The seven WA-strategy categories, including empirical case data and a list of WA-strategy considerations
| 1) Role in logistics network |
| C1 – Consider the degree of centralization and the role of the warehouse in the logistics network C2 – Evaluate the strategic intent alignment of initiating a greenfield versus a brownfield AWS project |
| All case companies stressed the importance of the warehouse (WH) role in the logistics network. The automation decision was typically part of a larger change to the distribution network (e.g. moving to a new site, or consolidating multiple WHs into one, centralized facility. Setting up a new, greenfield WH enables planning the AWS from scratch, without any predefined boundaries. However, it involves many other decisions (e.g. location, negotiation with the municipality, access to logistics and IT infrastructure). The alternative, using a brownfield WH, removes many logistics and construction decisions. However, it can put boundaries on the AWS dimensions (e.g. brownfield sites may have lower roof height, which excludes high-bay technology solutions) which could lead to an AWS investment decision that is not perfectly aligned with the retailer’s strategic intent |
| 2) Technology innovativeness |
| C3 – Consider the strategic intent alignment of being an innovator or early adopter versus early or late majority in adopting new AWS technologies C4 – Focus on one main technology, or many that need to be integrated C5 – Invest in standardized or customized AWS; this includes consideration if/how the automation technology can be scaled up and/or copied to other sites |
| We noted skepticism toward being innovators to avoid uncertain payoffs and risk of downtime. However, two cases (C, H) were proud of being among the first in the world to implement their technology and develop customized solutions instead of buying standardized ones. By being innovators or early adopters, they could outperform their competitors. Another decision is to focus on one main technology (e.g. case A, B, and C) or several different technologies (e.g. D and H). One technology means simplicity in terms of integration, while a combination of technologies handles a wider range of product and order characteristics. However, it requires more integration system-wise and flow-wise. A related choice concerned technological complexity. One case company (E) pursued what they referred to as “simplicity” in the mechanics and intelligence of the system so that their own staff could understand, maintain and develop the AWS. Another (F) wanted to use their AWS as a blueprint for other sites although, when copying from/to another site, multiple operational factors (e.g. order and product characteristics) must be considered. In fact, case B invested in largely different AWS for different countries due to varying customer expectations and competitive priorities |
| 3) Efficiency or adaptiveness |
| C6 – Evaluate the strategic intent alignment of investing in static versus flexible automation technologies C7 – Balance short-term versus long-term productivity; assess how the AWS can be adapted to future business and customer uncertainty C8 – Consider pros and cons of investing in overcapacity to handle short-term (peaks vs off-season) and long-term demand variation (growth vs decline) |
| The respondents discussed potential lock-in effects. One is that the installed technology is not flexible and cannot easily be moved. Therefore, many of the implemented AWS are high-performing, lean facilities, but they may not necessarily be optimal for handling future changes. Previous investments in relatively static infrastructure must be considered in all subsequent decisions regarding, for example, flows, processes, assortment and order structure. As each technology choice has some degree of lock-in effect, the respondents stressed a holistic perspective and future vision of the warehouse to ensure adaptiveness and long-term productivity instead of short-term optimization. One case respondent (B) commented: “We want to live with the AWS for 15, 20, or 30 years. This is a challenge for the decision-makers, that it is a long-term investment. We have a payback of four years, but it's a foundation for our continued business journey… apart from the depreciation, the AWS will give us a certain capacity or lead times, or environmental advantages.” |
| 4) Relationship with technology supplier |
| C9 – Decide if the project should involve one or multiple technology suppliers to be coordinated during implementation, ramp-up, and full operation C10 – Consider if the long-term goal is to pursue strategic partnerships or arm’s-length relationships with the technology supplier(s) C11 – Carefully select technology supplier(s) in early stage, as it can create a lock-in effect and/or provide opportunities for strategic partnerships |
