Automation is about more than just replacing a human workforce with a mechanical one. There are many factors that must be given adequate consideration when assessing the value an automated system stands to offer. This article serves as a starting point to help in your analysis of your operation’s parcel packaging system.
1. Understand Your Peaks, Valleys and Projected Growth
Many businesses cycle through peaks and valleys each year and throughout their lifetime. When considering automation, make sure that your required throughput rate is not only based on your average daily throughput volume, but that you will also have the capacity to handle expected spikes in demand and future growth.
You must look at your capacity requirements at yearly, monthly, weekly and daily intervals. For some businesses, having the ability to ramp up order processing for six weeks in November and December can justify an investment in automation that is under-utilized for the remainder of the year.
One must also carefully consider the projected growth of the business. Are you currently in rapid growth and expansion mode? Do you need a scalable solution that can grow with your company? Is your business stable? Do you need a system that can meet steady and continuous demand? Have you seen any new competitors enter your field that could potentially eat into your market share? These are all important questions that should be in your assessment equation.
2. Evaluate the Cost of Your Customer Promises.
Today’s ecommerce environment is increasingly competitive, and customer demands are at an all time high from online retailers. The expectation is free shipping with expected delivery within a couple days. As seen on 60 Minutes, Amazon.com is exploring methods to get orders fulfilled and delivered within 30 minutes.
If one of your service level requirements is a specific delivery time, or same day shipping, this alone may justify automation. Processing orders placed late in the day can easily create a backlog as second shift employees scramble to get them fulfilled before the last pickup. If shipment times are missed, you may be spending more on upgraded shipping in order to keep your customer promises. If you often have a backlog of orders, then packaging automation should relieve some of that burden.
3. Know the Actual Cost of Your Current Packaging Process
The actual cost of your current system may be more complex than you think. Each element listed below ought to be carefully considered and compared to the proposed automated solution.
• Package Design - With so many different carton styles available, it is worth looking past the traditional RSC to see if there are options for your operation beyond a carton erector and taper.
• Void Fill - Air pillows, craft paper and packing peanuts can make up a considerable portion of parcel packaging costs. Make sure associates are using it appropriately.
• Touch Points - How many times do products and packages need to be touched before they are out the door? Map this and calculate how much you are spending on labor for each of those interactions.
• Task Breakdown - Outline each action required to get an order packaged, time it, and use the information to calculate the amount of labor time that goes into each package. Also, estimate lost time or use an efficiency factor because you pay an employee whether he is on task or not.
• Warehouse Space - How much space do your current packing lines take up in your warehouse? Get an idea of the cost per square foot.
• Branding - How does your current package reflect your brand? Make sure automation will meet or exceed your branding requirements and support your brand image.
• Order Verification - What is the real total cost of an incorrectly delivered package? Make sure you know what this is costing you and how frequently it occurs. An automated system should verify order accuracy!
• Inventory Control - How much time is spent monitoring and purchasing packing materials and supplies for your current line? How many dollars of inventory are in the warehouse? How often does that inventory turn or become obsolete? Make sure you have a clear idea of how these factors will change when moving to an automated system.
• Shipping/Transportation Costs – Does your packaging system currently rate shop? Do your employees select the ideal box size? Can you negotiate a better contract based on your volumes? It is important that you identify the root cause for any extra money going to the shipping companies.
4. Payback Expectations
Developing an idea of your return on investment requirements and methods of measurement is incredibly important. There are many complex methods to calculate ROI, but for most operations a thorough payback study will suffice.
A payback study should begin with the analysis of all points outlined in item 3. This should then be compared with the expected costs of the new automated system. By using the most accurate unit costs, and multiplying them by the expected annualized unit shipping volume, you can determine the approximate savings per year that you will incur from the switch. Don’t forget to factor in the more difficult to quantify values like brand enhancements and the ability to ramp up capacity to meet peak requirements.
The payback period analysis should also include an examination of the life of the machine and the anticipated maintenance costs. If the payback period is six months, but the machine has wear parts that will require annual maintenance or other significant investment, your ROI is greatly reduced. Be sure to ask the manufacturer of your automated system these questions.
The final factor is to consider the reputation of the manufacturer. Have they been in business for a long time, and will they be around in 10 years when your machine needs major maintenance? Do they offer service during peak times, or are they available when you need them? On a large capital expenditure, this can be extremely valuable.
Summary
Entering the world of automation is a game changer for many online retailers and fulfillment companies. We see many of our customers wondering how they dealt with the challenges of managing a manual packing line for so long. Although it is the job of the automation provider to help guide you through the decision making process, having a clear idea of the factors listed above will better equip you for this decision.
