Blog November 1, 2024

The State of Automation in Supply Chain: To Automate or Not – Webinar

Webinar | Nov 1st, 2024

The State of Automation in Supply Chain: To Automate or Not

In a recent webinar hosted by ENCOR, LIDD joined industry experts from Orlando, and Trew, to discuss the latest trends and challenges in supply chain automation. The discussion, part of ENCOR’s “At The Core” webinar series, focused on the benefits, challenges, and best practices for implementing automation solutions.

Watch the Webinar: Catch the full recording below, featuring:

  • Charles Fallon – President & Founder, LIDD
  • Blaire Wolk – President, Orlando Corporation
  • John Naylor – Chief Revenue Officer, Trew

These leaders offer a deep dive into why automation is booming and how it’s reshaping operations across industries.

Key Insights from the Webinar

  1. The Rise of Automation:

    • Driven by Labor Shortages and Cost Pressures: The increasing scarcity of skilled labor and rising labor costs are accelerating the adoption of automation solutions.
    • Enhanced Efficiency and Productivity: Automation technologies can significantly improve warehouse operations, reduce errors, and increase throughput.
    • Improved Flexibility and Scalability: Automated systems can adapt to changing business needs and scale operations to meet fluctuating demand.
  2. Designing Warehouses for Automation:

    • Building Design Considerations: The design of warehouse facilities must be optimized for automation, considering factors like ceiling height, floor load capacity, and power infrastructure.
    • Integration with Existing Infrastructure: Integrating automation systems with existing warehouse infrastructure can be complex and requires careful planning.
    • Future-Proofing Warehouse Design: Designing warehouses with future automation in mind can minimize disruptions and maximize flexibility.
  3. The Role of Technology:

    • Advanced Warehouse Management Systems (WMS): WMS software plays a crucial role in managing and optimizing warehouse operations, especially when integrated with automation systems.
    • Autonomous Mobile Robots (AMRs): AMRs are revolutionizing warehouse operations by automating tasks like picking, packing, and transporting goods.
    • Artificial Intelligence (AI) and Machine Learning: AI and ML can be used to optimize inventory management, demand forecasting, and predictive maintenance.
  4. Overcoming Challenges and Risks:

    • Initial Investment Costs: Automation systems can be expensive, but the long-term benefits often outweigh the initial costs.
    • Technical Complexity: Implementing and maintaining complex automation systems requires specialized expertise.
    • Change Management: Implementing automation can disrupt existing workflows and require employee training and retraining.

Have questions or want to explore how automation can transform your operations? Reach out to our experts —we’re here to help!


Curious to dive deeper? Skim through the full transcript below for all the details.

[00:00:04.620] Hello, everyone, and welcome to the third in our series of At the Core, our webinar on demand sessions that focus on everything disrupting the commercial real estate space. I am delighted today to be with an esteemed group of panelists representing the supply chain world to talk all things disrupting warehouse automation. Our topic today is the state of automation in supply chain and to automate or to not. We’re going to dive deep today into different perspectives regarding trends within this space and how it’s being disrupted based on the latest technologies and the latest ways of working within this realm. My name is Sarah Renaud. I’m the Vice President of Consulting at Encor Advisors, and I’m very excited to be joined today by Charles Fallon, President and founder of LIDD, by Blair Wolf, President of Orlando Corporation, and John Naylor, Chief Revenue Officer at Tru. Each of our panelists brings a wealth of expertise and background in their space, and so I’m really looking forward to an interactive dialog today. As always with our on demand webinars, we encourage this to be interactive, so please feel free to pose your questions to the chat, and our team will get back to you as soon as we can.

[00:01:28.740] All right, let’s dive right in. I’m going to start off with the first question here to Charles. And we want to understand, when does it make sense for a company to consider making an investment in warehouse automation systems? And what is the expected cost? And what industries or product types do you feel are suited for these systems?

[00:01:55.010] Let’s say when I started in my career 25 years ago, helping people design warehouses, the folks who were automating back then were… I would put them in two categories, and those categories are not mutually exclusive. Start with companies that had very high labor costs. Those labor costs would generally come with a lot of fringe benefits, hard one by unions and other factors that would make it such that a return on investment in automation was within a reasonable envelope for most organizations in North America. And by that, I mean five years or less. The other category that I would have identified as a prime candidate for automation back then would be folks at the end of a manufacturing process, finished goods, warehouses, coming off a production or assembly line where the product variety very low, and the characteristics of the product are very similar, and the volumes going out are very large and in a relatively simple pattern such that automation was very accommodated that operation really well. Fast forward to today, even before COVID, there was an increasing labor availability problem. We were facing labor shortages, which Which did not necessarily change the economics of automation, but what it did, it made companies more tolerant of a slower payback period using traditional methods of evaluating the investment.

