to come close to matching demand expectations, while operating with a sparser warehouse from a worker perspective.
Here in the US before Coronavirus, there was already a 500,000 person shortage of jobs
It’s not like this came at a time of easy hires walking into warehouses, either.
“Here in the US before Coronavirus, there was already a 500,000 person shortage of jobs for people willing to do warehouse picking, packing and restocking jobs,” points out Terrie O’Hanlon, CMO at GreyOrange.
Although there has been a sudden increase in labour as a result of economic contraction globally, none of the industry figures we spoke to expect to see automation fall back as a result.
For every person that leaves, you can assign a $10,000 cost in terms of getting a new person in and retraining them
Elazary notes that “People don't want to walk around in the warehouse day in, day out,” leading to continued turnover even in periods such as this. Furthermore, the costs of this cycle are huge. GreyOrange found in research conversation with a senior figure from Walmart that “it's hard to retain those employees because the job from company to company to company is all the same. So, for five cents more an hour, you're going to switch jobs and he was telling us that Walmart had a 70% per year turnover in that position. He said, for every person that leaves, you can assign a $10,000 cost in terms of getting a new person in and retraining them.”
This is particularly problematic for companies like Walmart, as several figures noted that the grocery sector is an area where there has been one of the biggest mismatch in capabilities.
“I think the biggest move we see [towards automation is] in grocery,” says Markus Schmidt, President of Swisslog Americas, largely as so few in the sector had expected the scale of transition to online or invested properly. “Right now most of the grocery retailers are willing to invest because they are damn afraid of Amazon’s might to be frank. They want to do something in order to stay in the game. They also are willing to raise funds in order to invest.” However, there is a further driver in that picking in supermarkets “is super expensive, because the peak efficiency of the one who's picking instead of the customer is so low. That's why a lot of these grocery retailers have been thinking about micro-fulfilment systems,” which will have to put automation at their heart to make the economics work (stay tuned for part 2 of this feature for more on micro-fulfilment and automation).
However, it's not just in the retail or 3PL space where swift progress is being made, as manufacturers further upstream are putting automation on a higher level as well.
If you boil it all down, what we're really selling is flexibility as a service
“There’s an awful lot more interest in the collaborative robots being used at various stages of the production line” notes Tom Bouchier, Managing Director for FANUC UK. In particular, “there’s a lot of queries for the robots designed for the end of the production line because of social distancing.
“There are cash flow issues, but interest is rising. Industries that haven’t been automated are now looking at automation.”
Cost is also a driver here as some elements of manufacturing shift to closer to market (see here for more on reshoring and near shoring). Although Bouchier has found that “Every company that I’ve been to or talked to over the last two months is talking about returning more manufacturing to the UK,” it is not possible to compete without adopting automation in production and packing lines as a developed economy with high wages, which is pushing more robots into production facilities in these places.
Wise summarises the reasons driving adoption of robotics and the ways in which it solves these issues in three pieces. “One it it's the flexibility that empowers,” as robots are increasingly deployed as a service and can be scaled up or down. Leavitt agrees wholeheartedly with this. “The problem that we're solving for is the lack of availability of labour, and the and the cyclical demands for that labour. We wanted to give customers a solution that was positioned along those same lines. If you boil it all down, what we're really selling is flexibility as a service. We're allowing our customers to take on additional robots The same way they would take on temporary labour during certain peak demand periods, and then scale that back when they no longer need it.” This is especially important in the current climate as “businesses have traditionally had fairly predictable cycles of an on season and offseason, of steady state and peak. Well, now that's all been thrown up into the air.”
How do we increase the efficiency of the people that we can hire?
Secondly, Wise believes “It's the labour contingency that it supplies, because the reason people were adopting our product before is they were struggling to hire. Now they're doing it to make up for a labour shortage or a labour gap to increase the efficiency of the people that are there. It's still solving the same problem, which is how do we increase the efficiency of the people that we can hire?
