When designing an automated distribution center the ROI of your design is one of the most important factors. ROI is a function of three things: capital, labor and building space.
No matter how you cut it, all three are always in tension: you can have a low labor headcount and a small footprint, but you will have high capital costs. You can have a lower capital cost and a low building footprint, but you will have a higher headcount (two shifts instead of one). You can have a low capital cost, but you will trade with an increase in labor and footprint.
Let’s expand on the topic and look at your options when you focus on each individual component.
Conserve Capital: Most traditional distribution centers in the US focus on this. This is where you lease or build a 30 foot high DC. There is usually a great deal of static racking and conveyor and very little automation.
Effect on Labor: There will be high labor rates. With little advanced technology you can’t perform product-to–person picking. To generate more throughput you have to have more people. Limited technology can be used, but it will along the lines of pick-to-voice.
Effect on Space: When you conserve capital and don’t spend on more advanced technology you typically end up with a low building with a big footprint. This usually means you are further away from a desirable transportation trunk. If you try to limit the footprint you end up spending on more labor from having to run more shifts to get your throughput.
Lower Labor: You want to have a lower headcount. This is the focus on your more advanced DC’s. Technology takes the place of an army of people on forklifts. Product-to-person picking is an option here.
Effect on Capital: There is a bigger expenditure of capital in the beginning. However, there are immediate returns in accuracy and labor savings though.
Effect on Space: With advanced technology there is usually a smaller footprint. This means that you can buy more desirable land closer to your outlets or the transportation trunk.
Less Space: You want to use the least space. The easiest way to do this is to just run more shifts in your smaller DC. You can run into problems though if you require a lot of storage.
Effect on Labor: This can go two ways. If you have less technology you will need a lot of labor in your smaller footprint. Technology can use the air above the floor much more effectively, so you can have less labor.
Effect on Capital: This is the same as the effect on Labor for the smaller footprint. If you want to save on capital and have a small footprint you will have a lot of labor (shifts). If you go the other way and want more storage and a smaller footprint you will have to invest more capital.
The trick is getting the balance right for the ROI you are trying to achieve.
So what does all this mean when you are choosing a supply chain partner? Most engineering firms use the one-size-fits-all philosophy – they try to manage the whole warehouse with a single type of technology (pick-to-light or pick-to-voice).
And unfortunately that technology will dictate what your capital, labor and space will be. One size does not fit all.
Different technologies have a different impact on ROI depending on where you are on the Pareto curve. It doesn’t matter if you are picking a pill or a pallet, economics of automation change as you move to the right on the Pareto curve.
Be sure that you pick a partner that can design the right technology for each bandwidth of your individual curve. Just like people, no two operations are alike; they are as distinctive as your fingerprints.
This will ensure that your decision of how you allocate your footprint, labor and capital.
Want to know more about how to help you “tame the curve”? Download our White Paper on New Trends in Distribution.
