1、 2023 Boston Consulting Group1Leading consumer-focused businesses are automating their warehouse networks,generating stepchanges in service and cost performance.Some companies have already unlocked 20%to 50%improvement in service levels while generating a 25%to 50%reduction in fulfillment costsall w

2、hileboosting their resilience amid todays acute labor shortages.Despite these success stories,however,many consumer-focused businesses are finding it difficult tomake an adequate return or meet their automation design goals in their initial pilot,stopping theproject in its tracks.Others have run suc

3、cessful pilots but struggled to scale the technology across theirentire warehouse network,and some have been hesitant to restructure their network,preferring toAmplify Your Warehouse Automation ROIMARCH 09,2023 By Michael Hu,Arnold Kogan,Michael Ryba,Vivek Vashishth,and Sumit ChadhaREADING TIME:15 M

4、IN 2023 Boston Consulting Group2focus directly on warehouse design instead of addressing the broader network strategy.Still others arestruggling to create a comprehensive benefits case,making it difficult to gain buy-in across thecompany.To overcome these hurdles,businesses should work step by step

5、to understand each of theirwarehouse archetypes and develop the most critical use cases within those archetypes.They should digdeeply into their existing warehouse operations to amplify ROI before automation begins.And theyshould fully commit to an agile automation effortarticulating a clear busines

6、s case at the C-level,establishing a high-performing transformation management office,and finding the right balancebetween in-house and external support to carry the transformation forward.The Automation ImperativeLess than a decade ago,large-scale warehouse automation was considered too costly to g

7、enerate areasonable ROI,particularly in the face of an ample labor supply and relatively low wages.Thisperspective has changed markedly due to three factors:advances in both automation andmechanization technologies and intelligent planning and execution soware;newfound laborshortages;and an increase

8、 in supply chain complexity.The Growing Labor Gap.Todays labor shortages stem from a number of issues.Many olderwarehouse workers are retiring,and younger workers oen show little interest in long-term warehouseemployment or view warehousing jobs as temporary stops along their career path.Some busine

9、sseshave even reported annual turnover rates exceeding 100%in their most competitive labor markets.Further widening the growing labor gap,more warehouse employees are required to fulfill labor-intensive e-commerce order demand than were needed in a purely brick-and-mortar retail world.Naturally,busi

10、nesses are offering higher pay and new perks to attract the labor they needbut thishas not typically been enough.Wages for private industry workers increased 5.1%from 2021 to 2022,according to the US Bureau of Labor Statistics,while warehouse labor compensation increased 3.5%over the same time perio

11、d.At the same time,overall distribution center(DC)productivity hasremained flat,increasing the cost per unit.The labor shortage is not just affecting costs.It is also damaging the customer experience throughpoor service.For example,joint BCG supply-chain surveys with FMI,the food industry associatio

12、n,found that on-time delivery rates to US retailers had dropped from more than 90%pre-COVID to 75%by early 2021hurting businesses ability to grow.Increasing Supply Chain Complexity.Consumer demand is now much more volatile,particularlysince the pandemic began.As a result,retailers continue to insist

13、 on more options and assortmentsizes,faster order cycles,and other service enhancementseven as product shortages at themanufacturing level have become more common.In fact,our recent work with retailers and 2023 Boston Consulting Group3manufacturers reveals that the DC order replenishment lead times

14、expected by retailers havegradually been cut to just three to five days,from the traditional seven.The result is tremendousupstream operational complexity.These issues have given consumer-facing businesses an entirely different perspective on theiroperations.Without new workers to fill the labor gap

15、,warehouse mechanization and automation havebecome more and more important in helping DC operators maintain business continuity.Jumping on the Automation BandwagonMost large consumer-focused businesses have already elevated supply-chain investments andperformance to the top of their leadership agend

16、a.US Census Bureau data released in December2022 reveals that spending on commercial construction,which includes warehouses,in the US is about21%higher than it was a year earlier.Retailers such as Walmart,Kroger,Woolworths,Meijer,H-E-B,and Ahold Delhaize have adopted and implemented new warehouse au

