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How to Balance Risk vs. Reward for Business Success

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How to Balance Risk vs. Reward for Business Success

One of the principal challenges any organization encounters is how to know when it may be strategically beneficial to push the envelope on an internal logistics system automation project. First you need to ask yourself and your organization some tough questions. Here we will focus on the top five questions to ask:

  1. Are the desired benefits
    a) strategic overhaul or
    b) process improvement in nature?
  2. Exactly what benefits will the project provide (increased efficiency, reduced overhead costs, less floor space used, increased accuracy, increased productivity, etc.)?
  3. What are the rewards and the return-on-investment (ROI)?
  4. What are the potential risks, costs and downside?
  5. Can I diminish the potential risks and still reap the rewards?

 

If you are looking at increasing efficiencies and productivity to provide strategic benefits such as keeping up with or surpassing your competitors, or reducing costs to offer more value added benefits to your customers such as free shipping, or utilizing existing floor space and labor more resourcefully to increase product lines, SKUs or services, it often makes sense to risk pushing the envelope by automating. Process improvements optimize labor efficiency and increase accuracy. Space and labor optimization can be used as a framework for meeting a company’s projected goals. Process improvement can eliminate inflexible or unreliable operations and redundancies. By eliminating inefficient layouts, process improvements reduce the time it takes for items or orders to be assembled, picked, packed, and/or shipped. Process improvement can also eliminate overly complex procedures and can reduce the amount of inventory required to meet production needs or to fulfill orders in distribution operations.

Increasing efficiencies decrease the cost of production and overhead. Reducing costs, improving productivity, eliminating waste – the results can be an effective strategy for organizational growth and success. How inventory and product moves through your facility, how SKUs are stored, picked, and replenished, and how accuracy rates effect the overall operation can be improved by upgrading your internal logistics system. There is a wide selection of automated systems and technology available to choose from. The most important note to keep in mind is that every technology has its strengths, but may not be the best overall choice for all applications. One size does not fit all. Choosing a technology that will increase throughput and accuracy while reducing labor costs and floor space usage can lead to growth and expansion within the same footprint without added construction costs. This means adding on without building on, and increasing usable space without building costs. The savings on offsetting current building expansion or new larger building construction can add up substantially and contributes to your ROI. 

The Rewards
The rewards and ROI achieved by optimizing every inch of floor space can be significant. Additional inventory and processes can be implemented within the newly recovered floor space. Increased efficiency and accuracy grows company reputation, customer satisfaction, and reduces costs (assembly, order picking, packing, shipping, replenishment, and savings on returned freight for examples). In instances where goods-to-person technology is appropriate, smaller well trained teams are the benefit with the added ergonomic advantage decreasing injury and workers comp rates. As the cost per unit goes down, the money saved goes directly back to the bottom line. In other words, every dollar saved is an increase in profits.

Implementing goods-to-person technology to reduce costs and improve productivity and throughput can be a particularly effective strategy for company health and growth. When items are brought to the operator, actual time can improve by up to two thirds as a result of eliminating time spent out of their work area searching for items, products or tools, depending on the application. Just this improvement in efficiency alone translates into greater productivity. In distribution applications, more items can be picked in less time and order cut off times can be extended -particularly important today when expedited deliveries are the norm.

Organizations doing more with less are more likely to thrive in today’s global economy. By using automation, an organization is driving down their costs. Automated systems not only increase space savings, improve quality and eliminate errors and defects, all of which dramatically impact the bottom line, automation also allows the saved labor to be utilized in other capacities which can help expand and grow the company's revenue, profitability and employment numbers. A thriving and growing company employs people for a wide range of jobs. Using forms of automation is merely using a tool to compete, survive and thrive.

Mitigating Risk
Floor robots, multi shuttle technologies, mini and unit load automated storage and retrieval systems (ASRS) can provide numerous benefits, but alternate technologies such as carousels, robotic carousels and mid-load ASRS systems can often provide an equivalent level of performance for a fraction of the outlay with the additional benefit of having higher levels of reliability. A facility will usually require multiple technologies to create the right flow and stability within an entire organization. Buy-in from upper management and the CFO is crucial for gathering and assessing all consequences and mitigating risk. Presenting a preliminary return on investment analysis is instrumental for agreement. 

Too often organizations get caught up in the "glitz" of a specific technology rather than keeping an eye on simply getting the benefits. As a facility usually has multiple zones, always balance risk vs. reward on a zone by zone basis. Look at the specifics of which technology best fits the needs of that zone. Each zone is defined by the type of operation inherent to that zone (split case order picking, eaches, full cases or pallet loads, assembly, manufacturing sections, tool and die storage, etc.). By completely defining your processes and mapping them out, redundancies, excesses and obsolete items can be analyzed and evaluated for elimination.

Balancing risk vs. reward in automated systems projects can be straining. Looking at all the options often makes all the difference between a nerve-wracking vs. rewarding decision. There are experts in the field that can help you determine which technology will provide you with the best results and the least amount of risk while hitting your ROI numbers to move your organization forward to the next level. By understanding the exact space, labor and accuracy benefits that will be achieved, a return-on-investment (ROI) analysis can be created to make sure the project meets your organization’s particular needs and objectives.

About the Author
Bob Jones has over 25 years in the distribution and logistics field and was an operations executive in several distribution disciplines. He was the Vice President of Operations for Meer Dental, a large dental and medical supply distributor. He was the Director of Global Distribution Operations Worldwide for J&L industrial Supply, overseeing the supply chain in the US and Europe, including seven Distribution Centers and 30+ retail facilities. He was the Executive Vice President and General Manager of National Bulk Foods, one of the largest Distributor of Confections in the US. The strength of his leadership was bringing companies to profitability through automation, inventory management, logistics, and streamlining processes from a corporate perspective.

Bob Jones has since brought his experience to ISD, where he has been the lead consultant and process engineer to help many companies, in very diverse industries, achieve greater profitability and performance through facility design and automation, process development, and education on cost / benefit. He has consulted and implemented facilities and automated systems / processes with companies such as Kellogg's, Dole, 1800PETMEDS, Vitacost, Sterling Jewelers, Federal Mogul, Carma Labs, DrVita, The Nailco Group, Repairclinic.com, Outdoor Network, and Legend Valve, just to name a few. To contact Bob, call ISD at 248.668.8258 or email bjones@isddd.com. For additional information on Integrated Systems Design - ISD, call 248-668-8250 or visit the ISD web site at www.ISDDD.com/ 

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