An improving economy means company growth. And, for manufacturers and distributors, company growth means taking in more SKUs, or part numbers. However, this often leads to the struggle to find the necessary space to store products. To manage the increasing number of SKUs and use existing warehouse space more efficiently, many organizations are considering automated storage and retrieval systems (AS/RS). Yet, there is a common misconception that you must have a certain number of SKUs or pallets to introduce an AS/RS.
Whether you have a small facility with 3,000 to 6,000 pallets, or a large facility with more than 20,000 pallets, an AS/RS is scalable to fit your unique situation. So, the question is: what will it take to implement an AS/RS based on your business operation?
First, determine your "magic number" – your "80/20." Typically, 80% of a company's volume is based around 20% their SKUs. This holds true across industries. So, if you have 1,000 SKUs, about 200 of them account for 80 percent of your volume. The remaining 800 SKUs only account for 20 percent of the volume. These SKUs are the items that generate a majority of the company's profits, but are taking up valuable space in the warehouse.
For example, a beer distributor sells craft brews that come on and off their "list," depending on the season and consumer tastes. The distributor may have 800 of those SKUs, but perhaps only a pallet of each one. Yet, the margin made on those products is greater than that of the higher volume SKUs, making the lower volume SKUs necessary to the business' profitability.
Once you've determined your 80/20, dive into some data analytics to determine the design requirements for your AS/RS. Consider the following:
- Do you operate from multiple facilities, out of space or utilizing outside storage? This is a huge tell-tale as to whether installing an AS/RS will deliver rapid return on investment (ROI). Retrofitting an existing facility will eliminate the need for costly new construction and allow you to "do more" with less.
- What requirements are needed? What industry are you in and what type of products are you storing? Are there any idiosyncrasies with your product? For example, do you require cold or frozen storage? Make sure automation is suitable for your specific products.
- How much inventory must be stored in your design year? If a company currently has 10,000 pallets, but wants to use a design year that is 10 years away, the facility could need to hold 15,000 pallets. To avoid implementing an automated system that will quickly become outdated, define your business' long-term plan to ensure that the system accommodates for your goals and future growth.
- How many SKUs does your inventory comprise? Again, look at your 80/20. And, remember that there is no such thing has having too many SKUs.
- How many units per hour will enter/exit the system? This determines the system's throughput, and therefore, unveils how many storage/retrieval machines (SRMs) are needed for the system to keep up.
- How has your business changed? Has something changed recently in your supply chain or has your business model evolved? Dig in and understand how your business is changing – otherwise, you may end up with a system that is not right for you.
- How many hours/shifts is the operation active? Determine if you are able to achieve the same amount of work in fewer hours through automation.
- What are the operational cost savings? For example, can you cut the time to get a product out the door from 12 to eight hours with automation? By saving manpower, reducing overtime, and improving productivity, you'll uncover new cost savings.
Once you've reviewed these considerations, it's time to determine the design and configuration of your AS/RS. First, analyze your facility's capacity and capability to justify improvements – do you have a small or large facility? Do you have a high or low number of SKUs? Directly compare the capacity and capability of an automated facility with a traditional warehouse to unveil specific savings.
Next, draw up a plant layout to determine the physical design and configuration of the AS/RS – it doesn't always have to be designed to be a perfect square or rectangle. Also, make time to continue to study optimization of your storage organization – how will automation change your operations? Oftentimes, it will cause ripple effects, unveiling other areas of your business that require improvement. Partnering with a knowledgeable AS/RS provider will help you cover each of these steps to set you up for maximum success.
Undoubtedly, an AS/RS will change your business. With an AS/RS, it is important to remember that ROI is often realized in three to five years. It's also vital to understand that the system is designed to last for years to come – 25+ years – so it is not something that you will have to revisit and completely revamp every few years. Within that time span, you will obtain new operational efficiencies that will allow you to store and handle product more effectively, while reducing energy usage, raising throughput and productivity, and improving inventory accuracy.