Mobile Warehouse Robotics: Flexible Automation Enables Resilient Operations

Earlier this month, I wrote an article about the diverse range of mobile warehouse robotics solutions available in the market today. Although the solutions vary greatly, they’re alike in the ability to offer greater flexibility than many of the traditional automation alternatives. The ability to adapt automation to changing requirements is increasingly important to warehouse operators due in large part to the rapid and unpredictable change that has been occurring in recent years (even prior to COVID-19). I am going to take this opportunity to discuss in greater detail, from a capital investment perspective, how flexibility can increase the ROI of a warehouse capital investment.

Flexible Automation Offers Real Options

Many traditional warehouse automation systems offer high throughput capabilities that provide low variable costs of fulfillment. These systems often require a large capital investment with the expectation of operating for multi-year period.  In contrast, mobile warehouse robots are known for their flexibility with respect to routes, tasks, load sizes, and even location of deployment. However, these robotics systems may not offer the same level of throughput that is often obtained by some forms of more traditional automation. A traditional financial review using cost volume profit (CVP) analysis would often determine that the higher throughput capabilities of a traditional automation investment would deliver a lower variable cost, a higher contribution margin, and ultimately a higher ROI due to greater operating leverage.  But the introduction of variability and uncertainty into a financial model – through the use of probabilities and cash flows associated with scenarios – would likely result in a different outcome. For many warehouse operations, variation has increased along with greater uncertainty.  It is informative in these operations to consider warehouse investment decisions from the perspective of real options.

Adapting to Changes     

A 1995 Harvard Business Review article titled The Options Approach to Capital Investment codified from a capital investment perspective what we already know intuitively – that circumstances change and that there is value in making a choice that allows you to adjust in the future as your environment evolves. The authors describe opportunities as options – the right but not the obligation to take action in the future. They introduce the concept of unknown opportunity costs (i.e., an alternative investment option turns out to be better than the one you chose due to changing circumstances) and the creation of additional options from taking action now (i.e. being set up to take advantage of an opportunity when it arises in the future).

In operations with a high level of uncertainty, the ability to adjust provides a greater level of confidence in a capital project’s return due to the wider range of scenarios in which it will provide benefits. Earlier this week, the Financial Times article by @elerianmSupply chain issues add to stagflationary winds” noted that the persistence of supply side troubles is “leading more companies to revise their supply chain management with a view to enhancing resilience, even at the cost of efficiency.” A flexible warehouse automation investment provides resiliency to warehouse operations that anticipate substantial changes or uncertainty in the future.

Demand, Throughput, SKU Mix, and Channel Shifts

The rapid shift in the retail landscape is the most prominent cause of rapid change in the fulfillment environment. This consumer shift is responsible for massive increases in demand from certain businesses and channels and rapid declines in others. Within many businesses the shift in fulfilment channels has also changed rapidly – mostly from traditional store purchases to e-commerce or omni-channel transactions. The effects to warehouse order profiles have been substantial. In this environment, mobile warehouse robotics provide reliability and operational efficiencies to manual warehouses while also offering the ability scale up and down as throughput requirements change; shift the robotics to a different process within the warehouse; or even transfer a fleet to different facilities as needs change. Mobile robotics support fulfillment resiliency by providing the capability to meet current needs along with the option to readily meet changing requirements or capture future opportunities as they arise.

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