Warehouse AutomationTech Enabled Solutions Insights
The Enablement of “Frictionless” Fulfillment Creates a Unique Opportunity in Industrial Investing
By Rob Ospalik, Partner, and Andy Dyer, Director at Baird Capital
This piece originally appeared in Warehouse & Logistics News.
The advent of new warehouse automation technology solutions, representing a market growing at more than 10% annually, is a critical element in the industrial technology ecosystem that is driving the acceleration of just-in-time supply chain solutions and online fulfillment. Secular growth drivers, such as onshoring and the connected workplace environment, are being accelerated by COVID-19 and geopolitical tensions, in turn creating further demand for warehouse automation technologies for the foreseeable future.
Warehouse automation technology, which includes automation of activities from material handling and management to data tracking and communication, are designed to increase productivity and accuracy, reduce labour costs, and improve workplace safety. And while the ever-present need to reduce costs and increase efficiencies has caused all industries to adopt forms of automation, several factors are making the demand for automation technology solutions in warehouses and distribution points particularly pronounced.
First, warehouses have a comparatively low automation penetration due to a historically slow pace in adopting new technologies. As it stands, roughly 60% of warehouses use low levels of automation or none at all. Many warehouses still rely on basic solutions such as physical labour and manual stock-taking – creating an opportunity for automation solutions providers to demonstrate the speed, accuracy and ROI benefits available to complement existing business operations.
Despite a heavy reliance on manual solutions, there is a significant labour shortage throughout the industry. Many of today’s warehouses are understaffed as young jobseekers, generally disinterested in material handling careers, fail to replace the retiring generation of older workers. This labour shortage also impacts health and safety by placing extra strain on existing employees and exacerbating the already high ergonomic risks associated with physical labour.
Even if there were not any labour shortages, it is fair to say that manual solutions stand no chance against the onslaught of consumer demand that exists today. As e-commerce continues its unprecedented run of double-digit growth, online fulfillment must keep pace with next-day (even same-day) delivery, more frequent customer returns, seasonal order peaks, and a greater variety of package types. This, in turn, has injected warehouses with a degree of fervour and complexity that is best managed through automation.
As mentioned, COVID-19’s impact has accelerated the underlying secular growth dynamics of this sector. On one side, social distancing requirements and supply chain disruptions have strained operations on the warehouse floor. On the other side, existing significant consumer demand has been compounded by the pandemic-induced spike in online shopping, accelerating the long-term shift away from brick and mortar and, by extension, amplifying the need for warehouse automation solutions.
Warehouse operators are therefore faced with a battle on multiple fronts: surging consumer demand, supply chain disruptions, labour shortages, and health and safety risks. As a core investment theme, we monitor a set of advanced, fully integrated solutions that deploy differentiated technology to support supply chain executives as they tackle these challenges.
Warehouse Management Software
Warehouse Management Software (WMS) is the nerve centre that helps manage day-to-day warehouse operations. The earliest iterations of these systems mostly offered storage location information. These automated systems offer a range of sophisticated functionalities, including automated picking, packing shipping of orders, inventory receiving, put-away and replenishment, yard management and coordinating material-handling devices. The purpose of WMS is to achieve a paperless warehouse environment, optimising operations with minimal input.
Machine-to-machine technology, or M2M, enables direct communication between devices. This technology can be applied to equipment like packing machines, pallet machines and conveyors to monitor the order fulfillment process stages. When combined with WMS, M2M’s automation functionality helps collect and transfer information, verifying operational procedures and expediting decisions.
Gone are the days of pen-and-paper stock-taking as inventory counts are automated and displayed in real-time on handheld computers and tablets using wireless and radio frequencies. There are various tracking methods, from counting robots like the TagSurveyor that can scan RFID tags from up to 25 feet away to drones, which use optical sensors and deep learning technologies to scan hard to reach locations. Alternatively, many businesses have opted to use Real Time Location Systems (RTLS), which enable the smooth operation of warehouse practices with minimal human interaction and error. Unlike manual procedures where the location of specific asset or inventory is often incorrect, RTLS allows warehouse operators to know the three key parts of the warehouse fulfillment system – inventory, material handling equipment, and people. Real-time data allows managers to accurately keep track of inventory receiving, layout, picking, loading, and shipping. These technologies improve warehouse safety, increase process efficiency, and alert personnel to any impending problems or dangers.
Advanced robotics is making inroads into the world of warehousing. Automated guided vehicles (AGVs), Autonomous Mobile Robots (AMRs), Automated Storage and Retrieval Systems (AS/RS) and collaborative robots (cobots) are all used to help manage the movement, storage and sorting of goods. Some devices such as AGVs follow pre-set commands. More advanced devices like AMRs use onboard sensors and computers to detect their environment and respond to stimuli. Manufacturers have even begun partnering with WMS providers to create customised software for their fleets of smart robots.
Connecting all these systems can be a challenge, given they often have different data formats. For this reason, interoperability is of vital importance. The interoperability of warehouse systems and software enables the smooth transition of data, such as inventory counts, purchase orders and shipping information. To achieve this, hardware solutions must possess flexible associated software solutions that are easy to deploy. By connecting disparate systems, interoperability gives managers a holistic view of warehouse operations.
Taken together, these solutions are revolutionizing the way warehouses and distribution centres are operated, making them more efficient, accurate, safer and cost effective to run than ever before. Yet, despite these advantages, for some in the industry, the rising tide of automation still brings with it one major concern: the decline of the human worker.
It seems a fair concern, but not entirely accurate. History shows that automation has actually elevated, rather than replaced, the role of the human worker. While it carries out repetitive, strenuous and time-consuming tasks, staff can assume more advanced roles such as supervising automated operations, analysing data and performing device maintenance. Ultimately, this requires a greater level of expertise that resonates with the new generation of tech-savvy job seekers.
While we have seen great innovation and growth shape the warehouse automation market in recent years, there is still much work to be done in the face of accelerating demand drivers. With many obstacles – from supply chain disruptions and labour shortages to heightened consumer expectations and demand – still facing the industry, industry participants must continue to invest in warehouse automation technology solutions to keep this crucial segment of the supply chain moving full steam ahead.
Baird Capital’s Industrial Technology & Solutions team sees significant potential to invest in warehouse automation, thereby supporting the expansion and capabilities of companies exploring management software, robotics, and other streamlining factors in the space. To learn more about the investment team or to share more about your company, please click here.
Baird Capital Partners Europe Limited is authorised and regulated in the United Kingdom by the Financial Conduct Authority.