[00:03:45.180] So eight years suddenly became a reasonable investment because companies were facing a revenue shortage problem. The revenue was available, but they didn’t have the supply chain capacity to deliver on that revenue. And obviously, that greatly improves the economics of an automation investment. So mitigating labor shortages has become the number one consideration. The other thing I will say is there has been a large advance in the technology, genuine breakthroughs in specific around autonomous mobile robots, which may not be the entire solution, but they integrate so importantly into solutions, they enable things that weren’t conceivable even five or 10 years ago.

[00:04:38.000] Interesting. It is impressive to hear about the power of automation from a robot perspective. And I’m curious to explore a bit further on that in my next question. I’m going to turn over to to Blair and to understand from your perspective with Orlando Corporation as an innovator in industrial spec building design in Canada. I wanted to understand from a provider of e-commerce fulfill centers for companies like Amazon and many others to follow. So when do you feel it makes sense for a company to consider making an investment in warehouse automation?

[00:05:15.020] Yeah, I would echo a lot of the comments that Charles has already made. We respond to the market, really. We don’t create the market. So when our tenants need automation, it fits into our box, if you will. We’re long term owners of industrial real estate. We have a very long term horizon, 50 years plus. And so when we build buildings, it has to be able to accommodate 90 % plus of what the market will want, whether that’s with automation or without if it’s traditional racking and storage and so on. So where there’s a cost of labor increase, that factors in, whether it’s the cost of the real estate itself, meaning rent has gone up so high that there’s better space utilization that can be done with automation. That will We can certainly factor into a conversation around whether to automate or not. It also allows companies to scale more easily, quite often using automation. But these are decisions that are made by our tenants, not ourselves. We provide the space. They make the decisions on how they want to utilize the space. And what we do see is that as users move closer to the core, so in our market being Toronto, when the real estate gets more expensive, the rents tend to go up and automation It becomes more and more of a factor, I think, as real estate becomes more and more expensive.

[00:06:34.540] But again, that decision really lies with our tenants who provide the space and they utilize the space.

[00:06:39.130] And do you find that they’re becoming even more tailored than, say, 5, 10 years ago in terms of the unique design per client?

[00:06:48.510] I’m not really sure that the buildings are being tailored anymore to automation, per se, because every automation application is different. It is unique to the user itself. So again, we’ll provide a box with a relatively straightforward layout, very common column spacing, so that traditional racking fits well. And then if automation is brought in, they’ll fit it into the box that we provide.

[00:07:12.760] If I could say anything, Sarah, it’s the opposite. So when Blair talks about, let’s say, an Amazon or some direct consumer going deeper into the city to get to a better last mile position in an urban market, the buildings are Some of them are multi-storey facilities built in the ’20s, never built to accommodate conventional material handling. So you think racks and forklifts? Well, guess what? For that to work, you need a modern building. But automation does allow us to work with nooks and crannies and floors and accommodate what we would call horrible buildings from a conventional social perspective and bring life to them, and they can be strategically incredibly valuable in the e-commerce space.

[00:08:07.890] If I can add to that, Sarah, it is interesting just to speak to as you get closer to the core. For many years, over the past 15 years, let’s say, we’re looking at some of the older, more dysfunctional buildings that we had in the city itself. They’re built for manufacturing. They’re very light on shipping and doors, very high coverage on the lands because they’re manufacturing plants that there’s not a high throughput. And so we started to demolish a lot of those buildings to make them into these modern cubes. But then you bring in automation. And yes, of course, you still need a lot of doors because you have that throughput in the building. But you can make better utilization of some of these older buildings using automation. And so sometimes if there’s a user that needs that space in that location, it can rationalize not actually redeveloping the site.

[00:08:55.640] I’ve seen John’s team do that.

