Global management consultancy Argon & Co says warehouse automation projects can be de-risked when operators adopt a third-party logistics provider (3PL) mindset, particularly as distribution centres become more capital intensive and complex.
Argon & Co, which specialises in operations strategy and transformation across supply chain, logistics, procurement and digital services, says the 3PL approach is built around commercial discipline, operational validation, and designing for flexibility rather than over-engineering.
Cameron Austin, managing principal at Argon & Co, says 3PLs are consistently more successful than owner-operators when it comes to benefits realisation because their business model forces them to prove performance before investment.
“The primary reason is that 3PLs make money off running these services, so they have to know exactly what it’s going to cost before they proceed with buying a DC, purchasing automation and implementing it,” says Cameron. “They need to make sure they understand what it costs, and then, once implemented, ensure that it is running that fast and was implemented at that cost, because if they don’t, they don’t make money.”
This commercial discipline forces 3PLs to build rate cards based on accurate modelling, which becomes the benchmark for delivery performance.
“If we compare an individual company, they probably run through this process once every 10 or 15 years,” he says. “Comparing that to a 3PL who put together maybe two to 10 DCs, maybe two or three of them which are automated and quite expensive each year, you can expect them to be much more proficient at it.”
Bart Gill, Associate Partner, Argon & Co, says boards can underestimate the scrutiny required to properly validate automation business cases before approving major capital investment.
“One of the key things a board can get wrong when approving an automation project is not doing the correct level of due diligence across the business case,” says Bart. “There are pitfalls in having a business case produced by one party without an independent review from a group with end-to-end delivery experience and an understanding of the true implementation costs.”
Underpinning all of this is ensuring that the business requirements to operate and serve customers have been gathered correctly in the first place.
“This is really the very first step in the journey and once gathered should be carefully reviewed, and used as a baseline for validation of any proposed solution,” Bart adds.
Bart says this is a critical step that is often rushed or resourced with junior level analysts, resulting in gaps in the proposed solution. It is also important to review the requirements and proposed solution(s) against the business strategy.
“As businesses change their operating models, the automation proposed can be impacted,” says Bart.
Having line of sight on strategy will inform the solution in the long run. Bart says 3PLs can move customers and utilise automation assets effectively, while a business going it alone risks being locked into a single solution that is not customisable to future needs. A phased approach with modular deployments can offset this risk if key cost areas are targeted.
“In the bid phase, they’re very good at cost estimation,” Bart says. “In the negotiation phase, they’re also quite good at vendor management, so they’re more experienced at holding a vendor accountable to the performance that was sold to them.”
Integration is another common pitfall, particularly when automation is treated as a standalone solution rather than part of a broader systems environment.
“One of the pitfalls in designing solutions is the lack of detail in the integration of systems at the design phase,” Bart says. “Often, the focus is on interfaces between WMS and ERP but there are multiple systems that can be affected and require change e.g. OMS, TMS. Without a comprehensive review of system architecture to identify full end to end flow and impacts, these gaps can become costly variations as a project build commences.”
“It’s a better approach because it’s more risk averse,” Cameron adds. “We want whoever understands that part of the solution best to own the performance. And we want to start talking in real benefits, rather than a physical rate that a machine can do.”
Argon & Co says this type of thinking also improves distribution centre design by preventing companies from over-investing in automation that does not improve cost-to-serve. Cameron says building a rate card naturally enforces a financial checkpoint during the design stage.
“It enforces a real-world benefits check at the point of design,” he says. “If you put automation in and the cost per pick goes up, a 3PL is not going to go with that option, because it’s less financially viable for a customer,” he says.
Cameron adds that owner-operators can be pushed into excessive automation investments due to internal expectations, especially from boards or stakeholders who assume more technology automatically delivers better outcomes.
“There’s a general feel that the more automation you put in, the better the outcome will be,” he says. “That it automatically means more savings, and that you have to have the best. That might sound like a strong message from a marketing point of view, but it’s still quite an emotional view.”
He says a more disciplined approach starts by defining what the warehouse must achieve operationally, then selecting the lowest-risk path to meet those outcomes.
“What does this business need the warehouse to do?” says Cameron. “If it can do that, then we just need to make sure it can do that at a low risk, low cost way.”
Cameron says one of the most common weaknesses in automation projects is relying on vendor-led testing that validates mechanical performance but does not confirm real operational throughput.
“Automation vendors will show you that the mechanical rates are being achieved, however integrated operational testing is key to ensuring that the business benefit is achieved,” he says. “Its the difference between checking it runs at a rate, and if when operating the customers get their deliveries on time.”
Instead, he says benefits tracking must be built into the process from the earliest planning stages, supported by structured checkpoints through detailed design, testing, and operational ramp-up.
“There should be a few touch points in terms of benefits tracking,” he says. “You need to initially find out exactly what the business needs from stakeholders.”
Cameron also says the exit strategy for automation should be considered early, particularly in how facilities are designed to adapt over time. He says automation maturity plays a major role in how companies approach investment.
“Automating a warehouse really depends on maturity,” he says.
“Less mature companies typically add automation onto an existing facility. On the other side more mature companies might design their warehouse around an automated solution as part of a decade long plan, linked to strategic network design.”
