Big Bang Transformation or Incremental Approach?

SPEED is what defines the growing proliferation of automation in supply chain in India and globally as well. The word, as smartly coined by Dheeraj Shah, Head – Supply Chain Management – Retail Business Group, TCS, aptly connotes the essence of what automation delivers to companies going for automation as it stands for S – Speed; P – Productivity; E – Efficiency; E – Excellence; and D – Differentiation. Having said that, experts have rightly pointed out that supply chain automation needs to be approached with focus, commitment to achieve scale, and with a long-term and enterprise-wide strategy if they want to get best RoI. This Cover Story delves into this very aspect and questions the very fundamental if there needs to be big bang transformation or an incremental approach for companies going for automation…

The Global Logistics Automation Market is forecast to reach US$120.08 billion by 2026, according to a new report by Reports and Data. The logistics automation market is rising rapidly in the global market owing to the proliferation of the adoption rate of automation in the logistics chains globally. The convenience of lesser human effort and enhanced overall operational improvement is fueling up the market growth of logistics automation.

McKinsey Global Institute estimates that the transportation-and-warehousing industry has the third-highest automation potential of any sector. Similarly, Capgemini Global Digital Supply Chain survey found that automation initiatives in procurement and supply chain functions deliver the highest returns as compared to any other function. Automation delivers an ROI in the supply chain of 18%, three percentage points more than for HR and four percentage points more than for IT. For other functions, including finance and accounting, research and development, and customer service, the difference was even greater.

Towards this, Rupesh Narkar, Director – Sales, Swisslog Logistics, Inc., shares, “With the onset of warehouse space consolidation, Indian warehousing industry is witnessing rapid emergence of large warehousing spaces. Larger spaces are driving the need for efficient warehousing operations. With a smaller setup, operating efficiencies and costs were not a priority since the loss or impact of inefficiencies was bearable. As per the research by Knight and Frank, the future will see reduced needs to carry inventories thus substantially reducing number of small warehouses. With the progressing of this trend, warehouse operators are aiming on reaching higher capacities in terms of better space utilization, higher productivity in terms of maximum goods inbound/outbound and improved efficiency in terms of better resource utilization.”

“The other factor gaining prominence is to gain a competitive edge in market. With the ever-increasing number of warehouse operators entering markets each day, customers today have a wide choice to shop the most economical warehousing and fulfillment vendor. For the warehouse operators, their existing and new customer are demanding faster fulfillment times, competitive rate contracts and error free operations. This is pushing them (mostly running manual operations) to rethinking their ability to extract full capacity and efficiency out of the current setup. This is where automation is helping in providing a great solution meeting all these needs,” adds Narkar.

According to him, another major factor is digitalization of processes, which is the cornerstone of next generation of supply chain. Intelligent, reactive, data-driven and flexible solutions or warehouse management system forms the backbone of digitalization. Automated receiving, accurate identification, easy tracking in the process, optimization, inventory control, assured order fulfillment and reliable operations are all made possible at a finger’s click using automation systems.

Dheeraj Shah, Head – Supply Chain Management – Retail Business Group, TCS, categorizes the drivers of automation in three parts:

The Need: As the customer expectations are getting tremendously more demanding on the supply chain, there is a need to accelerate the whole promise fulfilment proposition for supply chain. "Fast" is the new normal. So, the paradigm in which we are today is “What I want today is what I needed yesterday, however I am not late, but your supply chain is slow!” The other dimension is productivity and efficiency to drive costs down is extremely important with tremendous amount of pressures on balance sheets of organizations. Hence Supply Chain has to end its role of being an onlooker to active driver of a key "value" enhancer through cost reduction for the stakeholders and shareholders of the company. In some cases, the availability of workforce and the variations in learning curves, trade unions, expectations of accuracies and quality as well as dependency on casual and contract labor which makes managing supply chain very difficult is driving the growth of automation. Some of the industry functions in supply chain exhibit characteristics which need very high level of accuracies, quality and repetitiveness for e.g. Healthcare, Automotive, Hi-Tech. The Supply Chain in these industries, therefore, have mandated the need to embrace automation.