[00:08:58.490] You get a lot of that in your neighborhood, Charles, of Montreal. You look at the traditional industries that grew Montreal, the clothing industry, the rag trade, as we all call it, that were in it, that those buildings, the old mills, similar to what happened in North Carolina, were built three-level high buildings, sewing plants, et cetera. That infrastructure that exists there, it’s expensive real estate. As we all know, building a new set of four walls quite often is cost prohibitive with the cost of capital these days. That many times it’s worth investing into some automation to utilize these multi-floor buildings that exist. They’re beautiful buildings, a lot of character and charm and history to the cities. It’s nice to see some of those older industrial areas being revitalized.

[00:09:46.780] Yeah, that’s a great point, John. And just to build on that comment, what do you see from Truve’s perspective? What are the latest trends in automation systems that are driving new development requirements of industrial buildings?

[00:09:59.310] It’s interesting. Interesting. Like Charles, I’ve been doing this for 30 years, and what’s old is new again in some sense is that we’ve seen some of the trends that we saw years ago, traditionally from a cold storage, for instance. Cold Chain traditionally built their buildings 100, 110 foot high with ASRS in an attempt to shrink down the footprint that compared to a traditional racked-out building with forklifts or MHE, you could accomplish the same storage and throughput in 40 % of the square footage, chilled or cooled and frozen, square footage is much more expensive to build. So there’s a strategy to shrink that footprint down. We’re now seeing that across other industries that aren’t necessarily in the food chain, even traditional warehouses and distribution. If you look at a typical environment, 50 %, 60 % of your effort at a minimum is the drive time working through aisles. It’s walking through pick modules, walking through shelving. That there is a trend to eliminate that wasted labor, that wasted time by going to more goods to operator, whether that’s via AMRs, Cubic ASRS or ASRS systems. So we see a trend eliminating that labor through better efficiencies in the automation.

[00:11:17.700] But I’m also seeing that trend revisited for vertical storage, something similar to what Charles had outlined, that as we’ve looked at the growth of urban centers across North America, and quite frankly, it’s a lead from Europe, we’re pushing the distribution centers further to the end of the supply chain. We’re getting closer and closer to that last mile delivery. And many of these cities either have laws or it’s just physically impossible to get an over-the-road trailer through the city that you have to deliver at 2:00 in the morning, 3:00 in the morning, where you’re just simply unable to via laws or it’s just physically an impediment. You can’t get that through the city. So we’re seeing people having to build in the middle of Metropolitan areas now to get to that last mile. We had a client actually built a facility and automated it in Mexico City. Of all the places in the world that you would be forced to automate, you would think with labor being cheap, they physically couldn’t build a million square foot building in the confines of Mexico City. There is just no land available. So they were forced to go vertical with ASRS and allowed them to build that million square feet need or million square foot of need in a much smaller parcel parcel that they could procure in the middle of the city.

[00:12:34.060] And I’m sure that brings a host of new challenges by building vertically in a warehousing capacity.

[00:12:40.440] It brings some challenges. As Blair had outlined there, that You have to work earlier with your partners. This is an opportunity for our clients, and we advise them. You have to be self-aware in terms of your business. Automation is a 12 to 18 month cycle that you have to understand where your growth is going to take you, whether that’s through skew proliferation, whether that’s volume increases or whether that’s labor shortages and costs. But the key is to get in front of that. It’s to work with your designers, your architects, and your builders to understand that if I’m going to go vertical or I’m going to use an AMR or a Cubic ASRS, they have specific requirements that we’re generally not building a spec building for. They may have a thicker need on their concrete slab for vertical force on an ASRS. They may need a special finish a smooth surface for an AMR. But the sooner that you get involved with your architects, your designers, and your systems designers, you can identify your power needs, your hanging needs, your floor needs, and eliminates some really expensive costs down the line to rework an existing asset, even in the middle of construction.

[00:13:48.190] So it speaks to the power of backwards planning from a time management perspective.

[00:13:55.380] It’s a hindsight is undefeated in my experience, but being able to So moving forward is a wonderful thing. Absolutely.

[00:14:04.050] Absolutely. Excellent. Thank you for that. All right, that brings us on to question number two. So this is for each of you, and we’ll go around our webinar to hear your responses. What are the specific building requirements for these automation systems in terms of the building infrastructure, weight, and space requirements? And are there necessary structural modifications required? And what are their associated costs?

