Canadian Grocer Blog Entry: February 18, 2016 (here)
I’ve seen the future of warehousing and it is a very different world than the one we know today. In 2015, we toured a number of highly automated grocery distribution centers in the United States as part of our firm’s project work involving automated distribution center design. The conclusion that I reached is that we are rapidly moving towards the human-less warehouse. While we will likely never actually have 100% human-less warehouses, rest assured that many smart people are hard at work to make this a reality at some time in the next decade. Currently, automation has enabled us to eliminate approximately 70% of the grocery distribution center workforce.
When it comes to the subject of automation, people are typically either staunchly for or against. Those who are against automation conjure up images of robots taking over the world while jobless people are left unemployed and anarchy takes over. The flip-side of this debate is that people will be forced to find new ways to make a living. In doing so, they will innovate and move on to other new opportunities. In reality, the truth is usually somewhere in between these two points of view. Few people would care to argue that we should bring back the rotary dial telephone, the manual typewriter, the fax machine or televisions without remote controls. We all enjoy technology when it makes our personal lives easier and the same concept holds true for businesses.
The harsh reality is that with changing demographics affecting all industrialized nations, we are moving into unchartered waters that will force industry to increase its investment into automation. Canada currently has 47.3 dependent people out of every 100 people who are of working age (i.e. 16 – 64). This is known as the Age Dependency Ratio (ADR) which you will no doubt hear more about in the years ahead. ADR is basically the proportion of people aged 0-15 and 65+ who are dependent on every 100 working-age people (15 to 64). In short, a low ADR is good and a high ADR is bad. Forecasts looking out to 2030, which take into account projected immigration rates, indicate that Canada’s ADR is moving from 47.3 to 63.2. In other words, by 2030 there will be an additional 16 people depending on the 100 people who go to work and pay the bills. Another way of looking at this is to say that there will be 16 less people who contribute to the labor force and herein lies the problem. If you take the time to do some math and estimate the impact on unemployment statistics, Canada is rapidly heading towards a reduction of available labor by 7% or more. Now imagine for a moment that the unemployment rate fell from 7.1% to 0.1% and this is where the country will be by 2030 according to current forecasts. Who would have thought that the events and aftermath of World War 2 would impact supply chains 85 years later?
Issues pertaining to labor shortages are now becoming regular news stories in the United States and the long haul trucking industry has been the hardest hit to date. Trucking companies are now looking at ways of setting up relay points so that multiple truckers are involved in a long distance haul similar to the “pony express” concept. This way truckers can return home at the end of the day and the ability for companies to recruit new drivers is improved. In my mind, blue collar industries will be the hardest hit with labor shortages going forward, more so than white collar industries. Today’s new entrants to the labor force are technology-savvy having grown up with smart phones and mobile computing devices. As such, they are less interested to work in blue collar environments. For this reason, the logistics industry will be hit with labor shortage issues at a more pronounced rate than the national average. The less desirable the job, the worse the labor shortage will be.
Most large grocery distribution centers operate around the clock 7 days a week. Many have harsh cooler and freezer environments where operators work upwards of 8 - 10 hours per day. In a typical dry grocery warehouse, an operator selecting 190 cases/hour will lift 19 tons of product daily. This is job that takes its toll on the human body over time. Not only is the constant lifting and placing of cases hard on the back, the process of getting on and off a pallet jack or forklift truck is hard on the knees. Anyone who spends an entire day on their feet walking on concrete floors knows that this type of work is tough on the body. Even though people get used to it over time, this is increasingly becoming a difficult environment to attract, recruit and retain new employees.
Companies that continue to view warehouse automation as purely an ROI-driven proposition are clearly not thinking ahead. This way of thinking was fine when there was a plentiful supply of flexible and inexpensive labor to support business growth. To this day, the vast majority of firms continue to justify capital expenditure decisions strictly on the basis of rate of return but I believe that this way of thinking is starting to change. After all, how many companies have done the business case to invest in SAP? How many attempt to cost justify the need for insurance? These investments are the costs of staying in business and when the day comes that companies cannot ship orders out the door then investments in warehouse automation will be considered no differently.
Over the past year, I have spoken to many supply chain executives who have explained their rationale for large scale warehouse automation projects. While no company is writing blank checks for these types of projects, the justification for automation is clearly no longer being driven solely by economics. In fact, financial justification has taken a back seat to the needs to:
- Ensure business continuity in the event of a labor shortage or strike
- Decrease reliance on human labor due to increasing levels of competition for the same labor pool
- Speed up the time it takes to process orders through the distribution center as a competitive weapon
- Increase accuracy and fill rates and reduce product damages
- Improve productivity at the retail store level by way of store-friendly orders
- Reduce transportation expense by way of increasing cube per load
- Increase SKU variety being handled through the distribution center without having to increase the infrastructure footprint.
In a forthcoming blog, I will discuss the existing options available for food and grocery companies to automate their warehouses and the common misperceptions that prevail within the industry. In the meantime, take some time to reflect on your company's business. Ask yourself if your workforce is aging and if it is becoming more challenging to find replacement labor as time goes by? Take some time to think about business growth and how it may not be possible to support growth due to labor shortages. And think about the fact that your competitors who have started down the path towards automation are already at least 3 years ahead of your firm because that is how long it takes to go from ground-zero to go-live.
Marc Wulfraat is the president of MWPVL International Inc. He can be reached by clicking here. MWPVL International provides supply chain / logistics network strategy consulting services. Our services include: supply chain network strategy; distribution center design; material handling and automation design; supply chain technology consulting; product sourcing; 3PL Outsourcing; and purchasing; transportation consulting; and operational assessments.