17、tomation technologies.Acrossits fulfillment and sort centers and air hubs,Amazon Robotics has deployed more than 520,000 roboticdrive units.The warehouse automation market is expected to reach$41 billion by 2027,with a CAGR of almost15%between 2020 and 2025.In addition,three-fourths of all large ent

18、erprises will have adopted someform of intralogistics smart robots in their warehouse operations by 2026,according to Gartner,whileABI Research notes that more than 47,000 collaborative robots will be shipped to warehouses over thesame time period.Meanwhile,demand for robotic“goods-to-person”systems

19、in which products aredelivered directly to a warehouse operator via automated systemsis expected to increase fourfold.The rising demand for automation is generating rapid acceleration in innovation.Venture and privateequity funding for warehouse automation solutions such as conveyors,turnkey solutio

20、ns,autonomouswarehouse robots,automated guide vehicles,and cube-based storage and retrieval systems isincreasing steadily,as is funding for supply-chain technology such as warehouse management systems,execution soware,and control systems.And system integrators and technology solution providers are r

21、apidly integrating such innovations intotheir automation-solution hardware and soware.In a span of just three to five years,for example,theinstallation of high SKU-density micro-fulfillment facilities powered by robots has expanded to morethan 1,000 customer sites globally.Mixed Automation SuccessDe

22、spite the growing level of investment,only perhaps a tenth of the companies hoping to scaleautomation technologies across their warehouse operations have found sustained large-scale success.2023 Boston Consulting Group4Many automation efforts have been unable to reach their stated design mandates an

23、d ROI goalsduring the initial pilot,making it difficult to justify scaling.Supply-chain leaders may have chosen anexciting new technology,for example,without considering the full spectrum of available solutionstranslating into an interesting test pilot but suboptimal outcomes.Given that hundreds of

24、automationstartups have appeared in recent years,offering a flurry of indistinguishable alternatives,it is perhapsno wonder.Still others have been unable to scale,despite a successful pilot,due to difficulty in assessing theimplications for different warehouse types,understanding how the automation

25、design should addressfuture requirements,or seeing how automation fits into the broad canvas of their distribution networkoperationsboth upstream and downstream.In addition,some have made changes only within their individual warehouses rather than addressingthe broader network strategy,greatly limit

26、ing their success.And finally,some teams have been unableto engage with adjacent functions effectively,such as merchandising,sales,transportation,and storeoperationsand build a comprehensive benefits case.As a result,they are unable to gain completebuy-in and end up limiting the initiative to a supp

27、ly-chain-only effort.Three Inspirations for Automation at ScaleDesigning and scaling the automation of a warehouse network is an inherently complex task.In ourexperience,companies have been able to overcome this complexity by:Establish Anchor Use CasesTo successfully automate at scale,businesses req

28、uire a compelling and actionable business case thatcan justify the multiyear transformation effort and overcome any ROI hurdles.They should thereforebegin by identifying the optimal uses for warehouse automationuses that will address critical,labor-intensive processes within each warehouse.This proc

29、ess means first categorizing all of the warehouses in the network by their operationsarchetype.Automation is not a one-size-fits-all endeavor and should be tailored to the complex arrayEstablishing the most relevant use cases for automation within the businesses differentwarehouse archetypes.Amplify

30、ing existing ROI potential before beginning to automate.Running a comprehensive and agile automation effort.2023 Boston Consulting Group5of product flows and fulfillment requirements of each type of operation.(See the slideshow,“FourSteps to Tailoring Warehouse Animation.”)In our experience,there ca

31、n be more than a dozen archetypes,depending on the role that eachwarehouse plays in the network.For example,a“flow”DC has minimal storage requirements,as itpredominantly helps with cross docking and the consolidation of shipments within the network.Incontrast,a“stocking”DC primarily holds inventory

32、and directly serves different demand types,whetherit ships to customer DCs or retail stores,or fulfills consumer orders directly.It is also common forwarehouses to contain multiple archetypes under a single roof or a campus,further stressing the needfor this upfront categorization.The next step is t

33、o create a clear baseline of the costs,labor intensity,capabilities,and technologysolutions needed to support the current and future business needs of each of the designatedarchetypes.In addition,businesses should map out the pain points and opportunities associated witheach warehouse activityinclud