[00:14:33.940] So again, I know this is going to sound repetitive, but we do really try to design and deliver our buildings in a way that accommodates most of the warehouse distributors that are in this market. So it’s a fairly standard build. It’s a 40-foot clear building, an eight-inch slab. It really is a standard build-out. And what I didn’t mention in the previous question was the need for power. It’s becoming increasingly challenging in the GTA to get access to power in a new build. I think there’s power available where there’s existing facilities often, especially if there’s manufacturing previously. But access to power is really, really key. You have to start thinking about your fire suppression and risk mitigation, depending on what automation you’re going to bring in. It could affect and often does affect the insurance requirements for the building. For example, a top loaded ASRS, depending on the system, can bring in all sorts of challenges from a risk mitigation, from a fire suppression, and just putting out a fire. If you have a very highly dense cube storage, and there’s a fire in the middle of it. How do you get to it? How do you put out the fire?

[00:15:50.910] So you have to think about the insurance, which isn’t necessarily a physical building attribute you think about, but it’s certainly a big part of the puzzle that we have to think about as our clients are in these types of systems. Access and egress to the site itself. If you’re going to have a higher throughput as a result of the automation, you have to think about how you’re going to get trucks on and off the road in and out of the site, something that we think about as well. And then structure will have to be reinforced. If it’s If the system is being hung from the ceiling, for example, the joists or the beams, or you have to think about putting in a completely separate structural system within the building, a building within the building to support the system that you’re going to be building. Those are some of the examples I’m sure the other two gentlemen will have lots to add with specific examples, possibly.

[00:16:36.410] No, thank you for that. And you bring up the very valuable points about insurance and ability to keep the infrastructure safe for the tenant and also in protection of the assets themselves. So thank you for that. Charles, how about from your perspective, what do you see the specific building requirements?

[00:16:56.840] Look, I would say, Blair, Claire said pretty much what I would say. The thing I would caution everybody as they think about it is, remember, rather than… We’re displacing operating expense, and in a form of labor with a big capital expense. And so like the Carpenter will tell you, measure twice, cut once. Let’s make sure that this site is exactly where you want to be because you’re about to sink a whole lot of largely unrecoverable investment into this site. And so I would hope that everyone who is contemplating this has taken the site selection process very seriously to understand where this building fits within their customer market, their supplier market, and their employee market.

[00:17:56.900] No, that’s an excellent point. And from a real estate perspective, that’s something that’s really critical that we work with our clients at Encore is getting that real estate decision right out of the gate and taking that time to make sure it’s an informed decision. And you’re looking at a near term and a long term view because it doesn’t matter how great the space is. If it’s not right for that client, then it’s not right. And you’re right. It’s a huge capital infrastructure investment that’s difficult to undo. And I I think the long term perspective to Charles, are you seeing this big investment? How long would a typical investment of this size in terms of it needs to be upgraded or it needs to be maintained? Is this type of equipment and infrastructure something that lasts into the decades, or is this something that people need to have it be more amalable and be able to change easier depending on who’s using that space and how they’re using that space?

[00:18:56.680] Well, I will say one thing, and then I would I’ll pass this to John, who has more expertise in it. But just to poke John, but there’s a reason why we depreciate this equipment in an eight to 10 year schedule, right? So yes, there are companies in Ontario, Crown Corporation, who have been running automated systems in the same building for 40 years, and it shows, and I know their maintenance budget on it shows. And the The caution I would have for everyone contemplating automation is that it is actually more of a software investment than people appreciate. And so the software also needs to be renewed on a quite frequent basis or upgraded and kept current. Otherwise, it can quickly become something that if you’ve disregarded the software that controls the automation for 10 years, the costs to replace and upgrade will be enormous versus constantly maintaining the software. So with that said, John, I think you’re much better placed to answer this question than me.

[00:20:15.500] Well, I’m impressed with the insight, Charles, on the physical assets are one thing, but you bring up a very valid and pertinent point here in the industry of not just the software, but the control systems or the backbone of the software and the operating system, that obsolescence becomes a real thing in technology. We all see it. I’ve thrown out three cell phones in the last four years as new technology evolves. Well, the same happens with I/O, same thing happens with PLCs. And the cost is not necessarily the cost of the physical replacement of it. It’s the cost and downtime to the operation. When a building goes down, many of these buildings measure their throughput in the tens of thousands of dollars in COGS a minute, the hundreds of dollars There’s a second in labor that are in the building that uptime is a real thing in an operation. But when you go to replace a control system, a software system, or any of these assets, downtime of that facility needs to be measured. So when you can get out in front of it, as Charles said, or be mindful of it, you can minimize the disruption, the impact, and the cost to your operation for some of these upgrades.