“And then, thirdly, to basically deal with all the things around social distancing,” and safety concerns. Robots reduce the amount of human contact and Wise notes “the carts can be sterilized, disinfected very easily. They can be washed down and so you're limiting the amount of cross contamination between people with the robots greatly.”
An evolution becomes a revolution
These are the push factors but what about the pull of changing dynamics in the production and operation of robotics in the workplace?
Outside of COVID-19 the falling costs and growing adaptability and compatibility of robotics throughout the supply chain is helping to boost adoption. inVia Robotics’ goal has long been “To automate all the 80% of the midsize businesses that need the automation, but don't necessarily have the millions of dollars in their budget to support that. We are capable of scaling the system depending on the customers needs, so that it can handle anywhere from 100 orders a month to 100,000 orders a month,” says Elazary.
I don’t think people realise how quick payback on this CapEx is
Whereas in “traditional automation you have to adapt the warehouse to that automation. You have to build specific racks. You have to build special conveyor belts and things like that, which costs a lot of money. Here, we bring the robot in directly into the existing operation, and it's able to adapt to the warehouse. And again, what it does is it really lowers the barrier of entry to most customers."
Bouchier agrees that “[Capital costs] have come down a lot in recent years. I don’t think people realise how quick payback on this CapEx is. It can be less than 18 months, depending on your output and what you are doing, but certainly 18 months is a feasible return period for that CapEx.”
Elazary notes that a further component in cost reduction is the falling cost in key systems and the use of software that makes robots more adaptable to different environment and can also “Compensate for the lack of hardware precision. So, in the past, the way you build a robot is to make it extremely precise, because it has to be within the millimetre to reach that exact location. What we've done instead, is we have less precise machine and we have a vision system that allows us to get the items. Now, the motors are not as expensive, the actuators are not as expensive but the vision system closes the loop to allow the robot to always hit the point. That's how we're able to lower the cost of the robots in general.”
We're also providing real time and retrospective data back to the customer to address what's happening
Linking up data monitoring software to robotics is also a major driver of added value, which makes the proposition of robotic systems more attractive.
“Through the course of the operation, we're not just doing those things that are related specifically to the robot deployment,” explains Leavitt, “but as the as the work progresses day after day, month after month, we're also providing real time and retrospective data back to the customer to address what's happening. So, we'll give our customers heat maps of where the picks are being made and they may find, for instance, that there's an area of high activity because there are a lot of popular items in it that are located relatively far from the packing station. Therefore, they may want to re-slot their goods to have high frequency items located closer to induction and drop off. They may want to take items that are less widely used and position them farther back.”
Both O’Hanlon and Bouchier also note the importance of software, and particularly the predictive analytics, that these kind of systems can bring. Bouchier gives the example of “One of [our] largest automotive customers, which has been using predictive maintenance on something like 5,000 robots around North America and they’ve had minimal downtime because they have been able to predict the failures that are coming up.”
A transition long in the waiting
Critically, as with a huge number of the biggest trends we are seeing now across business and society, COVID-19 is not the originator of these sweeping changes but merely a catalyst causing the reactions to strengthen.
E-commerce was already disrupting both high streets and supporting supply chains.
Workforces were already challenged by labour shortages and recruitment issues.
Manufacturing bases were experiencing transitions geographically as the cost of labour and terms of trade were changing.
These all impact automation in supply chains, as does the falling cost of producing and deploying systems.
To be a quarter of the robot population of Germany is crazy
Bouchier gives a telling example between Germany and the UK. “It’s well known that we have just under a quarter of the robots per 10,000 workers that Germany have,” which plays into the productivity gap between the two countries. “If you work on the numbers that a German worker is 30% more productive than a British worker, it has to be” at least partially down to the different levels of automation believes Bouchier. “We [the UK] can’t compete. We’re not a low-wage economy, so we have to be as efficient as everybody else…. To be a quarter of the robot population of Germany is crazy.”
The wider adoption of robotics has therefore been a long time in the making and is going to be critical to remain competitive, with those exploring its capacity giving themselves an early mover advantage. We can expect automation to accelerate both during this crisis and after it passes with widespread implications for supply chains and societies.
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