Philip McAndrew, Marketing Administrator, Systems Technology, Inc., can be reached at 909.799.9950 ext. 223
1. Understand Your Peaks, Valleys and Projected Growth
Many businesses cycle through peaks and valleys each year and throughout their lifetime. When considering automation, make sure that your required throughput rate is not only based on your average daily throughput volume, but that you will also have the capacity to handle expected spikes in demand and future growth.
You must look at your capacity requirements at yearly, monthly, weekly and daily intervals. For some businesses, having the ability to ramp up order processing for six weeks in November and December can justify an investment in automation that is under-utilized for the remainder of the year.
One must also carefully consider the projected growth of the business. Are you currently in rapid growth and expansion mode? Do you need a scalable solution that can grow with your company? Is your business stable? Do you need a system that can meet steady and continuous demand? Have you seen any new competitors enter your field that could potentially eat into your market share? These are all important questions that should be in your assessment equation.
2. Evaluate the Cost of Your Customer Promises.
Today’s ecommerce environment is increasingly competitive, and customer demands are at an all time high from online retailers. The expectation is free shipping with expected delivery within a couple days. As seen on 60 Minutes, Amazon.com is exploring methods to get orders fulfilled and delivered within 30 minutes.
If one of your service level requirements is a specific delivery time, or same day shipping, this alone may justify automation. Processing orders placed late in the day can easily create a backlog as second shift employees scramble to get them fulfilled before the last pickup. If shipment times are missed, you may be spending more on upgraded shipping in order to keep your customer promises. If you often have a backlog of orders, then packaging automation should relieve some of that burden.
3. Know the Actual Cost of Your Current Packaging Process
The actual cost of your current system may be more complex than you think. Each element listed below ought to be carefully considered and compared to the proposed automated solution.
• Package Design - With so many different carton styles available, it is worth looking past the traditional RSC to see if there are options for your operation beyond a carton erector and taper.
• Void Fill - Air pillows, craft paper and packing peanuts can make up a considerable portion of parcel packaging costs. Make sure associates are using it appropriately.
• Touch Points - How many times do products and packages need to be touched before they are out the door? Map this and calculate how much you are spending on labor for each of those interactions.
• Task Breakdown - Outline each action required to get an order packaged, time it, and use the information to calculate the amount of labor time that goes into each package. Also, estimate lost time or use an efficiency factor because you pay an employee whether he is on task or not.
• Warehouse Space - How much space do your current packing lines take up in your warehouse? Get an idea of the cost per square foot.
• Branding - How does your current package reflect your brand? Make sure automation will meet or exceed your branding requirements and support your brand image.
• Order Verification - What is the real total cost of an incorrectly delivered package? Make sure you know what this is costing you and how frequently it occurs. An automated system should verify order accuracy!
• Inventory Control - How much time is spent monitoring and purchasing packing materials and supplies for your current line? How many dollars of inventory are in the warehouse? How often does that inventory turn or become obsolete? Make sure you have a clear idea of how these factors will change when moving to an automated system.
• Shipping/Transportation Costs – Does your packaging system currently rate shop? Do your employees select the ideal box size? Can you negotiate a better contract based on your volumes? It is important that you identify the root cause for any extra money going to the shipping companies.
4. Payback Expectations
Developing an idea of your return on investment requirements and methods of measurement is incredibly important. There are many complex methods to calculate ROI, but for most operations a thorough payback study will suffice.
A payback study should begin with the analysis of all points outlined in item 3. This should then be compared with the expected costs of the new automated system. By using the most accurate unit costs, and multiplying them by the expected annualized unit shipping volume, you can determine the approximate savings per year that you will incur from the switch. Don’t forget to factor in the more difficult to quantify values like brand enhancements and the ability to ramp up capacity to meet peak requirements.
The payback period analysis should also include an examination of the life of the machine and the anticipated maintenance costs. If the payback period is six months, but the machine has wear parts that will require annual maintenance or other significant investment, your ROI is greatly reduced. Be sure to ask the manufacturer of your automated system these questions.
The final factor is to consider the reputation of the manufacturer. Have they been in business for a long time, and will they be around in 10 years when your machine needs major maintenance? Do they offer service during peak times, or are they available when you need them? On a large capital expenditure, this can be extremely valuable.
Summary
Entering the world of automation is a game changer for many online retailers and fulfillment companies. We see many of our customers wondering how they dealt with the challenges of managing a manual packing line for so long. Although it is the job of the automation provider to help guide you through the decision making process, having a clear idea of the factors listed above will better equip you for this decision.
Philip McAndrew, Marketing Administrator, Systems Technology, Inc., can be reached at 909.799.9950 ext. 223