[00:21:24.520] I would suggest to the team that a good system is designed designed for flexibility in the future. Charles, you and I have worked on a few systems where we’re always looking to the future. Businesses change, business models change. We’ve seen the rise and fall of SKU bases, customer bases. They pivot. That a great design really leaves open options for the future, that we don’t paint ourselves into a corner with the operation, that we design a good system to build for the needs of today, but we keep an eye for tomorrow so the building and the client can pivot as their business needs change.

[00:22:02.610] Yeah. No, that’s being nimble and being able to pivot as time marches on and as the needs of your client changes is really, really important. I did want to touch back upon the weight and space requirements. And what are you seeing? Are you seeing that overall space sizes for warehouse facilities are expanding? We hear about the latest, greatest warehouses have 100 foot clear height now, that some of this equipment and these forklifts and cranes need a bigger space and radius to turn, and therefore there’s a greater weight. If we were designing a new space from the ground up, are you seeing overall that the space is are increasing in size and being able to hold more of a weight capacity, or do you feel that the automation processes are because there’s more of a focus on the software side that we don’t need as large physical space and the ability to hold as much weight? And I put this out to anyone who wants to answer it.

[00:23:01.140] I’m actually seeing a couple of different paths that building are evolving through. We’re actually seeing a few trends. One, if you just look at the global supply chain, more and more of what we sell, we purchase as consumers, its source of origin is generally overseas. It’s coming through a port. Long gone are the days of factories in every backyard across North America. But that’s forcing some of these port shortages or strikes at the ports, sometimes supply chain disruptions coming from overseas, like we saw from COVID. More and more clients are starting to hold a little more inventory here locally that you start to see bigger and bigger storage requirements at the four deployment centers. So in our core DCs or a regional distribution or a stocking center or an import center, in some cases, we see the need for inventory on hand to grow. In the age of. Com. And fast forward from catalog from 100 years ago, all of a sudden, instead of a 4,000 square foot store with limited capacity, I have this endless aisle where I can build a SKU base of anything and everything that you can imagine we can sell, that forces these four walls to hold even more inventory.

[00:24:19.110] But we also see the reverse and the trend of moving closer to the end of the supply chain, that we’re building smaller and smaller buildings that might have a smaller slice of those SKUs as a Ford deployment center, a last mile delivery center, as some of our clients call it, that we see a trend both for smaller, higher automated buildings, as well as larger buildings holding more inventory that are feeding out to these.

[00:24:44.720] Interesting. Charles or Blair, did you want to add to that?

[00:24:49.400] Well, I do. And it’s also a question to Blair. So I think you bifurcate the users of space into two categories, folks who tend to own what they want, the land and the buildings that they want, and folks who tend to enter into relationships with folks like Orlando. Because my guess would be you would never build a spec building, Blair, that’s 100 feet tall.

[00:25:15.770] That’s correct.

[00:25:17.410] .

[00:25:18.790] And so it depends. What I mean is if the users of industrial space, for other reasons, and their balance sheet and how they manage their business, want to lease more than they want to own, then I would say the trend will remain that automation must accommodate the building that is built on spec versus that the building is going to be built around what automation can offer. Because the available stock of inventory, the available stock of warehouse space is going to be what Orlando is comfortable designing, which is I want to solve 90% I have the problems with my space.

[00:26:03.760] Well, quite often clients don’t have the luxury of looking forward two years for a project to build a tailor-made building for them.

[00:26:12.520] They always call too late.

[00:26:14.330] Quite often people aren’t planning well in advance and need to react to, Blair, what do you have in stock that I can build out a shell? That’s quite often what we’re responding to.

[00:26:27.010] Sorry, I’ll just add to that. That is That’s exactly why our spec program works, because there’s never enough time left to build the 100-foot tall building. And since COVID started, maybe even a little bit before COVID as well, maybe three or four years leading up to it, we started seeing the occasional requirement for a 90 to 100-foot, 115-foot tall building. We’ll look at that and say, we always have to think about what is our exit strategy? Because you We never know. Even though we are long term owners, you never know. You have to plan for everything. And so how do you exit out of that a building? Who is the buyer for that building? So you really need to make it an investment grade asset. And so you need to have a user who has an incredible covenant, who’s going to be in with a very long term release and somebody who you know is going to be there at the end of the lease, by and large. So there’s very few and far between who can check all those boxes. And we haven’t done one yet. We’ve come close a couple of Sometimes. In one case, we just said to the client, you’re better off to own this and we’re not sellers.