34、ing unloading,receiving,put-away,picking,packing,sorting,or loadingwithin these archetypes.This will help them to understand and delineate the most practical,value-generating uses of warehouse automation technology within their unique warehouse configurations.Businesses can then:Collaboratively enga

35、ge technology providers on the solutions they have to offer through a well-thought-out and comprehensive RFP,inviting providers to share a pro-forma business case acrossmultiple investment scenarios.Choose the appropriate solutions and corresponding provider through rigorous vetting,includingreferen

36、ce site visits,reference calls,and interviews to assess the providers capabilities.2023 Boston Consulting Group6Amplify ROI PotentialThe cost of automation can be high.As a result,even when companies find optimal use cases,the ROIcan be poor,or long-delayedeven as labor costs rise.Nonetheless,compan

37、ies can find ways toamplify their automation ROIand more than justify the effort.Here are four moves to explore:Consolidate Warehouses.Businesses can more easily validate their automation investment bythoughtfully consolidating their warehouse network.One possibility is a hub and spoke modelacentral

38、ized distribution system with a few,larger locations acting as“hubs”that carry slower-movingSKUs and many smaller facilities carrying faster-moving consumer products out on the“rim,”closer tothe consumer.Broaden Solution Scope.Finding opportunities for automated solutions in a single distributioncen

39、ter to play multiple roles can boost efficiency and increase returns.For example,an automatedpicking solution might handle home-delivery batches,store-replenishment orders,and return-sortingactivities,managing combined volumes across distinct uses.Optimize Inventory.Based on our experience,retailers

40、 and CPG businesses in particular cangenerate higher potential automation ROI through improved planning and the reduction of inventorydays on hand,particularly in warehouses that are close to the consumer.Assess Downstream Benefits.While warehouse labor savings,both direct and indirect,constitute am

41、ajor portion of the benefits created by automation,we also see value in comprehensively assessingand including potential transportation and store-labor efficiencies,especially within retail supplychains.By amplifying its ROI potential,a fast-moving consumer goods company recently pursued a highlysuc

42、cessful multiyear automation effort within its US warehouse network.It began by prioritizing thepotential uses of automation across all of its warehouse archetypes and identifying the set ofdistribution centers that had enough volume and labor intensity to attain internal ROI targets.It thenconsolid

43、ated slower-moving products within just three mega-distribution centers and improvedinventory turnover across its remaining,close-to-demand facilities.As a result,the company was able to shi a significant portion of overall order volume to fewerfacilities.It then targeted those facilities for automa

44、tion,creating a strong business case that ultimatelysupported a$500 million capex investment with a 40%ROI.Jointly build a robust warehouse automation blueprint that links the business requirements to aset of use cases that the business can act on,along with corresponding,purpose-fit sowaresolutions

45、.2023 Boston Consulting Group7Run an Agile Automation ProgramIn this final,critical step,companies need to establish and run a comprehensive,agile automationprogram.While the agile approach is not unique to warehouse transformations,the training,feedback,and iterations of agile will be extremely sup

46、portive.The program should be supported by three pillars:Articulate a C-Level Business Case.Support at the C-suite level is critical to providing a mandate tocross-functional teams,obtaining resource prioritization,and unlocking downstream process changes.But without end-to-end process changes,cross

47、-functional buy-in and sponsorship,and timely capitalallocations,the longer-term effort will falter.Automation strategies oen fail to capture C-suite attention because the business case is too focusedon a narrow set of benefits,such as cost reduction or greater capacity utilization.Instead,the C-sui

48、teoen wants to see a more strategic articulation of value,such as how automation will support growth,generate downstream efficiencies,and increase resilience.One North American beverage company was excited about the growing e-commerce share of its retailand food-service fulfillment,which it expected

49、 to exceed 40%by 2030 and wanted to support thisgrowth through automation.At the same time,the project leader knew that service requirements andcosts would increase significantly with e-commerce growth,making it difficult to justify the businesscase for automation based solely on cost savings.Instea

