Does it make economic sense for vendors of automation technology to operate today's complex material handling systems, and leave users to pay for performance?
Automation today is super-sophisticated technology and software as well as complicated machinery. So complex and advanced are these new automation systems that some experts suggest that some very radical changes must be made in the financials of the automation business.
Some say vendors should take responsibility for their products—automatic material handling systems, for example—during their operation on the customers' factory or warehouse floor. Maybe users of such systems should even consider leasing instead of purchasing? One such proponent is Arthur St. Onge, president of St. Onge Co., York, Pa.
St. Onge discussed some of these ideas with MHM and in a speech at the Council of Supply Chain Management Professionals annual meeting in San Diego last October. His recent talk dealt with the conflict between automation and the need for flexibility in production and material handling.
Conventional wisdom says, "if you want mass and fast production or material handling, buy automation. If you want to be able to handle smaller and variable batches, use more traditional technology and more people." St. Onge says that technological developments over the years allow you to choose both today.
Twenty years ago automation was a favored tool of those who managed high-production plants, which turned out pretty much the same parts every day, or warehouses that could incorporate automatic storage and retrieval systems using stacker cranes and standard-sized containers. Today's automation technology has moved way beyond those earlier systems and incorporates radio-frequency identification, bar codes, various tracking devices and numerous other new electronics, including state-oftheart computers and software that greatly increase automation's flexibility, complexity and therefore, its costs. And the pace of technological change is sure to increase in coming years. Still, some operations cannot be successfully automated.
"Automation is not for everyone," says St. Onge. There are some operations that cannot be successfully automated, such as "third-party logistics providers... who find themselves handling barrels one day, cartons the next and auto parts the next." But, there are many "automation opportunities in fastmoving and, yes, dynamic supply chains."
St. Onge advises those who are considering automating a plant or warehouse to consult with the system designer and aim for the kind of flexibility that today's technologies can offer. Such automation is far more sophisticated and complex today than just a decade ago. This is why St. Onge believes automation vendors should become much more involved in system operation, and equipment financing.
"It is not much of a stretch to think that entrepreneurs in the automation industry might offer to not only provide technology but also operate facilities. Under this arrangement, the suppliers and customer would arrive at a basis of payment, probably determined by an easily monitored unit of measure for throughput (possible examples include cases, pieces, pallets, displays, special packs, etc). Thresholds could be set for pricing under expected conditions and renegotiated at appropriate times," he explains.
The customer benefits since the supplier actually runs the system and, it is expected, will operate it properly. The costs of running are the responsibility of the supplier. And, "technology advances are more likely to be incorporated, as the supplier owns the system," he adds. That in turn means moves toward more and more flexible modular design of automation will be enhanced. Of course, this also means it will be "easier to sell automation projects," says St. Onge.
Sounds like a win-win solution, doesn't it? Yet, it also suggests a high level of trust and information exchange between vendors and users. St. Onge believes such relationships will develop in the near future. What do you think?