Professors Dazie and Johnston, writing in the Journal of Business, researched companies’ automation plans. They found that the majority were considering significant investments in automation technology. When asked why, they distilled the thoughts down to something many business executives relate to: “There has been a dramatic change in the overall business climate, including the rising cost of money and labor, fierce global competition, and rapid technological sophistication.”
Does that statement resonate with you? With talk of having omni-channel solutions, the Internet of Things (IoT), cognitive, and digital supply chains, this statement of change gets a lot of nods when I have presented it at conferences. What gets chuckles is when I reveal that Dadzie and Johnston published their article in 1991.
The challenges we face are the same faced 25 years ago, so as you look to understand the software of the future, realize that the overall strategy of automating the supply chain has not changed. What is changing are the tools and the speed at which those tools can be applied to problems.
Between 1991 and today, a lot of companies have desired the most automated distribution system possible, but when the projects get implemented, they are typically less automated than what is available. This has happened because the cost of distribution labor for 25 years did not change much compared to inflation. Then means that high capital expense projects didn’t have as rapid as a payback as less automated solutions.
What I am seeing is that this is starting to change. In the last three years, labor rates are rising faster than inflation and companies are having a harder time filling distribution positions. Automation solutions are also becoming more reliable and faster to implement. Hitting the market are new solutions that are creating faster payback for large and highly automated distribution centers that are serving both direct to consumer and store deliveries. This is opening the door to new solutions that will drive change in distribution for the next three to five years.
As the market changes, the solutions must adapt to allow companies to successfully navigate the changing solutions that are on the market. I see this happening in three phases. The first is digital augmentation of current distribution systems, then the semi-autonomous systems, and finally the fully autonomous system.
Making a company digital is a great buzzword-laden phrase that many consultants like to throw around to sound smart in front of clients, but understanding what that means for distribution will be important in the coming years. As devices become more prevalent in our lives, from smarter phones and watches to tags that track our every vital sign, utilizing that data will be important for businesses. In a nutshell, becoming digital means utilizing all of the devices, tools, and data available to deliver products and services to your customer.
This isn’t just another way to get more data. The digital augmentation to distribution will radically change how distribution software operates. In the past, we have tended to use discrete systems for different supply chain functions. While many of these tools have been integrated into larger ERP or Supply Chain Execution systems, many are still just independent tools operating under one brand name.
While these tools will share a common master data file, there is nothing built into the systems that allow them to easily capitalize on data from both vendor systems and customers. The distribution tools of the future will require a new layer to connect supply to customer demand. Many are labeling this layer the Internet of Things, or IoT. While the IoT layer will be important, what takes precedence are the algorithms that sit atop the IoT data to make sense of the data being provided. It will be the distribution algorithms that predict demand based on external events that help drive change in the supply chain.
How will algorithms affect the supply chain of the future? As the media utilizes Twitter today to get a break on news stories, so too can businesses tap into social media to analyze where people are talking about their products. This information can then be fed into an algorithm that will determine if there is enough demand to warrant adjusting forecasts or responding.
Being able to respond to customer demand is only the tip of the iceberg for the tools of the future. From risk management, cash flow management, to reducing machine downtime, the distribution software of the future will become more reliant on the digital augmentation of supply chain systems. No longer will we be reliant on fixed datasets to make decisions. We will be constantly feeding data from multiple sources into our systems and allowing our systems to make decisions on less than reliable data.
The next phase will be the augmentation of the digital supply chain with semi-autonomous physical systems. Pressure from high-tech competitors is driving customer to demand shipments faster. Even outside of the retail sector, industrial clients with finely tuned Just in Time production systems demand rapid responses to requests for goods.
This increasing demand to reduce lead times will drive the adoption of more automation. We call this semi-autonomous because the system will still require operators to do complex functions, but they will be augmented with flexible AS/RS systems, semi-automated put walls, and high speed sortation and conveyor systems that will greatly reduce the walk time of employees. The employee of the future will also be augmented with visual displays that watch what they are doing and are able to make sure that they are picking the right products the first time.
This augmentation will rapidly progress until we get to a point that a large portion of the supply chain will be autonomous. With progress being made on 3D printing and automated picking systems, I can envision a world where a product’s components are printed and assembled on demand, packaged, and shipped to a customer without an employee touching the product. This feat will be accomplished with 3d metal printers, computer vision controlled picking arms, movable shelving, and drones that walk, roll, and maybe even fly the product to the customer.
This future might not be as far off as we think. As 2015 came to a close, many publications were reporting on a pharmaceutical warehouse in Japan that was performing 70% of the picks in the warehouse with autonomous robots. While many of these systems are still demonstrations, the technology is fast approaching a tipping point. As labor rates as well as the age of the labor market continues to rise, we will see both a need and the ROI in creating automated systems.
The labor need for automation combined with the demand from customers that our supply chain responds faster to changing demand, will radically change the distribution systems of the future. No longer will we have the ability to sit back and wait to see what happens. We will have to allow the systems to make decisions, fulfill based on complicated algorithms, and put the machines and software in place that will automate our supply chain of the future.
Chris Elliott is Senior Strategy Consultant, Blue Horseshoe Solutions. He can be contacted at celliott@bhsolutions.com.