50、d,the project leader compared a conventional and an automated network by assuming thatlabor wageswhich total 60%to 65%of warehouse fulfillment costs(excluding shipping)wouldcontinue increasing and that productivity would be affected by rising labor turnover.They were thenable to calculate the cost s

51、avings from automation along with the working capital savings fromconsolidating the companys network.As a result,they were able to postulate a more than 50%cashROI(cash savings to cash costs)from investing in the planned automation.In addition to this financialbusiness case,they were able to articul

52、ate the improvements in supply chain performance that wouldresult,including enhancements in speed and fulfillment.Ultimately,the business case was well received by the board and$1 billion of capital was approved torestructure the network,enabling step changes in channel growth.Set Up a Transformatio

53、n Management Office.The transformation must become a critical strategicprogram for the company and a key part of the overall business agenda.As a result,the businessshould establish a TMO to support the transformation that is directly sponsored by a member of theexecutive leadership team and led by

54、a full-time supply chain leader who is responsible for the deliveryof the programs value and for meeting its timeline.This leader should track milestones at the level ofthe individual workstream,engage closely with external providers,and ensure that there is sufficientleadership attention as well as

55、 the day-to-day resources to move the work forward at a steady pace.2023 Boston Consulting Group8The TMO should also include:Orchestrate Internal Functions and Third PartiesAs they set up their TMO and prepare to begin the implementation,companies need to find the rightbalance between relying on ext

56、ernal parties and managing the work themselves.It may be tempting torely heavily on third parties to design and manage the program,for example,but it is better togradually build this muscle in-house where possible.Companies should therefore clearly articulate thefunctions,roles,and resources require

57、d to deliver all projects and activities early on,then thoroughlyreview in-house versus external support for each role.Further,they should engage a blend of different providers during the RFP process,includingautomation OEMs,end-to-end integrators,and warehouse-design specialists.This will help thel

58、eadership team choose the partnership model that best complements in-house capabilities.Dedicated finance personnel who can validate the impact figures and track the benefits andprogress of automation through the P&L.HR support to manage any implications for and communications with employees.Soware

59、integrators and engineers to manage integration builds,technical architecture design,platform analytics,and training,and continuous deployment.(See the exhibit.)2023 Boston Consulting Group9The extent of potential outsourcing will vary with the businesss automation maturity.While mostbusinesses will

60、 be able to rely on in-house staff for the IT and operations components of thetransformation,companies that have not yet begun automating will necessarily lean on externalproviders as they begin to build their in-house expertise.In addition,companies should be sure to bring an appropriate mix of tec

61、hnical experts and strategicsupport into the TMO,aiming for people who will flourish in their roles,challenge assumptions,staywith the effort,and elevate the program as a whole.As supply chain volatility,labor gaps,and increasing complexity continue to push consumer-focusedcompanies toward automatio

62、n,its imperative that they pause to clearly articulate their uniqueautomation requirements.While warehouse automation presents unprecedented opportunities forcompanies to scale quickly and generate value,companies need to apply a strategic andcomprehensive approach to implementation if they are to g

63、enerate the best return on their investment.2023 Boston Consulting Group10AuthorsMichael HuMANAGING DIRECTOR&PARTNERLos AngelesArnold KoganMANAGING DIRECTOR&PARTNERNew YorkMichael RybaPARTNER AND DIRECTORNew JerseyVivek VashishthPROJECT LEADERNew JerseySumit ChadhaPARTNERChicagoABOUT BOSTON CONSULTI

64、NG GROUPBoston Consulting Group partners with leaders in business and society to tackle their most importantchallenges and capture their greatest opportunities.BCG was the pioneer in business strategy when it wasfounded in 1963.Today,we work closely with clients to embrace a transformational approac

65、h aimed atbenefiting all stakeholdersempowering organizations to grow,build sustainable competitive advantage,and drive positive societal impact.Our diverse,global teams bring deep industry and functional expertise and a range of perspectives thatquestion the status quo and spark change.BCG delivers

66、 solutions through leading-edge managementconsulting,technology and design,and corporate and digital ventures.We work in a uniquely collaborativemodel across the firm and throughout all levels of the client organization,fueled by the goal of helping ourclients thrive and enabling them to make the world a better place.