By Jennifer Hall 
October 18 | 5 min read

The 4th Dimension of Capacity: Logistics Automation in the Age of Labor Scarcity

In today’s rapidly evolving business landscape, the scarcity of skilled labor has become a critical challenge for industries worldwide. With more people leaving their jobs than entering the workforce, the consequences are far-reaching and undeniable. From project delays to increased costs and compromised worker safety, the impact of this shortage is being felt across the board.

To combat this pressing issue, organizations are turning to warehouse logis­­­tics automation as a viable solution. By leveraging automated technology, manufacturers can bridge the gap caused by the shortage of skilled labor needed for manual tasks. This not only ensures efficient operations but also frees up their experienced employees from these repetitive tasks. As a result, these workers can redirect their time and expertise towards strategic tasks that capitalize on their expertise, ultimately gaining a competitive edge in an increasingly competitive market.

However, to truly grasp the transformative power of logistics automation, it is crucial to recognize labor as the “fourth dimension of capacity.” In this blog post, we will delve into the concept of labor as a vital component of capacity planning, explore the interplay between labor and other dimensions, and discuss the importance of making capital investments that are justified by the potential benefits of automation.

The 4th dimension of capacity

Traditionally, warehouse capacity has been expressed in three ways:

1. Storage capacity – how much inventory can a warehouse efficiently store?
2. Pick Line capacity – how many SKUs are accessible to pick efficiently?
3. Throughput capacity – how much volume can flow through a facility before creating congestion and bottlenecks?

Learn more on warehouse capacity management here.

However, these three considerations do not tell the full story. Labor availability has emerged as a critical factor in meeting customer demand and overall capacity. Just like a restaurant that may have empty tables but cannot serve due to a lack of staff, warehouses face similar challenges when they don’t have the necessary workforce to support operations.

To better understand how labor capacity functions and is measured, let’s visualize it on a graph:

Sales generate potential volume that flows through a warehouse, but there is a limit to the capacity that labor can provide. Once potential sales exceed the available labor capacity, businesses experience lost sales and missed opportunities for growth. To capture these sales and seize growth opportunities, companies must increase their capacity. This can be achieved by either increasing wages to attract more skilled labor or investing in logistics automation solutions to enhance efficiency and alleviate capacity shortages.

However, in the face of a labor crisis, increasing wages may not be a reliable or sustainable option for every business. For many, automated solutions are the next viable alternative to address capacity challenges effectively.

 The Financial Justification 

When considering capital investments and the decision to invest in logistics automation, it is essential to assess the financial impact of labor issues. By automating manual tasks, businesses can save on direct labor costs. However, evaluating the long-term availability of labor and its potential impact on sales growth adds complexity to the financial analysis. Decision-makers must thoroughly analyze the financial implications, including lost sales, and profit, potential, to determine the return on investment for automation.

Moreover, vendors are also finding ways to make warehouse automation more accessible through subscription models and reduced upfront investments. Software as a Service (SaaS) has been prevalent for over 20 years and continues to gain in popularity. In recent years, the adoption of Robots as a Service (RaaS) has seen fleets of warehouse robots on the rise. Even packaging automation is joining the game, with vendors charging for the packaging used rather than the equipment required to erect the boxes.

For instance, Swisslog, a global company with Swiss roots, is at the forefront of making warehouse automation more accessible. They specialize in delivering data-driven and robotic solutions for logistics automation in warehouses and distribution centers. With a wide range of products and advanced ASRS technologies such as case shuttles, pallet conveyors, robotic cube storage, pallet shuttles, and robotic picking, Swisslog offers flexible solutions that work with your warehouse and business needs. Their automation technologies provide quality, flexibility, and efficiency for automated warehousing. These solutions help combat operational expenses associated with rising energy costs, increased real estate costs, labour availability and costs, and working environment challenges such as managing harsh or unsafe working environments and strict government regulations.

It will be interesting to observe how logistics automation vendors market their products in the future and how they adapt large permanent installations to an as-a-service model. This shift in approach may bring about innovative changes and new opportunities in the market, alongside lowering the barrier to entry.

Warehouse Design Schematic – Automation

Benefits Beyond Labor Cost Reduction:

Implementing automated equipment offers various additional benefits beyond direct labor cost reduction. By reducing the need for indirect and supervisory labor, businesses can optimize workforce utilization. Automation also improves employee safety, reduces training expenses, minimizes errors, and enhances customer retention. Moreover, inventory management becomes more efficient, reducing the labor spent on year-end book closings. These factors contribute to the overall capacity and productivity gains achieved through automation.

• Error Reduction and Customer Retention:

  Automation systems are renowned for their precision and accuracy, significantly reducing errors compared to manual processes. By minimizing errors in operations and order fulfillment, companies save on costs associated with fixing mistakes and improve customer satisfaction. Ensuring accurate and timely deliveries enhances customer retention and strengthens the overall brand reputation.

• Ease of Adoption & Training:

  Automation systems are designed to be user-friendly and intuitive, resulting in reduced onboarding time for new employees and easy transition for existing staff into automated processes. The simplicity of automation technologies enables faster learning curves compared to traditional systems. This is because they are built with user-friendly interfaces, streamlined workflows, visual representations, built-in guidance and support, as well as effective feedback mechanisms. These features enable users to quickly grasp and operate the technology, improving efficiency and productivity.

Automation is not a cure-all solution or a quick fix for all challenges

Automation is not a magic pill that can solve all operational challenges. It is crucial to have accurate data and intelligent software in place before jumping into logistics automation. Without proper data, automation will not be able to perform as intended.  For example, dimensions, weight, packaging information, and other flags such as “oversized” or “nestable” are essential data points for successful automation implementation. Investing time and resources to capture this data is a valuable step regardless of automation.

A robust software application park is another critical component of successful automation. This software, including ERP systems (enterprise resource planning systems), WMS (warehouse management systems), WCS (warehouse control systems) and more, interacts with automated equipment. It processes transactional data, directs labor, optimizes capacity utilization, measures performance, and provides reporting needed for decision-making.

Once accurate data and a robust application park are in place, automation becomes achievable. However, it is important to note that automation is not an all-or-nothing solution. Hybrid solutions that address specific needs can be effective. Payback periods for automation investments can be long, often ranging from 6 to 10 years. Before considering automation, it is crucial to assess operational pain points and ensure that the foundation of your operations is solid.

Am I ready for automation?

Determining when and if automation should be introduced requires careful consideration. A thoughtful and systematic approach is essential when evaluating the potential benefits and drawbacks. It begins with a thorough assessment of the current state, identifying areas that could benefit from automation. This includes analyzing capacity constraints, unproductive labor, poor service levels, and lack of visibility. By modeling the desired improvements, businesses can gain a clearer understanding of the potential impact of automation.

Automation Readiness Assessment 

Embracing logistics automation offers a prime opportunity to increase efficiency, mitigate labor shortages, reduce costs, and improve customer satisfaction. Yet, it’s crucial to remember that automation isn’t fool proof. Thorough preparation of you project is imperative for a successful implementation.

LIDD’s Logistics Automation Readiness Assessment can provide you with the guidance and insights you need to prepare for logistics automation. Once you’ve chosen an automated solution, It offers a clear snapshot of your current state and effectively guides you on implementation preparation. Our goal is to help you maximize your investment and achieve optimal results.

Take the Assessment