[00:27:36.710] You need to find another site. Right. Right. I’m just being honest about it because we know what our priorities are. We know what their priorities are. And we just figured out it wasn’t meshing quite right, even though we respected them and we’d love to have them as a tenant. It just didn’t make sense. And especially when you start to think about 100 foot building and the investment that’s being made inside of that building is quite often more than the building itself. In that case, you’re better off to home.

[00:27:58.870] Yes. Yeah. Absolutely. The specifications on that and the customizations would be significant. So no, that’s a very good point. Thank you, gentlemen.

[00:28:11.050] Sir, I do want to… Sorry, John. I just want to clarify something before I forget, I mentioned the insurance requirement for these types of systems, and I didn’t want to… I thought about what I said after I said it, and I didn’t want to pick on any… I talked about top-loaded storage systems, especially with challenges. And what I really meant to say was, anytime you have a highly dense storage system that doesn’t have maybe direct access to fire suppression systems, interact sprinklers and whatnot, that’s where you have these insurance challenges, and they can be overcome. Sometimes it’s just a matter of higher premium on the insurance policy, but they are definitely things to think about, and sometimes people aren’t thinking about that part of it because they’re just thinking about the end goal, higher throughput, higher efficiency, not the insurance costs are going to go up six fold from what would have otherwise been.

[00:29:01.040] Well, it’s a great point, where that I think I’m familiar with the example. It seems to be an evolving area, the Cubic ASRS or the top-loading ASRS, as you’ve called it. It’s not a 30-year-old technology, a 50-year-old technology that has some very hard and fast rules that every inspector, every insurance underwriter is familiar with, that it seems to be an area that is still left open for interpretation in terms of sprinkling requirements. It’s evolving. There are some steps that people are doing within the cube, some of their storage totes, et cetera, how they’re building it out. But at the end of the day, you do need to work closely with those insurance companies and your specific provider and underwriter to make sure that you’re designing appropriately for it. It’s a terrible lesson to learn after you build a building. One of the things I wanted to add to a question earlier there, Sarah, you had talked about some of the design challenges of a building in today’s these environments and the impact of the automation. Being the automation guy on the call, it was interesting for me that really, I think the biggest thing to consider is the people and what goes on outside the four walls.

[00:30:11.940] You talked a little earlier about making sure that you’re placed appropriately to find a great workforce, understanding your community and your hiring pool. But one of the challenges that I quite frequently face with clients, and specifically with the new supply chain model of a lot of import A lot of moving goods closer to, is frankly the lack of what I’m going to call an inbound yard. Quite often, our clients are challenged with not enough trailer parking or employee parking out in these facilities just due to the nature of land availability. Go to any major city and see the pressures on these parcels. But quite often we sacrifice parking, whether that’s for employees or more importantly, inbound trailers in a staging yard. That becomes really the first victim when we lay out these buildings. And it’s something that needs to be considered as you lay out an automation system, counting how many people you’re going to have in the building. What does that end game look like? Yard to yard, not just wall to wall.

[00:31:13.400] No, that’s a very good point in making sure you account for that space, especially to your earlier point, John, about the just in time inventory versus having more inventory on hand and how e-commerce is shifting that whole narrative and being able to respond, okay, how do we accommodate the physical space for that in addition to the automation systems. That’s an excellent point. Thank you for that. All right, we’re going to move on to question number three. But how do automation systems impact the flexibility and scalability of operations within a warehouse? And can these automation systems be easily upgraded or expanded as the business grows? And how adaptable are the systems to changes in product types and warehouse layouts?

[00:31:59.250] Sure.

[00:31:59.800] Caviot one, how flexible is automation? Well, it depends on what you mean by how flexible, right? Relative to conventional systems, automation is not flexible. You really, and But we’ll get into, and I know John will get into what that really means. But eyes wide open, you are going to make a bunch of decisions very early that are going to be difficult to extricate yourself from them if you made bad ones. So case in point, I was just visiting a facility this summer. They were very proud of an ASRS Pallet storage system that they put in. It’s a beautiful system. Puc, as John said, 18 months from start to go live to get that in place. In the meantime, this is one of about a dozen facilities across the United States. And in the meantime, their procurement and planning team changed the pallet configuration that took 20 % of the capacity of the system out. Now, in measured in pallets, in pounds of product, it wasn’t that bad. But still, it’s that shocking one layer off the pallet, and you have suddenly, you’ve lost two years of what you expected to be Design Growth. This, I could tell 100 stories similar to that.

