The benefits of automation in the distribution centre

Brad Welsman, Managing Director at SSI SCHAEFER Australia says the business case for automation should not only consider the hard numbers but also the secondary benefits of a safer, more ergonomic environment with improved flexibility and response times.

Experience has shown that automated storage and order picking systems can deliver substantial operating savings in the DC while at the same time improving the quality of order fulfilment.

What benefits exactly can be expected from automated systems within the distribution centre and how are such systems justified?

Summary of major benefits of automated storage and order picking systems

  1. Reduced labour costs
  2. Reduced dependency on labour availability
  3. Improved space efficiency
  4. Improved ergonomics and safety
  5. More resilient to changing order profiles
  6. Extended facility Life
  7. Higher quality fulfilment


  1. Reduced labour costs

Automated storage and order picking systems reduce the need for labour and wheeled machinery in the DC.  In automated goods-to-person order picking systems for example, the right goods are brought automatically to the person at the right time, walking is virtually eliminated and productivity when picking slower moving SKUs in particular can be ten times higher than with traditional zone picking or walk pick-to-pallet approaches.

  1. Reduced dependency on labour availability

An increasing problem in distribution today is finding enough people to carry out the often-laborious task of picking and packing.  Moreover, where labour resources are scarce, operations often have to contend with a high turnover of staff which in turn leads to soaring training and administration costs and undermines quality.  Higher productivity automated systems reduce the number of operators required for storage, picking and packing and provide a much higher degree of ergonomics which helps retain staff and maintain quality.

  1. Improved space efficiency

By making maximum use of headroom and minimising aisle widths, automated storage systems for pallets, tote bins and cartons reduce footprint requirements for stock storage and with it land and building costs.  Additionally, automated Goods-to-Person picking systems do not have a traditional pick face but rather draw SKUs directly from an automated buffer system which is significantly more space efficient.

  1. Improved ergonomics and safety

With an increasing focus on OH&S and an ageing workforce, operations are coming under more pressure to provide a safe and ergonomic environment for operators.  Safety and ergonomics are becoming increasingly important drivers for automation.  Automated storage systems reduce the need for forklift trucks and eliminate the need to have pallet movements interleaved with other tasks such as order picking.   Automated Goods to Person palletising stations provide for sliding rather than lifting of cases and eliminate walking.  Additionally, ergonomic pick from tote stations for small and split case items minimise bending and twisting, reducing injuries, complaints and lost time.

  1. More resilient to changing order profiles

A general trend towards more SKUs, combined with increasing pressure to reduce store stock and optimise store shelf space, has dictated the need for more frequent smaller deliveries.  In manual picking systems, more SKUs and smaller orders mean greater walking distances which reduce productivity.  In contrast, automated Goods-to-Person pick stations are equally productive for small orders as they are for large orders and the productivity is independent of the number of SKUs.

  1. Extended facility life

Automated systems deliver increased productivity and therefore a higher capacity for meeting future throughput requirements.  Automated storage allows for better use of existing space and automated picking systems do not have a pick face whose length increases with the number of SKUs.   These things, combined with an increased resilience to changing order profiles, all contribute to extending the life of a facility.  The opportunity to “sweat the existing assets” and delay a move to a new or different facility can often translate into significant savings.

  1. Higher quality fulfilment

In automated picking systems, there is a greater degree of flexibility with respect to how and when an order is assembled.  So for example the ability of Goods-to-Person picking systems to build pallets in accordance with differing store requirements with equal productivity can translate into significant savings.  Moreover, automated Goods-to-Person picking systems typically allow for any order to be picked at any time, improving response times and increasing fulfilment consistency and quality, all of which leads to higher customer satisfaction and ultimately increased sales.

Is automation right for your business?  Can it be justified?

In general, the justification or business case for an automated system will be based on comparing the automated option to one or more alternatives.

The alternative may be to just continue as is, however, where an operation has outgrown its current facility, the comparison may be between moving now to a new manual site versus automating the existing site to prolong its life.   Where an operation has to move to a new site in any case, the comparison may be between building a new manual site versus building a new automated site.

An automated system will require significantly more initial investment than a manual system however potential associated savings in building and land costs need to be taken into account.  Automated systems also require much higher maintenance costs including preventative maintenance, spare parts and breakdown support which together can run to 5‑10 per cent of the initial investment per annum.

Where do the savings come from?

  1. Reduced labour costs, including recruitment and training costs
  2. Savings in land and building costs
  3. Improved capacity to meet future demands
  4. Fewer lost time injuries
  5. Higher staff retention
  6. Improved customer service

The higher productivity associated with automated system leads to lower labour costs and this is a key driver in determining the feasibility of the higher investment.  The savings in labour costs are very much dependent on the labour rate and the throughput of the system.  The case for automation is much stronger for operations that run 3 shifts in a high labour cost area.  In considering a labour rate for the business case evaluation, all associated costs including overtime payments and management, recruitment and training costs should be included.  These can be substantial for large manual sites, especially where there is a scarcity of labour and/or a high turnover of staff.

In most cases, automated systems require a much smaller footprint than manual systems.  This may translate into direct cost savings from an immediate reduction in space usage or alternatively, it may allow a building expansion or a transfer to a new facility to be deferred.  These savings should also be calculated and factored into the business case.

Finally, the business case for an automated system should consider not only the “hard” numbers such as labour and building cost savings but also the “second order” benefits of a safer, more ergonomic environment with improved delivery flexibility and response times.  Although sometimes difficult to quantify, these benefits include less lost time through injury, increased staff retention rates and higher customer satisfaction which leads to increased sales.

About the author

Brad Welsman is Managing Director of SSI SCHAEFER Australia.

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