The Aspiration: Indian organizations aspire to be globally competitive and demonstrate that their operations, functions and supply chain processes are on par or even better than the global practices. While this might be a qualitative view, the quantitative dimension to this is that the aspirations of growths or efficiencies are exponentially higher and to realize those Supply Chains cannot leverage traditional approaches and hence need to embrace automation or even at times hyper automation. The other key factor is “Differentiation” through “first mover advantage” which organizations want to bring into their Supply Chain.

The Access and abundance: As we say, Supply Chain 4.0 is about harvesting abundance and leveraging the ecosystems. The advent of technology, research in automation and development automation solutions has sizeably increased. With this access and availability, it is easy for Supply Chains to adopt from the plethora of options at their disposal the best that suites their needs and objectives. In addition, in India there is now adequate availability of infrastructure including electric power etc. which makes the business case more palatable over what it was earlier.

Seconding his views, Jitender Lalit, Lead Commercial - Logistics (Lifestyle Business), Raymond Ltd., adds, “Freight Management System (FMS) works closely on principles of Supply Chain 4.0 and has tremendous potential in automating the distribution in supply chain. It breaks the traditional ways in which distribution is currently done. According to him, use of FMS will bring visibility in distribution process, mitigate risks, and reallocate the existing manual freight bills checking resources to various other core tasks. This set of innovative digital technology that it offers could help companies reduce lost sales by 50 – 65% and cut distribution costs by 15 – 30%. Improved planning would make inventory reductions of 35 – 75% possible and supply chain administrative costs could be 80 – 120% lower.”

Ashok Kumar, Head-Intralogistics Solutions, Godrej & Boyce Mfg. Co. Ltd., informs that the choices available to the customer is a major factor that is influencing automation decisions. The market is highly competitive irrespective of the Industry, and hence the need to provide the client a superior product and delivery experience are proving to be very critical. This necessitates companies to look at various technologies, systems and methods to create a unique value proposition.

Besides the need for competitiveness, the introduction of GST has led to growth of Grade A warehouses that are bigger and taller. Manual operations are no longer adequate to meet client expectations in terms of variety, volume and speed from such warehouses. Managing higher varieties and lower batch volumes are impossible for manufacturing from the economies of scale point of view. And hence, warehouses are expected to intervene and deliver these expectations. In such a scenario, organizations have no choice but to look at automation technologies in warehousing too.

For Umesh Madhyan, Associate Vice President Logistics, Hindustan Coca-Cola Beverages Pvt Ltd., the biggest factor in the Indian supply chain is the growing startup phenomenon. This is not only creating new solutions; it is also helping localize a lot of automation hardware. Organizations have realized over a period of time that it is important to embrace new ideas and startups. Solutions which used to cost a bomb half a decade ago have suddenly become payback intensive. This also helps create competition and lets the user organizations experiment and win. On the other hand, technology is evolving at a rapid pace. Application of any technology including Industry 4.0 has started to make sense because they are complementing each other. Mobility spreading faster and making mobile device the most commonly used technology makes it easier to apply new age technology for easing out processes. The biggest realization of replacing manually executed jobs Vs. machine getting more closer to accurate is defining the change. There are accuracies beyond execution and analytics possible with implementing smarter technology solutions.

Indian companies’ receptiveness towards automation

Logistics companies are intrigued by the potential of automation but wary of the risks. Accordingly, they are investing conservatively. McKinsey research estimates investment in warehouse automation will grow the slowest in logistics, at about 3 – 5% per year to 2025. That’s about half the rate of logistics companies’ customers, such as retail and automotive (6 – 8%) and pharmaceuticals (8 – 10%). Offering insights from equipment manufacturers’ perspective, Mihir Contractor, Senior Vice President, Nilkamal Ltd., asserts that automation should be viewed as a return on investment and not as a cost. Multiple factors are considered while estimating the return on investment in an automation project. Typical savings arise from improving labour productivity, minimizing manual mistakes, & maximizing floor-space utilization.

