At the recent meeting of the United Kingdom Warehousing Association’s Warehouse Technology Group, the over-riding message for the logistics industry, which historically has relied on an increased labour force to meet the needs of new client contracts, is wake up and smell the coffee – automation and robotics are coming and you ignore them at your peril.
A number of factors are driving this trend and, of course, Brexit is one of them.
The combination of falling unemployment levels, minimum wage rises and a potentially reduced labour pool from the post-Brexit EU has changed the cost equation.
The number of jobs in the logistics sector for the year to Q2 2017 remained static at around 2.5 million. While the number of UK nationals employed in logistics fell slightly by approximately 50,000, the number of EU nationals increased by just over 10,000. This is significant, following the UK’s referendum decision to leave the EU.
It is estimated that more than 310,000 workers from the EU are currently employed in the UK’s logistics industry, accounting for more than 12 per cent of the sector’s workforce. This figure gives rise to concerns that post-Brexit immigration controls could sap the flow of migrant workers into the UK, worsening labour shortages in logistics and putting upward pressure on wages.
As a result, automation is stepping closer into the economic justification zone for more logistics operators who are juggling higher volumes, a growing demand for faster order fulfilment and greater value on the one hand, with rising staff costs on the other.
But, it is not just the rising cost of human labour that is making automation a more attractive option.
Traditionally, automated handling technology has required a relatively high level of investment over an extended period of time before it has secured a return. This has largely been at odds with the shifting client base of many third party logistics providers, but there are signs that the 3PL/client relationship is changing.
The traditional reluctance to invest in automation results from 3PL client contract durations of, typically, three years, by which time any return on investment in an automated system would only just be starting to become manifest.
Where good relationships between 3PLs and their clients have already become well established we are now seeing contract renewals of five and even ten year durations, which makes the payback on automation viable and more attractive.
The online shopping explosion – which has forced many 3PLs to completely rethink much of what they do – is also contributing to the interest in automation.
Although growing at a slower rate than in previous years, total online retailing increased by 9.1% between January 2017 and January 2018, when online sales accounted for 16.5% of all retail sales.
As e-com logistics requires the picking and packing of individual customer orders – rather than bulk shipping of goods for store replenishment – it requires more labour per item than is needed for bricks-and-mortar retail.
Automation allows orders to be processed at higher speeds – enabling greater throughput – and with enhanced accuracy, thereby minimising costly returns.
Demand from consumers to shop online brings with it the growing expectation for next-day delivery and even same-day delivery. With existing and predicted labour shortages, this shift in order profile towards e-com in UK distribution centres is another factor driving the trend for more warehouse automation.
And, when ordering online, customers now demand a virtual audit trail of product whereabouts; from when their order is placed, right through to delivery. This requires a constant flow of information that transcends the supply chain at every stage of the operation – and this can only be achieved through higher levels of automation and joined up services.
As automation’s advocates will readily agree, there are compelling arguments to be made for the use of some form of automation within most 3PL operations but, of course, before taking the plunge and deploying such technology, most companies will want some assurances that their investment will deliver a return.
In the past a fully automated system could involve significant capital expenditure and require extended periods to secure Return on Investment.
For 3PL providers committing to relatively short term contracts, the outlay on the type of fixed assets found in many fully automated systems – such as conveyors and stacker cranes – was therefore often hard to justify.
However, recent developments have made automation scalable and flexible and, as a result, pay-back times are cut significantly.
For details of UKWA’s Warehouse Technology Group, visit: www.ukwa.org.uk
Posted on: July 24th 2018