Automation's ROI: A Hard Look at Soft Benefits

Numbers people never had much use for a crystal ball when calculating the return on investment for automated material handling. When it came to spending their company's money, they were fundamentalists, relying on labor based, asset based calculations that showed tangible savings inside their four walls. That was the universe they understood.

The most recent recession changed a lot of numbers people's religions. First, they stopped spending altogether. Then as the economy gradually improved, and business started coming back, they had to play catch-up. But somehow their universe had changed. Savings inside their four walls wouldn't be enough to give their companies a competitive advantage. Customers had new demands for products and service. Suppliers had varying abilities to cooperate in meeting those demands. A new vision was needed — outward into the supply chain and inward into a new ROI philosophy.

Even Scanning Gets the CEO's Attention

Brian Paul is one of those responsible for establishing that vision for his company. As vice president of operations for Impact Products, based in Toledo, OH, he knew that his company's vision was being blocked by reams of paper. Impact wants to see itself as the premier provider of cleaning and janitorial supplies to industrial distributors. Its broad product offering includes more than 2,000 SKUs, some of which require personalization.

That was no longer manageable with their manual shipping and receiving processes. Paul realized that when he did an eye-opening workflow analysis.

“Once you have that in front of you then you can start seeing where you can automate,” he says. “Instead of having someone re-key something into an RF terminal, you can automate that so it's just a scan. A lot of customer specific requirements come through a sales order. In our operation they were notes on the top of the order. We determined we could eliminate that by electronically presenting that information to our shipping personnel as they were processing and palletizing the order.”

Impact's small package processing operations involved manually weighing each carton and hand entering information into the system. Paul realized that by eliminating paper and automating that process they could eliminate errors and deliver information on a real time basis to people vs. waiting for information. This was information his CEO was ready to hear.

“We knew we could reduce actual direct labor,” Paul said. “We also knew we had to answer to our president and CEO and our board of directors regarding ROI. They were eager to move forward on the project after I made a presentation because of the impact it would have on our cost structure. They realized automation would help us get where we wanted to go as a company and help us make best use of our facility. We wanted to be in position to handle business opportunities that came our way via acquisition or core growth.”

The immediate opportunity lay in establishing communication between customers and customer service. Impact's customers want to minimize freight by consolidating orders. To do that, Impact would have to know what their customers' requirements would be so it could automate the process. After looking at several system vendors, Impact decided to work with Interlink Technologies and Psion Teklogix to automate its fulfillment system.

Part of the system's ROI lay in soft justifications that might not have been factored in only a few years ago.

“I can train someone in our shipping area in a matter of a few hours where it used to take us days because there were too many variables coming through the paper solution,” Paul explains. “Now there's just a fixed format. We've put people on our shipping line without the need for them to have any tribal knowledge.”

The core ROI of this system comes from a clear view of the fulfillment operations.

“My management team can now see what's going on in the whole process, where before much of this information was on multiple pieces of paper and there was no way to assimilate it,” he adds. “It's like sitting in a control room of a ship and all the windows are painted black. With the knowledge we've gained over the last year we've seen pockets of opportunity where people now have more time in their day. We're able to use those people in our cycle counting process, which is now real time at the location level. We've also implemented a very aggressive cycle counting process which has dramatically improved our location accuracy in the warehouse. That improves our efficiency and reduces our costs. In the old system I'd have had to add people to the payroll to get the same results.”

The bottom-line ROI was based on a reduction in labor of about 20%. Paul says that expectation was met from the day the system went live, simply by eliminating all the re-keying of data. The return will continue as Impact is now open to opportunities for corporate growth through acquisition and through better supply chain communications with suppliers and customers.

Paybacks Upstream and Downstream

The providers of logistics technology realize that their own success depends on helping clients achieve a quick ROI, so they're doing so by establishing collaborative relationships with them. Mike Kotecki, senior vice president of HK Systems, says there's pent-up demand for these solutions, therefore more willingness to partner — and to consider the softer side of ROI.

“I'm hearing customers more creatively and more open-mindedly approach ROI and look for things that are traditionally a little softer like product damage and employee satisfaction, sales value, depreciation, flexibility, growth potential, visibility, things that are a little less easy to quantify,” he says. “They hope to come out of this recession with a more technological solution than just hiring five forklift guys back.”