Since the interest cost to borrow funds is relatively high & labour costs relatively low in India vs. developed countries, the return on investment in India is comparatively low. However, many businesses with high throughputs-&- mix are warming up to the overall benefits of automating their material handling processes. In many such operations, there is no choice but to automate. Other than costs and savings, there is also a moral question: Should successful Indian businesses deploy automation to eliminate labour, or continue providing opportunities to the millions of un-employed so wealth trickles down & we can eliminate poverty?

He adds, “Not every project requires automation. And not all customers are receptive right away to the benefits of automation. The main challenge is of acceptance by leaders who envision the change, as well as the implementation team who have to accept & execute the change. The other challenge is selecting vendors who have successfully implemented similar automation projects in India.”

Ashok Kumar seconds, “Across the Industry segments, there is indeed a realization that automation would ultimately benefit them. But the investment decisions are very much mixed. At this moment, we note that the e-commerce sector finds it imperative to automate functions within their warehouses, whereas the other sectors are in the experimentation mode. Current complexities seem to force some interim investments but automation for future readiness is yet to gain momentum.”

He adds that it has proven to be very challenging so far. While the enhanced productivity levels are the only measurable parameter for an automated operation, the qualitative improvements are very difficult to assess on an immediate basis. For example, how do you measure the cost of a delivery error and justify against an investment for automation? And that too when there is either inadequate legal systems to protect a consumer or lack of awareness of such legal systems? Also, the clients most often look at automating only a part of their functions. How do you assess and attach a customer benefit to a small investment in operation automation, when the client satisfaction or experience is linked to the overall performance of the organization?

Customers not having complete visibility of their future operations and resultant complications is another hurdle. They expect the solutions to be scalable and flexible. Building robust, comprehensive automation solutions with flexibility to meet future complications is very challenging and the solutions get expensive. Often, we hear customer expectation of a ROI in the range of 3-4 years. Considering that we have largely managed our warehouse operations with relatively economical manpower and with absence of cost of error measurements, meeting such a ROI expectation has indeed been very difficult.

According to Ashok Kumar, hurdles to automation are multifold:

a) Addition of Manufacturing / Warehousing Infrastructure in an unsystematic manner over time has led to cramped up spaces and chaotic material movement within and across facilities. Automation requires certain amount of discipline and consistency in material movement.

b) The skill level of people to adopt newer technologies. Automation will always come with certain rigidity. Switching over to such systems that offer very little flexibility has been difficult for the workforce to accept and adopt.

c) The misconception that the automation is there to reduce the dependency on people. This has led to poor adoption, misuse of systems and hence the organizations not truly benefiting from their investments. Automation decisions need to be positioned better within the organization.

Giving a real-life example, Jitender Lalit shares that most of the time automation projects require high investment with high risk and uncertainty w.r.t ROI, however, we have explored various avenues and taken the conscious decision to invest in automation. We have started involving the stakeholder from day 1 & make equal responsibility for the success of the overall project. Due to the involvement of stakeholders from Day 1, it also helps in identifying the complexity in the operations and simplification of the same.

According to Umesh Madhyan, the biggest challenge faced by every Supply Chain Leader to implement technology has been payback. Some of the ideas and solutions are so new that it is nearly impossible to estimate the payback because you are doing it for the first time. The best way to overcome them is to go through a proof of concept. Once there are a few successes on this road, the journey becomes a lot easier.

The second biggest challenge is change management. It is obvious for users to resist change and not trust something new. The process they have been performing manually for ages - how can it be done in seconds by a machine? There is a need to work harder on managing people and training them to accept these changes. There is no point in implementing new age solutions which take 6 months to get accepted. This not only delays payback - it also puts the implementation partners success at risk. “We are the most advanced technology driven supply chains & logistics in the country today & we have learned the hard way. Today - our biggest priority is to train people and make the entire supply chain system future ready,” adds Umesh Madhyan.

