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SECTOR REPORTS WAR EHO U SI NG: A UTO MATION Embrace the Darkness Moving to the "lights out warehouse." By Mike Scheck T www.foodlogistics.com © iStockphoto/Thinkstock here is an ancient proverb that says it is better to light a single candle than curse the darkness. For the materials handling world, however, not only should we not curse the darkness, it may fnally be time to embrace it. The "lights out warehouse" has been talked about for years. So why hasn't adoption of that concept taken off? After all, it sounds like a CFO's dream—high productivity without all the ancillary costs and headaches that come with human workers. There are many advantages to be gained by replacing people with machines from top to bottom in a warehouse or distribution center (DC) operation. Machines don't require breaks or vacations, and you don't need three machines doing the same thing to run three shifts. They don't fatigue as they work or complain about how hard their jobs are. Machines can be built to tolerate hotter 'hots' and colder 'colds' than humans, which enable significant energy and maintenance savings on heating and cooling in a distribution center. There is no federal agency protecting the health and welfare of machines, and they don't require liability or health insurance; or yearly raises for that matter. One other compelling reason is how it will protect a business against known and unknown competition. Ideally, every successful business wants to build a "moat"—an impenetrable barrier to entry that keeps others from cutting into their success. The large up-front cost for equipment and the sheer amount of knowledge and expertise required to run a lights out warehouse or DC create such a moat. Think of it this way: If you want to open a lawn mowing business, all you really need to get started are a few mowers, people to run them and a means of transporting them. The barriers to entry are low, so ultimately the competition will be cutthroat. But, if you want to start a shipping business where the established leader already has a well designed, multi-million dollar facility and a great deal Labor is one of the highest operating costs for any warehouse or DC. The move to more automation, specifically robotics, reduces a myriad of expenses and liabilities. of expertise, you'll probably think twice before deciding to compete in that arena. Flipping the switch So why hasn't the industry flipped the switch on the lights out warehouse approach? There are a couple of issues holding it back. One, of course, is the difficulty in justifying the up-front cost of fully automating a warehouse or DC. While humans can be expensive over the long haul, you're paying those costs in small, weekly or bi-weekly increments. Robots and automated equipment, on the other hand, have to be paid for up-front. It can be difficult to get approval for that large of a capital expenditure, especially if the enterprise is focused on keeping costs down. But in an era where corporate finance departments are struggling to achieve two to three percent returns on their investments, automation can deliver annual returns in the 15 to 50 percent range, which makes it far more compelling to even the most financially cautious of organizations. Another is the capabilities of the automated machines themselves. Traditionally, robots and other automation have been very effective at performing highly repetitive tasks. In manufacturing, for example, they've been excellent at putting the same screw into the same hole, or making the same weld, on product after product. But they haven't been so good at dealing with variables. And what is a warehouse or DC if not an infinitely variable environment, especially in today's fast moving e-commerce world? The third is the risk factor. There aren't too many truly lights out facilities of any type (much less a warehouse or DC specifically) to look at as a model for how it should be done. That's a pretty risky proposition for any venture, much less one with such a high up-front cost. The cost of failure—in terms of lost business today, the loss of the lifetime value of customers and the expense of tearing it all out and doing something else if you do survive—is unpalatable to most organizations. Yet, many still see the upside potential as huge. So, how do you decide whether to embrace the darkness by going lights out? Here are a few factors to consider when working through the positives and negatives in order to come to a more informed decision: Business Conditions. Start by evaluating your current business environment. Are you FOOD LOGISTICS • AUGUST 2013 47