Adam J. Fein: The coming automation boom

The wholesaler-distributors reaping the most gains from this productivity growth operate in industries with highly automated supply chains, common standards for product identification between manufacturers and distributors, and competitive pressures that encourage innovation. (See Where productivity is growing in wholesale distribution.)

New research for the forthcoming edition of NAW's Facing the Forces of Change® indicates that the factors driving productivity growth in the most productive sub-sectors will spread to other sectors as distributors continue making investments in information technology. In addition, the biggest benefits from automation come when these technologies are part of a modern, scalable IT infrastructure.

As a result, all wholesale distribution executives need to understand and consider the benefits of automation. There are four core enabling technologies behind the automation of product handling in wholesale distribution.

• Warehouse management systems (WMS) have been called the “brains of the warehouse” because all decisions about the movement of products and people can be automated. In the warehouse, the productivity improvements of warehouse management systems come from substituting technology for potentially error-prone human activities such as order processing, inventory control, or picking. For example, information sent from either hand-held or fixed scanners creates real-time stock information and eliminates the need for manual inventory counting. As with many technologies, adoption has lagged among smaller wholesaler-distributors.
• Bar codes have been proven to be a highly accurate method for identifying products, with most errors tied to human failures in scanning the machine readable tags. Adoption of this legacy technology remains surprisingly low among small and mid-sized wholesaler-distributors. Less than 40 percent of smaller wholesaler-distributors are currently using bar codes today, although most plan to implement bar codes by 2012. Our research also found that suppliers will be increasing their use of bar codes on products shipped to their wholesaler-distributors at all levels of products aggregation— pallet, case, and individual item.
• Radio Frequency Identification (RFID) does not have the line of sight scanning requirements of bar codes, thereby reducing physical handling.  In theory, items can be uniquely identified and tracked through the entire supply chain without ever being physically scanned. In our survey, only 10 percent of wholesaler-distributors are using RFID today, yet 65 percent expect to be using the technology within five years. Yet wholesaler-distributors should still remain wary of the hype surrounding RFID given ongoing uncertainty about technological feasibility, costs, and the willingness of supply chain partners to embrace this technology. (See Hype and hope for RFID in wholesale distribution.) To date, the benefits of RFID appear to be greatest when used within a single company on specific projects, such as reducing stock-outs and tracking tools, expensive equipment, or frequently stolen items.
• Wireless technologies will increasingly be the basis for transmitting data from the warehouse floor into the business system rather than manually recording and entering information into the system later. These systems increase productivity regardless of the product identification technology used. Similarly, wireless voice-directed systems can also reduce human picking errors by pointing warehouse employees to the right location and quantities. Wireless systems also change both the cost and usefulness of warehouse automation by allowing a distributor to achieve the benefits of new systems with an existing warehouse configuration. (See Warehouses go wireless.)

Ongoing consolidation and increasing competitive intensity will continue to pressure wholesaler-distributors that fail to innovate or become more efficient. Wholesale distribution executives should begin evaluating their 2007 plans for participating in the automation boom.