If your fulfilment centre is considering implementing a new material handling system, what are the factors you should consider in your business case? We set out how you can identify whether a business case can be made out for a successful investment.
By Jonas Tersteegen and Gregor Baumeister
There are general considerations you need to make when making a business case for deploying any new system which include:
But making a business case for deploying a new material handling system will be different for each fulfilment centre, depending on your priorities and business needs. Different factors will affect fulfilment centres differently.
For example, the type of building and available footprint will impact the business case, as will the type of customer and processes you are in the business of fulfilling. The type of products or items and their sizes will also need to be evaluated, along with your labour requirements and CAPEX and OPEX considerations.
When forming a business case, it’s of course important to know the different types of material handling technology available and which suits the level of your fulfilment business.
If you are starting with low capacity, for example, you could manage your handling with manual logistics, storing everything on your ground floor. Once your capacity increases, you could then look at smaller racks or pallet racks, using the height of your building.
If you want to take the next step, you could install conveyor technology or AGVs to reduce the amount of transportation in your centre. You could later connect this technology with your working stations with pick to light (PTL) technology, put to light technology and goods to person (GTP) automated solutions.
If you require further space for even greater capacity, a mezzanine in combination with shelvings is a possible solution.
At a future point, you may be seeking a high level of automation; automated rack systems or high bay warehouses can be ideal for bigger modalities such as pallets.
If you are just coming from the perspective of storage and handling, then you could look at mini load systems, combined with GTP, conveyor or AMR technology.
To achieve the next level of capacity, the shuttle and auto store systems are possible. And if you require sortation and sequencing, then the installation of a pouch system, or a loop or line sorter system may be necessary.
For the highest level of automation, you would then combine several of these systems.
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The type of new material handling system you settle upon will be driven by your business model, needs and requirements.
For example, what are your storage requirements? Do you handle the same type of item in thousands of pallets and need to store them somewhere? It could be then that you have a business case for a high bay warehouse and storage areas that a mini load or a shuttle system provide.
But if you need a really large storage area, then the pouch system is not the right system because one item stored in a single pouch will be more expensive than storing it in a mini-loop system, due to its lower capacity. The pouch system, on the other hand, offers other extended item-handling capabilities to sustain an e-commerce business model.
A combination of different types of systems is possible and will really depend on your business case.
So what are some of the critical factors to think about when making a business case for a new material handling system?
We take a brief look at some of these in turn.
If space is an issue at your fulfilment centre, then it will be important to select a technology that is a compact, modular design that uses less equipment and therefore consumes less footprint. It could be that you need to be able to accommodate your new handling system in your existing infrastructure, for example, without having to acquire further building space.
If you are restricted in available footprint, a new pouch system could resolve this issue as it hangs above the head level in the ceiling. Being in the air, it makes use of space not already being used, making valuable floor space available for operations.
Are you dealing with omnichannel fulfilment, or are you working with B2B customers only – because your storage requirements will differ depending on your customer.
For example, if you are handling the same type of item in thousands of pallets, you will need to store them somewhere, such as in a high bay warehouse, or provide extra storage areas such as mini loaders or shuttle systems. But if you are working with B2C customers, there may be a business case for a pouch system, in which you can keep items as a mid to short-term buffer until an order has been fulfilled and which can help optimise the reverse logistics process.
The profile of items – weight and size – and whether you are dealing with a lot of returns will also impact your business case for a new handling system.
Capacity is also an important issue to consider as part of your business case for a new system. You need to look at how many items you wish to process per hour and whether you require further space to meet increased capacity, such as installing racks in a mezzanine.
Increased capacity is often what leads fulfilment centres to invest in automation as they can save on resources and having to source extra staff, while being able to process greater volumes.
When considering the business case for new systems, most fulfilment centres will take into account investment costs of the main system. And a primary consideration in deciding whether to make the capital investment is the ROI. Being able to earn revenue from a new system will be crucial.
But OPEX – the number of resources you have, operational and training costs and so forth – is just as important as the capital investment. In fact, ongoing operational and maintenance costs must be factored into the equation to get a true assessment of your ROI.
The types of issues that you should consider in relation to OPEX are:
So, while you need to consider the costs of a new system, you must also evaluate the issues and costs beyond installation issues and going live.
If the overall costs of investing in a new material system are too high for your level of business, it could be that you need to consider the services of a third-party logistics provider.
By considering some critical factors, you will be in a better position to determine whether or not a new material handling system will support the long-term goals of your business and deliver tangible benefits to your fulfilment centre. While it’s tempting to make out a business case based purely on the costs of the main system, it’s important to take into account other issues such as capacity, ROI and OPEX to get an accurate picture of the costs in the long term, beyond the initial outlay, installation and commissioning costs.
