The Era of Automation

Is automation necessary to compete? Many PRW industry executives think

By Benjamin Milk

No one who has spent any time observing modern refrigerated warehouse facilities, with their sleek engine rooms, advanced computer control systems, sophisticated warehouse management programs, new energy management systems, and efficient materials handling equipment would ever say that the public refrigerated warehouse (PRW) industry was made up of Luddites.

The Luddites were a group of early 19th century English textile workers who feared and protested the beginnings of the industrial revolution. Over the years, their name has become a shorthand way to pejoratively describe almost any group which resists change — especially technological change.

While it would be absurd to suggest that the third party logistics (3PL) cold storage industry bears even a slight resemblance to the Luddites, there may be one facet of the business where the case can be made that the PRW industry is not leading the way. And that is the area of automation.

But what exactly is automation? Automation generally refers to the use of electronic control systems, together with other information technology, to control industrial machinery and processes and reduce the need for human intervention. In the scope of industrialization, automation goes well beyond simple mechanization. While mechanization provides human operators with machinery to assist them with the muscular requirements of work (as with conventional lift truck equipment), automation greatly reduces the need for human thinking and decision making as well. In the PRW industry, robotic stacker cranes and peripheral systems do just that.

Beginning of an Era
Future cold storage operators may well look back at current IARW Chairman Larry Laurin and hail him as the Henry Ford of the PRW industry. Just as Ford utilized the assembly line to revolutionize the way automobiles were manufactured – and the entire world of manufacturing — Laurin pioneered the use of automated stacker cranes in the cold storage industry. And while the movement to automation has yet to reach critical mass in the PRW industry, it is looming on the distant — or not so distant — horizon.

Laurin started Conestoga Cold Storage (Ontario, Canada) in 1974 and currently serves as president and CEO. He began designing Conestoga’s first automated facility in1978, built it in 1979, and opened it in 1980. Today, Conestoga operates four fully-automated cold storage warehouses with total storage capacity of more than 22 million cubic feet.

When that first automated facility was not much more than a gamble and a dream, the hope was that it would pay for itself through reduced payroll costs. Other possible economies — such as a 50 percent savings in energy expenses — were not even seriously considered at the time.

While he won’t say exactly what the payback is on an automated facility, Laurin has been building and expanding every single year. He is ecstatic not only about the payroll and other savings that he has been able to achieve, but also with gaining a more efficient building and a more efficient operation in the process.

Although he can point to no real downsides with automation, Laurin says that measures must be taken to ensure success. For one thing, the operation demands a cadre of well qualified technical people. Second, it requires something of a culture change, with much more attention to precision.“There’s no reason for automation to not work,” says Laurin, “but it requires more technical support per transaction, at least initially, and maybe an above-average level of sophistication.”

Despite Conestoga’s roaring success, automation has been slow to catch on in the PRW industry. Laurin thinks that can be attributed to three things. First, automation requires an expensive upfront commitment. Second, people are naturally conservative, and may be risk averse or uncomfortable with potentially reduced flexibility. And third, it’s always a challenge to put in that first system and to work through all the inevitable and time-consuming crises that come with the territory. Laurin asserts, however, that anyone who goes through the automation crucible once will find it a world easier in subsequent implementations.

Great Leap Forward
In 2009, nearly 30 years after Conestoga launched its first automated operation in Canada, Preferred Freezer Services opened the first such PRW in the United States. The Chicago, Illinois facility is one of 24 warehouses in the Preferred network, and the first of a dozen or so slated for automation over the next several years. According to President and CEO John Galiher, when the project was initiated, the goal was not only to reduce costs but to fundamentally eliminate the forces of inflation. Not only would payroll costs fall sharply on day one; the company would also avoid inevitable payroll increases, inescapably rising health insurance costs, and the mounting cost of workmen’s compensation insurance.

