Do We Need to Look at ROI Differently for Automation?
I read an article recently in DC Velocity by James Cooke, entitled “Broader look needed in DC automation decisions, study says”. In it, the author talks about how the recent findings of Dr. Raj Veeramani and Dr. Ananth Krishnamurthy from Wisconsin University seem to indicate that companies need to look at the broader impact on the supply chain when considering automation. Veeramani and Krishnamurthy argue that the current way of evaluating ROI, labor and cost calculation, are too limiting.
I could not agree more; in fact we have spoken about the different ways that ROI can be measured. The true cost of a decision can be difficult to forecast by only looking at raw numbers.
Let’s look at the “cost” of errors. Traditionally we would say, “If we have 10 errors per 100 and because of those errors we lose those 10 customers…. our loss is $1,000.” We can quantify that over a certain period of time and see whether it is a good ROI to replace our current system with one that lessens errors.
But that is simply moving numbers around a spreadsheet. Human beings are not spreadsheets and don’t act predictably all the time. Say that you have an error and lose the customer resulting in a net loss of $100. How much are you losing in future sales? What if that customer’s needs grow and you would have ended up with $500 orders instead of $100 orders?
Another factor missing in the spreadsheet is human nature. How many people will that customer tell that you can’t fulfill your promises? How much will that cost you? A quick rule of thumb is that for every one person who praises your company, 10 are criticizing.
Let me present an additional consideration. Let’s say that with automation you are able to reduce your headcount by %15. Now, all of your employees are not the same, correct? So you have the benefit of addition by selective subtraction. You don’t get rid of employees randomly; you keep your best employees, the ones who make the best team or the ones that cost you the least in missed work.
Engineering and Management need to evaluate a great deal of different factors in deciding whether to make the leap to automation. The ramifications affect many people who don’t have “distribution” or “supply chain” in their title.
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Schaefer Systems International, Inc., the North American subsidiary of the SSI SCHAEFER group of companies, established headquarters in Charlotte, North Carolina, in 1989.
SCHAEFER’s automation integrates to any existing system earning us an international reputation as the global leader in the material-handling industry for returnable packaging, static racking, and highly complex, automated distribution systems. With over 70 years of experience and a 100% commitment to quality behind every SSI Schafer system, we focus on providing our clients with unconventional picking and storage solutions delivering best value