Automate to better meet demands of present & future

At the Retail Revolution seminar held last October, Carsten Spiegelberg, general manager, Systems & Automation – Asia, SSI Schaefer, spoke on how automated warehousing is key to efficient order fulfilment in e-commerce. He shares more with Retail Asia’s deputy editor Lester J Wan on how automation, offered by a “good and reliable” solutions partner, can bring greater productivity and better equip a business to cater to the needs of the new future of retailing.

In recent years, there has been an e-commerce business boom. More than that, more businesses — even traditional ones — have been migrating to m-commerceto simplify retail transaction — at the fingertips of a mobile-phone-using customer. This dynamic brings about new challenges and places greater emphasis on growing factors that retailers and wholesalers have to deal with, including a greater need for a larger variety or range of products, but often in smaller amounts. This means, for example, in terms of stock keeping units (SKUs), a larger  range or variety is required, as well as flexibility in the order profiles. Carsten Spiegelberg, general manager, Systems & Automation – Asia at SSI Schaefer, shares with Retail Asia how automation in operations will help today’s businesses in this new dawn of retail and how retailers can and should invest in automation to cater to future customer needs and demands. 

Automated operations help e-and m-commerce businesses

Spiegelberg says automation firstly brings higher efficiency and effectiveness by reducing the labour requirement, thus making processes and their requirements less manpower-intensive. The technology used in automated operations increases the efficiency of the people working in the warehouse. For instance, they are guided and aided to pick items faster and with a much-reduced number of mistakes as there are different features that check and confirm the picking or selection of items.

Some examples of such technology include pick-by-voice or pick-by-light (PBL) systems, where specific information is given about the SKU or slot to be picked from, and there is an easy method to confirm that the correct item has been selected, such as a click on a finger-attachment for a strappedon RF unit.

This speed, ease and accuracy of automated operations translate to higher accuracy and effectiveness in terms of the whole system of operations and flow, thus bringing significantly improved productivity. For the retailer, this is the much-awaited answer to the demand from customers for shorter order turn-around times today.

Spiegelberg says that in the oldfashioned way of business or thinking, having more people working is seen as equivalent to having higher throughput. However, that could be a fallacy, depending on the productivity of manpower as well as other factors that may affect throughput. Nonetheless, Spiegerlberg adds, with automation, all one has to do is to add machinery. Through automation, flexibility can also be improved, he continues.

“With automation, whether you’re dealing with five or more products, or just one, you will have the flexibility to increase or even vary your product range.”

— Carsten Spiegelberg, General Manager, Systems & Automation – Asia, SSI Schaefer

“In any conventional warehouse operation, it is typically a fixed mechanical set-up. There is also a mentality in Southeast Asia for warehouse operation processes to be quite fixed, which makes it hard to implement changes to the workflow,” he notes.

“With automation, whether you’re dealing with five or more products, or just one, you will have the flexibility to increase or even vary your product range. For example, if you had 10,000 slots or SKUs, it could give you significant variety in terms of product range. Today, one needs more slots to meet the fickle and broad needs and growing demands of customers,” he explains.

If one had 10,000 SKUs or a similarly high number, automation would help in managing such a mass or scale. According to Spiegelberg, the greater the number of SKUs, the less efficient, productive and realistic a manpower-intensive operation becomes. Unfortunately, a lot of businesses today are not structured for a larger variety of products and SKUs, and are still heavily dependent on human labour.

As he mentioned, because most warehouse operations are mechanical set-ups with fixed processes, this greatly restricts the potential of change. In order to transform operations to be more effective and capableof handling more complex orders, a significant investment may be required to change operations, meaning a longer-term ROI. Nonetheless, this may also mean much higher productivity or returns.

Spiegelberg states that businesses would have to change in order to be competitive in the retail market and to remain or grow more profitable in the face of the changing consumer landscape. The reality is, the faster one rolls with the punches of the changing retail sector and adapts one’s business to meet such challenges, the better equipped one is to face unexpected blows, as well as to triumph (in business profitability) in the long run.

“What counts today, in the modern environment, is speed, accuracy and the increase in SKU range. Automation enables you to have all three characteristics,” he explains.

Relating to another factor that is facing growing concern, automated storage operations also provide greater flexibility and ease in returns handling. Spiegelberg says:

“You can store away returns and the IT allows you to easily call it back up the next time. There is no issue with the consolidation of products or the trouble of manual search and selection.” Citing an example in Germany, he mentions the system of a client in the fashion industry that is purely designed and used for returns.

“There is a 60% returns ratio in their business and automation comes in very useful for them,” he says.

Transforming e- or m-commerce operations with solutions and opportunities

Spiegelberg highlights two challenges in finding a suitable automated solution for e- and m-commerce businesses and helping them to adopt it: Identifying the requirements due to the fast or unpredictable nature of the growing business; and the need for a change in mindset to be open to change processes and to run concepts that differ from the traditional methods that these businesses have been familiar with. There is also the challenge to convince business owners to invest into the future instead of short-term investment with a short ROI.

In order to change these mindsets, Spiegelberg found that he had to “provide options, cite examples and show references” about how businesses have been transformed elsewhere, and how it helped operators not only reduce operational cost in the long term but also open new business opportunities.

“We provide and convince with solutions more than products. For example, everybody wants a shuttle system. Such systems are expensive, so they are usually not the most economical technology to run a whole operation. On the other hand, it does not pay to equip a complete operation of thousands of SKUs with LEDs for pick-by-light operation. It’s an overall integrated solution that makes the difference,” explains Spiegelberg.