Going for automation

According to Rupesh Narkar, the core of warehouse automation is to gain the control of process, better manage the inventory and efficiently move goods between different processes. Automation fits well in process that are monotonous, require high operating efficiency and high throughput. Also, processes that are demanding a lot of resources with fairly basic to moderate skill levels are good cases of automation (e.g. receiving, conveyance, picking, packing, storage/ retrieval, etc.). Also, cases which need solutions on productivity issues are the best candidates for automation. The fundamentals for unlocking productivity and improving operations in warehousing lies in the basic concept of gaining more visibility, improving tracking and thus gaining a control on processes. Only after you track, you can control. Only after you control you can optimize. Automation technologies that offer positive inventory control, intelligent material flow, flexibility and tracking form the ideal mix of material handling solutions in the plant or warehouse.

Umesh Madhyan cautiously highlights that the worst that could happen to automation is doing it for the sake of it. “I see organizations talking about AI or IoT without a business case. Technology solutions should be implemented to solve a business problem or upgrade a process. One should use a technology to leapfrog into the destination strategy of supply chain. To me, each and every problem that one could think of has a solution. A problem as simple as inventory count can be resolved by a drone counting your cases in the warehouse, without production stop and without sales getting any impact. One has to first spend time in building a strategy that defines the problems to be resolved. Technology solutions are to be a result of that strategy,” he adds.

Step by step approach to go for incremental automation

The key is to determine objectives of automation and align it with the business strategy. Example, an objective could be to double the throughput flow in the existing warehouse or maximize the space utilization or achieve a 24x7 operation with improved productivity etc. It is very important to think through the end-to-end objectives of automation. There is no point automating one process only to create further bottle necks. A classic example is automating the internal inventory storage without considering what bottlenecks would be generated in dispatch process and subsequent conveyance of goods to shipping docks. The investments that have been made in transforming the warehouses have paid dividends. However, in some cases, just transforming without alignment to long term strategy has resulted in diminished returns. By automating a process, you will generate plenty of capacity but shift the bottle neck further down the process. For this, break the processes down into distinct areas. You achieve a first-cut result by tackling only part of the larger problem and then work your way through. Always first go for the low hanging fruits resolve the issues with it and then proceed with higher up fruits, all in alignment with the long-term strategy, quips Rupesh Narkar.

Mihir Contractor believes the best way to start thinking about automation is by inviting a few large automation vendors to walk through & assess existing operations where-in the leadership & operations team believe there is scope for improvement. It is important to select vendors who have successfully executed projects in India vs. elsewhere in the world. The leadership and operations team can then evaluate the proposal from each vendor. The vendor can also arrange visits to similar successful implementations. The return on investment based on each vendor’s proposal can subsequently be assessed. And then the customer has to make that leap-of-faith, especially if it is their first automation project.

Ashok Kumar feels that if we don’t map our value streams, operations, systems/infrastructure and understand the inter connectivity, incremental automation decisions can never be taken or justified. Cross-functional team discussions will be very crucial in identifying the correct bottlenecks that slow down the entire flow of materials or require huge amount of energy. These areas will be the ideal candidates for automation. Automation can’t happen in isolation. Strong process orientation, appropriate investment in support systems would be essential.

Seconds Jitender Lalit, “Automation is not a single solution which can fit all, it varies from situation to situation and most important how the solution is contributing to meet the Mission, Vision, and goal of the organization. In the case of complex operations, it is better to design solutions on the go, considering the complexity, however implementation should happen in phased manner. It will help in on-going fine-tuning across various process & deliver goods results.”

On the similar note, Umesh Madhyan also remarks that there could be solutions which are important but may not provide an immediate payback or return on investment. It is extremely important to consider a phase wise approach where efficiency improves gradually, and the solution can be upgraded to the destination design. Illustrating an example, he adds that from a conventional block storage warehousing, one can move to a high density and throughput solution by implementing manually operated shuttle racks. The next step to a shuttle rack is ASRS (Automated Storage and Retrieval System). This could be a higher payback for now depending on the base business case cost. So, what one can do is implement an ASRS design without the automatic lifts. The putaway and retrieval can be done temporarily by material handling equipment, we called this HDRS (Hi Density Racking System). While the radio shuttle racking system costs around `10,000 per pallet and ASRS may cost `28,000 per pallet, the HDRS is a good mid-way option with `20,000 per pallet. This only means that the automation is getting more flexible and modular, still solving the purpose.