The new Chicago facility is also expected to yield major benefits in productivity. Neither personnel nor equipment will be subjected to the stress of constantly going back and forth between sub-zero temperatures and warmer temperatures. Warm-up breaks are no longer required for lift truck operators, operator sick time is avoided, and human errors are virtually non-existent.

Preferred is also enjoying significant energy savings with its automated facility and a reduced carbon footprint. Not only has the cost of lighting become negligible, but the refrigeration system no longer needs to extract heat thrown off by warehouse lighting.

While not even denting the surface of the expected long-term gains, the pain of starting up the facility was unanticipated, and nearly incalculable. Galiher described the startup as the most difficult and challenging startup in the company’s history. Without any benchmarks on which to rely, Preferred underestimated the technical support and human resources needed to synchronize the many systems.

The company responded to the problem by booking a block of hotel rooms near the facility and bringing together a cadre of operations, IT, management, and maintenance people to work on optimizing conveyor speeds, transfer speeds, crane movements, and throughput. “It was very intense,” says Galiher, “but extraordinarily informative. We developed an intimate understanding of the system and we’ll never have the same problems with future startups.”

Operating an automated facility is not easy. For one thing, while productivity and throughput may be high, it’s not unlimited. As Galiher points out, you can’t just order up some overtime to move out an unscheduled shipment. And if the system ever goes down, it’s more difficult to play catch-up. Preferred is addressing this constraint with the addition of extra cranes.

On the positive side of the ledger, the equipment is less likely to be abused and there is far less likelihood that there will be unscheduled repair problems. Perhaps most importantly, the machines are more exact than human operators. A crane can’t get the wrong pallet, the wrong license plate, or the wrong lot number. As Galiher explains, with a focus on accurately scanning product when it comes in, the equipment will always get it right going out.

On the Other Side of the Pond
Between the time the Conestoga facility opened in Canada and the Preferred facility opened in the United States, some of the leading European cold storage facilities jumped into automation. Coldstar (Denmark), Partner Logistics (Netherlands), Frigosuisse (Switzerland), Stef-TFE (France), Norbert Dentressangle (United Kingdom), and Kloosterboer (Netherlands) are among the PRWs that have added automation to their capabilities. Recently, the troubled economy has stalled this growth with several planned facilities being cancelled or put on hold. WFLO chairman Derk Van Mackelenbergh (Eurofrigo BV, Netherlands) estimates that PRW automation in Europe is only around 10 percent, but the automated stores are usually so enormous that they have a significant influence on the market.

Theo van Sambeeck has been monitoring and facilitating the growth of warehouse automation in Europe, both in his capacity as director of the GCCA office there and as managing partner of the ColdChainExperts.com consultancy in Netherlands.

Much as in North America, van Sambeeck reports that most fully automated cold stores are private warehouses and that these entrepreneurs are generally introducing systems based on long-term contracts with manufacturers or retailers. At the same time, some PRWs with multi-client and multi-product concepts are starting to show serious interest in complete or partial automation. He is convinced that this will boost crane sales and increase competition among PRWs as well.

A Private Warehouse Embraces Automation
The Ontario-based Tim Hortons chain offers an illuminating case study of the role of automation on the private side. Tim Hortons is the largest food service company in Canada, with more than 3,000 quick-serve restaurants north of the border and more than 500 locations in the United States. Bruce Dimmel, vice president for distribution at Tim Hortons, sees a lot of value in automated warehouses.

Speaking at the recent 2009 International Association for Cold Storage Construction (IACSC) Conference & Expo, Dimmel reported on the company’s five corporate distribution centers in Canada and its 12 contracted frozen distribution sites in Canada and the United States. Together, the 17 locations support Tim Horton operations with storage and transportation of frozen food, refrigerated food, and dry goods.