[00:33:35.260] It happens all the time. That’s a feature of automation that is more prominent and more painful than it is in the conventional system, which is why at the very beginning of this webinar, I said traditionally, the first place you automate is at the end of a production line, because manufacturing processes are, by design, They are predictable. The whole point of a supply chain is we’re the buffer that manages the unpredictable between demand and a very controlled supply. So that finished goods warehouse coming out of manufacturing is the first place you can automate. It is the most predictable place. And so I would say, flexibility is the most dangerous thing to think about when planning automation, which is why John, 10 minutes ago, started talking about flexibility because it’s the most important thing to think about when you’re planning an automated system.

[00:34:38.950] Josh. Charles, you use a word called predictability, which is quite frankly dangerous in some cases with a lot of industry. As somebody who deals a lot in fixed path automation, as we call it, conveyors, systems that are bolted to the floor. Again, it’s important to plan and understand your operation. If you If you take a step back, automation is there to literally automate a process. It’s to eliminate labor or add capacity to an operation that’s exceeded what it can do manually. But really at its core, and what’s important for clients is to understand that they are designing a process or a process, depending on which side of the border you live on today. But understanding the process that you need to make a perfect process first, and then you apply the automation to gain efficiencies. If you automate a bad process, the automation isn’t going to be flexible for you going forward because it doesn’t meet the core needs of your business. I want to take a step back, Charles. You talked about manufacturing and really talked about what I’m going to call mature operations, things that are known. If you look across this continent, quite often we take off from an airplane and we look at the window and we see all of these white top big boxes throughout the cities.

[00:35:57.060] There’s thousands of them. I can tell with certainty, 80 to 90 % of those don’t have a stitch of automation in there. The next wave, the people that are embracing automation going forward are younger organizations. They’re people that are just growing into the automation space. And I believe that their operations need to be flexible because they haven’t matured to understand the process, they haven’t understand to or matured enough to understand where their business is going, that they are the clients and the targets that will really need to understand that they should invest in things that aren’t hardwired to a corner, that aren’t painted into a corner, that they will be the people that need the most flexibility. And look at non-fixed path automation or automation light that is going to enable them to move assets or after that 8 to 12 year write down period, it’s not as painful to unwind or grow in a different pattern because the business changed.

[00:36:54.960] And I think that’s a great point, John. It speaks to about just the pace of change in general in our world today about how quickly, whether it’s technology processes, business processes, company needs that are meeting a more sophisticated customer demand, that is all trickling down to the warehouse. And I think that’s a really valid point that younger companies today are probably a bit more doing things organically in the moment versus having that upfront written process and rigor that may have characterized companies that have been around a lot longer. Would that be a fair statement?

[00:37:32.220] Well, it’s not just the new clients. I can probably name two or three examples. There’s some online marketplace companies that have evolved from being Charles selling something to me to becoming almost a virtual store that their business models are changing. These are mature companies that have been around for 25, 30 years. Their business model is changing to accommodate the economy or the customer base has changed. So I think there’s an underlying theme there as business change, you need to make sure that your automation solution and your building is suitable to accommodate that change and flex with your company or your business plan.

[00:38:11.570] Well, that’s a great point. Claire, I’m going to turn this question over to you. And if you could speak to how the installation of modern automation systems may increase the market value of the property as well as the system’s impact on the building’s attractiveness to potential future buyers or tenants.

[00:38:31.710] So Charles and John have already mentioned a few times the word flexibility or inflexibility, and we know that the automation largely is purpose built for a specific user, and that tenant is looking to optimize some process and throughput. So that is specific to them, and it’s very unlikely to be applied in the exact same way to the next tenant who comes into the space. So from our perspective, any automation that’s put inside of a building really does not add value to it. And in fact, at the end of a term, if they’re not renewing in that space, they’re required to remove it because, again, they’re going to leave it behind for us, and we’re going to have to find somebody to use the automation. It’s very unlikely it’s going to work, and we’re just going to be throwing it out anyway. So they either take it with them somewhere else and expand or reuse it in some other way or dump it, unfortunately. So it really doesn’t help from an investment standpoint, doesn’t help the value of our buildings. I I will say, though, that where there’s a need to increase power or upgrade the sprinkler, something like that that could run with the building, you have a higher chance of reusing that type of an upgrade to the building itself.

