Throughout a supply chain (procurement, manufacturing, distribution, customer service, reverse logistics…) there are a multitude of processes that can be automated. In addition, the promises of automation sound very good in today’s environment, in which the main companies are under increasing pressure to become more efficient and more competitive. But, at what point is logistics automation?
This week we are going to analyze what is the status of the update in supply chains, what are the main barriers that companies encounter when betting on it and what are the benefits that can be obtained through logistics automation.
Advantages of logistics automation
We can divide the advantages of automation into three types, based on how obvious its benefits are.
Hard or obvious benefits
Successful automation should be able to reduce the amount of labor hours needed to achieve the same results as before automation. This means an improvement in costs and is one of the most obvious results.
‘Soft’, less obvious benefits
Logistics automation also produces a series of less visible effects that will also have an impact on the efficiency of the supply chain. For example, an end-to-end automated supply chain can better manage and anticipate your demand, which will also mean an improvement in stock rates, required storage volumes, etc.
The person responsible for implementing a process automation or trying to convince their company’s management that it is a necessary investment must be able to convincingly show its benefits. For example, with the two examples of benefits that we have put in the previous points, wouldn’t we be managing to have a supply chain that was more flexible in the face of possible changes? An automated chain better assumes the costs of a reduction in work than those chains that are highly labor intensive. In the same way, a reduction in stocks and an improvement in demand forecasting also makes us more flexible when faced with variations in real demand. These are some examples of those invisible benefits that are not so obvious.
Challenges and barriers of logistics automation
Having seen the advantages, it is worth asking about the factors that act against the automation of the supply chain.
Among the cons that are usually blamed is less flexibility in two senses: the processes and the changes in them. In other words, it is doubtful that some processes can be standardized so that they can be executed more efficiently by an automated system. And, also, the fear that possible changes in the way of doing things will be difficult (and expensive) to transfer to an automated system, which can force us to work in a specific way when we would like to change it.
Another complexity to overcome is the large number of actors that are present in a supply chain. Suppliers, manufacturers, customers, distributors… All of them can pose obstacles and be reluctant to include the necessary technological solutions for automation. If within your company you can have greater control over what is done or not done, once we leave we will have to fight to achieve the best possible collaboration.
Time is another element that is often cited against it. An automated system is usually estimated to last about 10 years on average, which, when faced with the amount it costs to put it into operation, sometimes gives returns on investment that companies consider too low. Therefore, taking into account the risks of automation going wrong, there are companies that refuse to start these projects.
The consultant L.E.K. Consulting has published a study in which it has surveyed manufacturing companies in the US on the state of their automation, how prepared they are to launch into it and the reasons why they are reticent. Among the nearly 200 people with decision-making power who have been interviewed, we find very diverse sectors (manufacturing of consumer goods, electronic equipment and components, defense and aerospace equipment, automotive, etc.).
Among the study’s conclusions, L.E.K. Consulting stresses that “manufacturers continue to invest in automation technology as a key pillar of their global growth strategy” and that “with the increasing focus on automation and digital initiatives, manufacturers are concerned about potential skills gaps of the staff”.
One of the questions in the study asked about the strategic priorities in the next five years. In the first place, 54% of those surveyed cited the objective of lowering production costs and those of the supply chain. A “greater automation and implementation in the facilities of systems connected to the Internet of Things” appears as the third priority, with 40% of mentions.
The favorite initiative to face automation is the “modernization of manufacturing lines”, with 54%. Followed by “reskilling” workers (49%) and “retraining employees to perform different functions” (38%).
The conclusions of the study indicate the willingness of companies to automate, so the question of what makes companies not always end up opting for it becomes necessary. When pointing out these obstacles, the first one is the “lack of capital”, which 34% of those surveyed allude to. In second place is another objection that we have already mentioned, a return on investment that is not always considered sufficient (31%). The next barrier is the “lack of employee training to benefit from automation” with 29%. In penultimate place is the lack of stoppages in the activity to introduce the necessary improvements (22%). And the last reason, which shows that companies do have the desire to automate, is that it is not considered a sufficiently important priority for the business (supported by only 20% of those interviewed).
There is no single answer to the question of whether a company should increase its logistics automation. How much, at what price, in which parts, what type of company we are or how prepared we are are some of the additional questions that may allow you to make decisions for your supply chain. However, there is a well-known quote from Bill Gates that you can use as normal when automating: “The first rule of thumb about any technology used in a business is that automation applied to an efficient operation will increase efficiency. The second rule is that automation applied to an inefficient operation will increase inefficiency.”