Four years ago, Tim Hortons opened its first automated facility, an 8.8 million cubic foot facility with 16,000 pallet positions in Guelph, Canada.With separate100-foot high towers for ambient and refrigerated products, the facility completely serves 1,280 stores in Ontario, handles small products for 3,500 stores in North America, and provides inter-warehouse shipments to the other corporate distribution centers as well as 3PL distribution facilities in Manitoba, Newfoundland, Massachusetts, and Ohio, plus overseas operations in Ireland and Afghanistan.

Dimmel raves about the Guelph facility. He boasts of sixfigure savings in energy, seven-figure savings in labor, significantly reduced product damage to damage-prone sugar packages, and error rates that have dropped by more than 50 percent (with order accuracy climbing from around 95 percent to 98 percent).

Dimmel also likes the improved discipline and housekeeping. Everyone on the team understands the need to be dead-on accurate with license plating, because if the system thinks that “Product “A” is “Product B,” it will pick the wrong product every time; quality control checks in the receiving area ensure that does not happen. It’s also necessary to confirm that pallet weights and alignments are correct before they get into the system. He also reports that since all personnel realize that an errant scrap of stretch wrap can shut down a crane, everyone is more careful and more tidy than ever before.

As for the downsides of automation, Dimmel doesn’t really see any. Although he estimates that construction costs can run 25-35 percent higher than that of a conventional building, depending on site-specific and need-specific circumstances, he believes that is a small price to pay for the immense added benefits.

The Automation Proffessionals Speak
Jeff Hedges is not just a proponent of automated warehouses, he is a true believer. The director of business development at HK Systems (USA) also spoke at the 2009 IACSC Conference, where he shared some of the facts and data developed in conjunction with manufacturers, distributors, and others in the supply chain. In one case, he tells of an automated facility built for a leading beverage company that cost 7 percent more than a conventional facility but generated operational savings of 60 percent. In absolute numbers, the additional $3.4 million in one-time construction costs was more than offset in the very first year by a $3.7 million savings in annual operating costs.

Hedges is all about return on investment (ROI). In a cold storage environment, he estimates that an automated facility with 8,000-10,000 or more pallet positions can generate 50- 75 percent savings in labor costs and 60-80 percent savings in energy expenditures, working in a footprint that is at least 40- 50 percent smaller. He notes that this doesn’t take into account measurable savings in real estate taxes, reduced environmental impact, less product damage, and better customer service, all of which are characteristic of automated facilities.

John Ripple is general manager of Dambach Lagersysteme USA, a subsidiary of Dambach Lagersysteme (Germany), another large storage systems and equipment manufacturer. When Ripple thinks about automated warehouses, it is more than just additional equipment or the absence of people. The picture he conveys is that of a very clean, highly organized facility, with product flow carefully planned from receiving to shipping. He claims that you can immediately sense the difference between an automated facility and a conventional one.

Ripple almost views the enormous labor saving component of automatic cranes as a given, but he is passionate about the potential energy savings that come with a smaller building envelope. He calculates that an automated facility holding a given number of pallets will reduce energy consumption by about 50 percent when compared with a building having the same number of pallet positions and using conventional reach or turret trucks. According to Ripple, energy savings on lift trucks alone can shave nearly 10 percent off of energy consumption, while lighting yields another 15 percent reduction in kilowatt hours. But the crowning achievement may be that the cranes actually generate electricity when they are being lowered or slowing down.

Ripple appreciates that the PRW industry has been slow to automate, so he encourages PRW operators to take a hard look at the numbers. He believes they’ll stand up to intense scrutiny. “Talk to me or talk to my competitors,” Ripple pleads, “but talk to someone. At the end of the day, the only skeptics left standing will be those who don’t look at all the factors.”

Carlos Oliver, president of Frazier Industrial Co. (USA), is in a unique position to observe changes and advances in storage systems. As the largest producer of structural steel racking systems in North America, Frazier sees what just about everyone is doing. Frazier is called upon by warehouse operators, crane manufacturers, and integrators to provide the racks which allow the cranes to do their work. Oliver points out that with cranes and racks going up 120 feet or more, tolerances are extremely tight. The general installation standard for a 120-foot tall building calls for racking that is within 1 inch of plumb. The building size, site location, wind deflection, soil conditions, and seismic conditions must all be taken into account. High-quality construction is absolutely essential, explains Oliver, or the cranes will just shut down.