Again he cites the example of 10,000 SKUs and people having to walk and search, and at the same time arrange all categories (fast-, medium- and slow movers) into one storage area. It would  be ineffective. A first step to improve such operations could be to have pick-by-light for fast-moving products, and RF-guided picking could be used for slow-movers — so one gets the most effective system for each category of product or logistical need.

To illustrate the factors explored so far, Spiegelberg gives a few examples of SSI Schaefer clients with e- or commerce businesses whose operations had been transformed or greatly aided by automated solutions. There are also several omni-channel systems under third-party logistics (3PL) operations.

One particular SSI Schaefer client has a mix of retail and e-commerce businesses. Spiegelberg says that client has a facility that has been planned with e-commerce development in mind. The business not only includes traditional e-commerce but also 3PL services for media and fashion industries.

He cites: “The client invested in the future, not only to improve its system of operations but also to be able to acquire new customers to run in the same operation.

“It gained a new online beauty & cosmetics retail client, as it had been willing to invest. This is a prime example of a business that not only transformed its operations to cater to current and future client needs but also gained new business as a result”.

Spiegelberg cautions that people tend to be attracted by the latest products. Several products in the market that are suitable in retail operations with limited SKU range and/or bulk picking have become very popular with business owners for being a “state-of-the-art” fix for their existing operational challenges. On the other hand, they may not be suitable in the long term for those planning to adopt e-commerce or other forms of multi- or omni-channel models. He warns against being product- or innovation-centric, saying it may simply be like wanting a new toy. He admits that it is difficult to convince.

“The client would need to share the expansion plan, as well as to have the flexibility of what system to have in the business’ operations. The business may change in the future in terms of products, SKU range, order profile and more, and we would need to take that into consideration,” he says.

Outlook of automation in APAC and adoption in five years

One limiting factor in applying higher levels of automation in Asia is the relatively low volume that many operations deal with. While European and US businesses tend to consolidate their distribution to large centralised distribution centres, the Asian market sees many players, 3PL, small wholesalers or direct manufacture distribution, with very few of them currently reaching the critical level to make automation pay for it.

For an operation that deals with just a few hundred order lines per hour and employing, for instance, five or six people to do, there is not much savings one can achieve with any kind of mechanisation. In such cases, it is often simply an optimisation of processes and warehouse management that allows the increase in productivity of an order picker from, for example, 20-60 or 80 order lines per hour (depending on SKU range and order profile).

According to Spiegelberg, the level of technology in Asian businesses has increased as the market challenges are increasing and he sees a movement of operations becoming centralised and/or consolidated, though generally not at the same pace as in the US or Europe. He says that China and South Korea are at the forefront of opportunities for mechanisation in Asia as they realise that they need to change from traditional “batch-pick and sort” operations to discrete order-picking, as they face the earlier-mentioned changes in the business environment and they have the business volume to make automation worthwhile.

“Hong Kong and Thailand will be next to grow and, overall, Asia will adopt a certain level of technology, at least in terms of paperless picking technologies and the application of conveyors in zone-routing operations,” Spiegelberg predicts.

He notes that, currently, another issue in South-east Asia is that operators are not really looking at the longer-term future of the evolving retail landscape or ROI. He adds that at a higher level of automation, the period for ROI is usually in four to five years but that is too long to many. Spiegelberg reiterates that businesses have to plan for the future and states that they need the automation plan now, for nine months’ time or further down the road. They must also be prepared to see real returns over a longer term, for example, a four- to five-year period.

“Many are thinking about system cost and building cost, among others, but no one is consolidating to think total cost or long-term returns,” he maintains.

To add a higher level of automation to their infrastructures, another hindering factor, for mostly 3PL operators, is the short tenure of the service contract — typically two years. The worry about what to do with such an investment, as well as when a customer does not extend the service contract period, leads to an attempt to achieve an ROI of any investment related to such a service contract within the short contract period, and prevents many opportunities for higher-level and longer-term more efficient automation. Spiegelberg highlights the situation of businesses in Europe, where there is longterm investment in the infrastructure of the business and operations with an eye on having high-customer retention, in addition to gaining new business.

Yet another case revolves around picking accuracy. He says: “Here, the advantages of automation are often not fully recognised as 100% quality control remains a requirement, while one aim of automation is to increase accuracy to prevent checks from being necessary and to cut the time and labour to perform these. It’s almost a case of the chicken and the egg.

“Nobody really does an analysis of the impact of picking error and the effort it takes to identify them, rather than preventing them in the first place. There is a lot of work to do in terms of the mindset in order to get automation in place, though there is a real need. There is a reluctance to change or analyse where problems lie,” he explains. Spiegelberg cites an online supermarket  operator based in Hong Kong as a positive example. The client is currently investing in a higher level of automation to reduce the reliance on manpower not due to cost but because of workers being unreliable in terms of attendance, performance, commitment and accuracy of their work.

Unfortunately, this does not usually appear to be the case. Spiegelberg says: “In Asia, businesses seldom analyse the various factors and challenges such as productivity, performance, product shrinkage and returns handling. Some clients tell me the shrinkage is still not big enough an issue to do something about it.”

In South-east Asia, he says, it appears that Thailand and Indonesia seem to be more willing to take risks and to experiment, and to learn from them. Still, they do struggle with the issue of lower-cost manpower versus higher-cost accuracy and productivity of automation. He says it depends if they see the ROI, especially over a longer period.

“Overall, the use of goods-to-man picking solutions and robotics will grow but they will not be seen in businesses everywhere. This is partly because labour availability and cost may vary across the region, and some businesses will still be reluctant to move away from a manpower dependent system,” says Spiegelberg.

What is his closing advice to businesses — especially those going into e- and m-commerce — that are contemplating automation?

“Think in terms of systems and solutions and total investment cost, not the cost of individual machines, system components, material handling equipment or civil work,” he advises.