With COVID-19 restrictions impacting supply chain and logistics operations, and retailers seeing a spike in demand, Arthur Dardoumbas Director – Supply Chain Solutions at ThreeSixty says businesses need to consider the application, the commercials and overall business and operation requirements before rushing to implement automated solutions.
Shifts in consumer demands and expectations have placed more pressure on supply chain and logistics processes than ever before.
In Australia, the online shopping boom is causing many retailers and 3PL providers to look at automation as a way of dealing with increased demand.
In recent years automation has taken centre stage in warehousing and logistics operations. While much of the technology is not new, it is becoming increasingly viable and easier to adapt.
Supply chain consultancy EFT conducted recent research revealing that 63 per cent of logistics professionals surveyed are investing in automation technology to deal with the challenges of shipping goods in 2020.
ABI Research has revealed that four million commercial robots will be installed in more than 50,000 warehouses around the world by 2025, up from just under 4,000 warehouses in 2018.
However, EFT data revealed that one of the biggest challenges for introducing automation in logistics and warehousing is the cost and how accurately to build a business case and the sensitivities on the return on investment.
According to Arthur Dardoumbas, Director – Supply Chain Solutions, the increased uptake in automation is largely due to the change in the type of order profiles that are being moved through and out of the warehouse.
“There has been a huge shift in the way that we buy. In the past, a warehouse would be used to replenish a physical store. But now individual customer orders are being picked, packed and shipped straight out of the warehouse. The orders are getting smaller and smaller and this is very challenging for retailers and logistics providers,” Arthur says.
“In Australia, e-commerce accounts for around 20 to 25 per cent of a retailers’ total sales. This is a fair chunk when you think that all of these orders have to be individually picked and packaged rather than unit picking. It’s a real challenge to do this manually.”
In addition, the Asia Pacific region is one of the fastest growing regions and is taking up a large slice of the e-commerce pie. “Currently Asia Pacific makes up 40 per cent of total global e-commerce spend. By 2025 this is expected to reach 50 per cent,” Arthur says.
This growth presents a unique opportunity for Australia and the surrounding region to capitalise on the growing appetite for online shopping.
However, while many businesses are racing to automate operational processes, Arthur says it’s important to think holistically rather than jumping straight into the deep end.
Considerations around automation must not only include opportunities around productivity and efficiency gains but ensure the end to end business and operational requirements are considered as well as the return on the investment. Arthur says it’s important to ask how businesses are going to ‘sweat’ the asset in five to ten years as their business shifts?
Automation as an enabler
According to Arthur, many organisations make the mistake of thinking that by installing automation alone, it will fix any pain points they have.
“Customers look at their supply chain and processes and often immediately jump to automation as the answer, but we encourage them to take a step back and think about the bigger picture. Start at the strategic level and think about what you are really trying to achieve,” Arthur says.
Automation is an expensive game. With installations of capital and automation regularly costing upwards of ten to twenty million dollars – and if it’s a greenfield site, property will be included in the commercials – almost every implementation approval will involve the Chief Financial Officer (CFO). “No supply chain or warehouse manager is signing off projects at this level,” Arthur says.
To get sign off on this kind of project, a CFO will want to see the business case for the capital spend versus any return on investment. “A CFO might not know the technical difference between an AMR and a Goods-to-Person robot, but they will know what to look for when trying to establish what the cost versus return analysis is,” Arthur says.
While automation can offer significant benefits in catering for demand, it’s also imperative to consider the right solution for the right application.
“Unfortunately, many of the automation providers focus on their equipment and the automated solution and don’t consider the overall operation and the bigger picture. Their specialisation is automation systems and processes and that is what they deliver on. However, consideration must be given to systems, integration, processes, people, and inventory as this is as important, if not more important, than the automation.
This focus becomes problematic for businesses when they have invested millions of dollars in something that doesn’t deliver on the improvements they were hoping for,” Arthur says.
What may work for a fashion retailer, might not work for a pharmaceutical’s retailer or a grocery provider. Arthur says it is “absolutely critical” that the automation is applicable to the function and operation that it is intended for.
He says that ThreeSixty has worked with many of its customers to design and implement a high level of automation, though also worked with customers to scale back the automation intended in order to work most effectively and efficiently.
Processes, systems and people
Arthur says considering processes, systems and people are fundamental to any supply chain strategy to avoid ongoing issues or failure. As such, ThreeSixty works with its clients to ensure any automation is integrated with IT systems, Enterprise Resource Planning (ERP), Warehouse Management Systems (WMS) and as well as the layout and design of the distribution centre (DC).
“We offer supply chain strategy that is holistic. I always say to our clients fix your processes, systems and people first and then you automate,” Arthur says.
By considering these fundamental values, there is often improvements that can be made without huge investments. “We explore ways that our customers can inject a smaller capital fee, which may be a lower level of automation and still meet the business requirements,” Arthur says.
This well-rounded strategic view offered by Arthur and the team at ThreeSixty stems from the expertise that the team has developed from years in the industry.
Arthur has extensive experience across the logistics landscape, including roles at Dexion, Dematic and most recently at Toll as General Manager of its Customised Solutions division. This division was tasked with building DCs for a number of different customers.
“We built ten new greenfield sites in eight years. Only Coles and Woolworths operate on that kind of volume. We worked on projects from smart and efficient manual operations to some of the most highly automated sites in the country,” Arthur says.
Much of the team at ThreeSixty worked together at Toll and have come back together to establish the consultancy. However, Arthur says ThreeSixty works as more of a partner to its clients than a consultant.
“Our key focus is intralogistics. We have broad experience in building and designing DCs. Within that we have expertise in not just automation, but the IT systems, ERP and WMS that goes with it. As well as the processes, we also have experience in IT and project management, operations management, operations ramp up and change management, which ensures any solution or automation that is implemented will be a success,” he says.
When significant alterations are made to the way a DC functions and operates, it’s also important to ensure that change management is prioritised. Arthur says this is often overlooked, but ThreeSixty ensure it is part of a holistic view. “You can’t expect to run a fully-automated DC in the same manner as a manual one,” he says.
Part of the passion behind ThreeSixty is the ability to offer customers an all-encompassing strategy that regards automation as an enabler for improvements rather than a solution in and of itself.
“The reason our clients work with us, is because we understand what they are going through. Among the team at ThreeSixty we can confidently say that we have been in their shoes. We know what they are going through, and we know how best to solve their issues. In some cases, this is large-scale automation, in others its smarter processes, whatever is needed we can offer a solution and ensure that the solution is applicable and fits the operational needs as well as commercial outcomes,” Arthur concludes.