MHEDA Board Members discuss the state of automation and where the industry is headed
By Steve Guglielmo
“Members need to evaluate and potentially modify their business model to address the significant and ongoing growth in automation.” – 2015 MHEDA Critical Impact Factor #1
For today’s business owners, the lessons learned during the great recession are never far from their minds. Though the economy has been steadily improving and recovering for more than five years, the recession still feels fresh. For many businesses, the recession was unexpected, which made its effects even more devastating. One of the biggest takeaways in the wake of the downturn is that many companies were well over-staffed. Instead of having employees working at 100-percent capacity, many were working at 80-percent or less. Not only was this inefficient, it led to massive layoffs during the downturn, as businesses couldn’t justify having employees working at less than peak efficiency.
As the economy began its recovery, there was a strong fear that it would be a “jobless recovery.” This fear stemmed, in part, from the fact that companies were realizing that they could be just as productive with their new, leaner staffs as they were with the bloated pre-recession staffs. Words like lean and efficient became commonplace and a new trend started to emerge. That trend was a shift toward automation.
By automating certain warehouse processes, companies were able to increase pick rates and throughput without adding additional physical staff. Since 2010, automation has become an increasingly popular option for companies. We had the opportunity to speak with MHEDA Board Members: Scott Hennie, Scott Lee and Daryle Ogburn about this industry trend and what to expect going forward.
The MHEDA Journal: The first Critical Impact Factor for 2015 deals with the need for member companies to evaluate their business models to address the ongoing growth in automation. What does this CIF mean to you and how have you been able to adapt to this rapidly emerging trend within the industry?
Scott Hennie: As a Systems Integrator, we are seeing our clients are more in-tuned to and open to automation as a solution to their strategies. We need to have the personnel, supplier partners and systems in place to be able to design and implement automation as a solution for our clients.
Scott Lee: Building or maintaining a material handling business on the pillars of a commodity product or service puts you on a clear road map for failure. You must be able to bring solutions (products and services) to the end user that they can’t easily find anywhere else. In today’s world, that means helping your clients become as efficient as possible. In many cases, this means implementing automation as a solution.
Daryle Ogburn: Our company has been moving into more automation for the last 15 years. We knew that to thrive and grow we needed to move away from pure equipment sales and into what we call “Material Handling Solutions”. This has worked well for us, but has required our sales/engineering team to stay on the leading edge of conveyor automation and automation of other material handling related equipment. Our ability to supply or interface with automation has led us into new markets and enabled us to remain profitable.
TMJ: What are the underlying causes of the industry’s shift toward automation?
SH: As the economy began to recover from the 09-10 recession, I believe companies started looking at automation as a means to support their growing business so that they can avoid recurring labor costs. Also, the speed and accuracy to market that is being demanded is forcing companies to look at options beyond human labor.
SL: Companies learned their lesson during the last recession about “over staffing”. They will invest in technology before making that mistake again.
DO: The simple fact that customers want what they want when they want it has been the big driving force to increased automation. Manufacturers of all types have had to adapt their businesses to handle increased customer demands for fast response on all orders large or small. The second driver of increased automation is the big advances in control automation enabling smart decision devices at all points of the supply chain. Most of the conveyor systems we sell now are supplied with “smart control technology”.
TMJ: For MHEDA members who understand the need to adapt to this trend but aren’t sure where to start, what suggestions do you have?
SH: First, they have to determine if this is an arena they want to be in. There is significant investment in talent. The skills required to design, sell and integrate an automation project will be an investment for the business. I believe you will also need to instill a “culture of automation” in your business so that automation becomes the persona of the company.
SL: Find products or services that have at least 50% synergy to those you already offer. Make sure you don’t add a lot of new overhead or require a high level of expertise to enter into the market with these products/services. If you do, it will quickly become discouraging and you will resort back to what you know. Automation is not for the faint of heart. You have to embrace the risks, challenges, and changes that come along with this territory. Very rarely is the outcome of an automated solution 100% predictable!
DO: First advice would be to get started. Delaying will just put you further behind. If you are going to supply automated systems, you must have personnel who have the expertise to understand and apply the technology required. As you make this move it helps to understand you can do everything “in-house,” but you can also partner with other related automated equipment suppliers to provide the specialty equipment required for certain business.
TMJ: Do you expect this boom in automation to continue moving forward? What is the next automation-related trend you expect to emerge?
SH: I do expect it to continue. The next “Big Thing” will be acceptance of collaborative robots in the workplace. These are robots that can work side-by-side with humans without guarding and protection. They are moveable, flexible and adaptable to changing environments.
SL: Absolutely. Technology is becoming more intuitive. As end-users become more comfortable with technology in their personal lives, they’re willing to incorporate it into their businesses.
DO: I definitely expect the trend in automation to continue. As the cost of automation comes down it makes the decision to automate versus add labor easier to make. Automated sortation systems were once reserved for very high throughput and more manual sortation was used for the majority of projects. Now, with the available technology it is becoming cost-effective to provide automated sortation for smaller throughput systems.
TMJ: How did the recession of 2007-2010 influence the move toward automation?
SH: As mentioned above, clients are wary to add additional recurring labor costs. Not only direct labor, but the benefits such as health care that come with it. These are on-going costs that continue to rise much faster than inflation or normal price increases.
SL: After the last recession, end-users made a clear decision. We’re going to invest in automation rather than hire a bunch of people. Unless you’re in the “temp labor business”, you better be prepared to help your customer automate.
DO: All companies now want to run as “Lean” as possible. If there is an automated system that is cost effective they will choose this over hiring more labor.
TMJ: In the past the high price of automated systems was a barrier for many companies who wanted to implement automated systems. Is this still true today? How are customers circumventing this concern?
SH: As with most technologies, acquisition costs decrease over time. The justification for automation becomes easier as labor costs rise and as companies realize that the “2-year payback threshold” was created in the 70’s when interest rates were double digit. As companies realize that their dollar invested isn’t returning much on interest, justification periods can be extended.
SL: Many of the customers are taking smaller bites during this economic upturn. They want to make sure the automation they implement is scalable and they get their return on investment as early as possible.
DO: The price of automation is coming down, but the cost of labor and the associated benefit package keeps going up.