Oliver notes that improvements in aisle-changing capability have generated much more interest in crane systems. With this development, operators no longer need to have sufficient throughput in a single aisle to justify an initial crane, and additional cranes or satellites can be added later to keep pace with growing throughput.

Automation at a Tipping Point?
For a variety of reasons, many of them valid and powerful, PRWs have been slow to climb on the automation bandwagon. According to van Sambeeck and others, there were myriad problems during the early years — problems with pallets, temperature and condensation, poor planning and integration, and inadequate pre-implementation training and testing. “Fortunately,” says van Sambeeck, “virtually all of those teething problems have been overcome by now.”

Meanwhile, Jerry von Dohlen, president of Newark Refrigerated Warehouse (New Jersey, USA), is investigating the costs and benefits of automation in connection with plans for a possible new facility. His research indicates that in some cases the space needed per pallet can shrink from around eight square feet in a conventional double-reach building to less than two square feet in an automated facility. If the footprint of the building can be telescoped that much, von Dohlen reckons that the cost of building an automated facility could well be equal to — or even less — than that of a conventional building.

Von Dohlen grumbles that PRW customers seem to constantly demand lower prices and more service, and in some ways, he adds, we’ve known for a long time that PRW customers are also our biggest competitors. He says, “The question is not whether we automate, it’s about what any given warehouse company needs to do given its product mix and customers. No business can survive and prosper without exploiting the best available technologies.”

Frazier’s Oliver predicts that it won’t be long before more PRWs take the leap into automation. With rising labor costs, automation is getting easier to justify, he says. In addition, automated storage and retrieval systems are no longer limited to full pallets. “There’s increasing movement towards automated case picking tied to improvements in technology. Plus, with companies such as Conestoga, Preferred, Kroger, Wal-Mart, Sysco Foods, C&S Wholesale Grocers, Supervalu, Publix Supermarkets, Albertson’s and Sobey’s all implementing systems, it won’t be long before others jump on board.”

If Tim Hortons is any indication, the verdict is already in. When Tim Hortons began automated warehousing, the company was able to consolidate four distribution centers into a single facility, substantially reduce dependence on 3PLs, and lower the cost of doing business. Tim Hortons Dimmel believes that automation is the silver bullet needed to lower the cost of handling every case. “Looking ahead, it will be all but impossible for non-automated 3PLs to maintain a significant business relationship with Tim Hortons,” says Dimmel.

In his bestselling book, The Tipping Point: How Little Things Can Make a Big Difference, Malcolm Gladwell defines a tipping point as “the level at which the momentum for change becomes unstoppable.”

If van Sambeeck and Oliver are correct, if the footprint of the building can be telescoped as much as von Dohlen believes, if Ripple and Hedges calculations are accurate, and if Laurin, Galiher, European PRWs, and private operators like Tim Hortons are meeting and exceeding objectives, others are certain to join the march towards automation. It is no exaggeration to say that we could literally be on the edge of a tipping point that will fundamentally change the way PRWs operate.

Automation Best Practices Roundtable and Facilities Tour
In response to requests from warehouse members and much apparent interest, the GCCA European Division is investigating possibilities for organizing a special executive workshop focused on automated warehousing. According to GCCA European Director Theo van Sambeeck, “We plan to offer a practical, hands-on, three-day event in the spring of 2010 covering automatic intake, storage, replenishment, and semi-automated order picking in a – 25° C environment.”

The program will focus on the basic elements automation, problems and pitfalls, best practices, and site visits to automated facilities. To ensure that the workshop is responsive to the needs of each person, the program will be limited to between 10-20 PRW participants. Anyone interested should send an email to europe@gcca.org to reserve a spot in the program.