Dheeraj Shah adds, “The most important question that Chief Supply Chain Officers should address today when it comes to automation is, not what automation can do but where should it be used? While there is a plethora and abundance of automation solutions across the value chain i.e. from point solutions to integrated solutions to a sophisticated hyper automated robotic solution. These options involve MHEs, sortation, pick to voice, pick to light, palletizers, sortation, robotics, AGVs, multi-bots, drones, swarm of smart machines, etc. Since automation is capex heavy and comes with a longer time ROI dimension, there is an extensive list of considerations and factors which need to be evaluated and explored. However, here are the few, which for sure, are “Must Haves”:

• The Objective / Purpose
• Harmonization capability with the overall ecosystem
• Human machine collaboration and co-performance
• Seamless coupling potential with upstream and downstream process
• Intrusion and disruption in BAU during implementation/ installation Scalability
• Adaptability to future needs (new products, varying products, new business, new network design etc.)
• Will it undo something good that we have today (e.g. might lose the flexibility of running operations)
• Safety
• The cost
• Scalability Benefits and ROI

And the most important question is “will this matter to my customer”, which essentially means whether it will be able to make a material impact on my customer facing KPIs as well. I have seen many times the supply chain leaders feel automation could solve the problems they have but there are lots of leaders with whom I have interacted and observed that many “automation promises are unfulfilled”. Also, many times the answers might lie in improving processes and systems to get the results and benefits which might not be intuitive.

Shaping the future of logistics

Automation is redefining the way we manage our precious resources / equipment and machinery, materials and operations. It is giving us tremendous control over enormous amount of data. It is redefining the way we identify our goods, retrieve them, process them for value add, deliver to clients and maintain control all through. It gives the organizations the ability to meet a wider client base with varying needs, in the shortest duration, at the lowest cost of delivery. With the availability of quality of manpower increasingly becoming difficult, automation is seen as an essential activity to meet client expectations. Automation is minimizing various leakages in the system such as Free of Cost deliveries against wrong or part deliveries, handling damages and pilferage etc., and make organizations more competitive. For the buyers, significant improvement in visibility of orders and error free deliveries are the added benefits, states Ashok Kumar.

According to Mihir Contractor, prior to GST, businesses with countrywide sales & distribution were relying on smaller fragmented depots to invoice locally within each state. Post GST, it makes economic sense for businesses to invest in larger warehouses with higher throughputs. This trend coupled with ongoing improvements in our road-infrastructure, increase in landprices, & increase in consumption of a higher product mix will all necessitate investments in automation in material handling & logistics. Ergo, Automation will continue to enable efficient logistics.

For Rupesh Narkar, automation can transform your warehouse into a facility that does exactly what you want when you want. Today, warehouse operators are aiming on reaching higher capacities in terms of better space utilization, higher productivity in terms of maximum goods inbound/outbound and improved efficiency in terms of better resource utilization. However, with the current manual processes, achieving a reliable, efficient and quick material flow within the warehouse remains a challenge. This is where automation provides the perfect solution. The developed world has been on the forefront implementing advance automation technologies in warehousing operations.

Next gen supply chain technology is driven by automation that will implement intelligent software, flexible solutions and cutting-edge robotics that will create competitive advantage by reducing costs, increasing efficiencies, throughput and responding faster to changes in market demand.

Dheeraj strongly believes that the “the future is now” and as automation becomes all pervasive we are getting into a where humans will co-exist. “I would call it the world of “Hubotics”. And if we eventually look at the aspirations of supply chains and what we are doing in innovation space I think “Lights Out” warehouses and supply chain nodes are closer in the future than they appear.”