[00:39:43.420] But the automation in and of itself will not add value to the building. And I’m sure Charles and John, you guys have had these types of discussions with other landlords and maybe try to convince your clients. That’s in fact the case. But I can tell you people have tried to convince us many times over how much value they’re bringing to the building by putting in this automation. But it’s just simply not the case.

[00:40:05.510] It’s pretty rare for a one size fits all type solution for one client to move into another unless it’s a very specific case. I can tell you there is value in terms of the aftermarket. I’ll use Tru as an example. We just moved into a new manufacturing facility, and the fact that it was a previous manufacturing facility, we already had power We had footers, we had everything that we needed to move in ready. And we see the same with distribution centers. If it was previously automated and somebody wants to bring in even a different layout or a different combination of technologies that are in the solution, the fact that that switch gear is already there, the fact that there’s already enough power to the building is a major selling feature to clients. It does reduce the time of flash to bang, of standing up a facility and being live in it, that I’m not waiting 18 18 months for a municipality to bring power to a building or finding switch gear. So there is a benefit to having automation in a building for future clients. Ideally, when we’re working with our clients, we want them to succeed and be 40, 50, 60-year clients in the buildings.

[00:41:15.650] But we all know things change, and sometimes we do have new tenants coming in the buildings.

[00:41:22.200] And John, I just wanted to expand on that. We talked a bit earlier about the maintenance and support requirements for typical automation systems. So what do you see as the frequency of these required maintenance and the lifespan of these automation systems? And again, I appreciate that might be asking the question, how long is a piece of string? And it’s unique to every client, but I was hoping you could touch upon that.

[00:41:47.840] One of my favorite sayings, how long is a piece of string? I’m going to answer this two ways. You’ve got core technologies, things like conveyors, sortation, that require day-to-day maintenance, very common across the industries. And generally speaking, those assets are great. They can run 12, 15, 25 years. I have clients that have systems that have been there for 30 years. And generally speaking, the skill set to maintain that is relatively available. The new trends of looking at things like AMRs, robotics, the one caution that I put out to the teams is that it does require a different skillset. You can’t just stand up a robotic cell and decide that a bicycle mechanic is capable of fixing and maintaining this, that it does require a different skillset. We’ve begun to embed software, AI, learning into these devices now, that it’s a much more demanding skillset to keep these advanced automation pieces running and effective, which also goes back to the placement of the projects. Building something out in the middle of a cornfield away from a population is hard to attract the maintenance technicians that you need to support a very high level of automation or something overly sophisticated that is going to require almost a controls engineer on site, not necessarily just a mechanic.

[00:43:14.580] So it is the one cautionary tale of the higher automation that we see as a trend is it does require a little more maintenance. It is embedded heavily with electronics that, as Charles had brought up earlier in their life cycle, that quite often you’re throwing away some of these devices is in the seven-year period versus the 25-year period. So it will be a different model going forward for accounting on writing down assets, but also your OpEx costs in terms of your maintenance.

[00:43:41.760] Yeah. Interesting, you say, not just from an equipment standpoint, but also from a skilled labor perspective, and that you probably, because of these more complicated systems, you have that need for a different type of skillset from the technician operating it, managing it, and making sure that it’s running optimally for the organization.

[00:44:01.640] Maintenance cards just don’t have toolboxes on them anymore. They have computers. It’s a different skillset.

[00:44:09.800] Absolutely. Well, this brings us to the conclusion of our webinar. I’d like to, again, thank our panelists, Claire, Charles, and John, for your time and insights, and to our audience for taking time out of your day to tune in to our At The Core OnDemand webinars that is focusing on all things disrupting the commercial real estate space. So again, you can tap into any of our webinars OnDemand through our website at oncoreadvisors. Com, and we look forward to our next session At The Core. In the meantime, thank you very much, and we’ll be in touch.

[00:44:45.610] Thank you, Sarah.

[00:44:46.880] Thanks, Sarah.Thank you, Sarah.Thank you, everybody.Thank you.

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