| The choices of technology and technology supplier go hand in hand according to our case companies. One case representative (B) commented: “It is really a choice of supplier. They all have a range of technologies… this also means that the suppliers will come up with similar proposals. You can almost put their proposals on top of each other and it’s like carbon paper… they have the same knowledge and experience, and people move between companies.” The supplier choice has a certain lock-in effect as new technology and suppliers must be integrated with the already existing ones. The opportunity to establish strategic partnership is also relevant. For this, several aspects linked to relationship, trust and culture are important. Our study indicated that retailers strive to minimize the number of involved actors that must be coordinated in an automation project. One case representative (H) commented: “We didn’t want a blame game between different suppliers. So, we opted for an integrated system, one supplier that takes overall responsibility.” Another case representative (A) elaborated: “when we have a new facility, new staffing, new systems, new everything else. Should we also have the problem with two suppliers who have different WCS and different PLCs. The risk was that we build ourselves into a solution that doesn’t work and then we don't get anything shipped out of here.” |
| 5) Control and ownership |
| C12 – Consider the pros and cons both short- and long-term of owning versus leasing the facility and the AWS C13 – Decide if the long-term purpose is to take full control of the maintenance and development of the AWS |
| Several case companies (C, E, H) argued for the strategic importance of being able to take control and ownership of the AWS in the long term. Concerning the building itself, some opted for leasing (e.g. A) to reduce the need for capital and risks involved with construction and facility management. Others (e.g. F) argued that owning the building increased control over design aspects and strategic investments. A similar reasoning can be applied to the AWS itself. Many retailers making their first AWS investment sign service agreements with the technology supplier. Without a mature organization and internal expertise, these service agreements are essential. But long term, the dependence on an external actor may create large expenses for maintenance and error handling. Another risk is that the focus will be on maintenance rather than technology development and optimization of the system. This has incentivized several of the case companies (e.g. E, H) to build their own competencies to ultimately manage the automation technology in-house. While reducing costs, it can involve new risks, such as staffing shortages, competency gaps and access to spare parts |
| 6) Risk exposure and robustness |
| C14 – Evaluate how downtime can be avoided by investing in redundancy of, for example, robots, spare parts, generators, power cables, fiber, and servers C15 – Assess disruption risks and decide how these can be mitigated and insured against |
| A critical aspect of AWS is the sensitivity to downtime. If the AWS (e.g. shuttle system) goes down, it is practically impossible to get any products out. Downtime can be caused by faulty robots (e.g. shortage of spare parts), power outage and system crashes. Several case companies had invested in back-up generators for the continuous operation of critical warehouse systems. An important point concerned the computer systems. If they are down for more than a couple of hours, then all systems must be restarted, and all order data may be lost. The case companies therefore invested in redundancy in terms of double power cables and fiber/connections and mirrored server rooms. The case companies also highlighted two higher-impact disruption risks. One was fires. One respondent pointed out that insurance companies can say no to increasing AWS if they are built too close together on a small surface. Another was cyber-attacks. One case company experienced an attack that involved two and a half weeks of total shutdown of the central warehouse. This resulted in a giant bullwhip effect that affected the entire company and SC for a long time. These risks indicate the importance of risk assessment, contingency plans and insurance coverage |
| 7) Sustainability |
| C16 – Assess how environmental sustainability aspects can/should be included for the AWS investment decision C17 – Assess how social sustainability aspects can/should be included for the AWS investment decision |
| Environmental impact was discussed in terms of building material, life cycle analysis (lifespan, energy consumption), the potential to produce electricity (via solar panels) and footprint. Another observation was that current AWS (1) are not used for reverse flows related to second-hand, repair and rental and (2) will have difficulties in supporting a transition to a circular economy (e.g. handling of unique, second-hand items). Future scale-up of circular logistics networks may require new types of material-handling nodes with different kinds of AWS. Concerning social sustainability, the interviewees confirmed that humans continue to play a critical role for automated warehouses and pointed out that several competencies, including mechanics, technicians and data analysts, are required to maintain and develop implemented AWS. Interestingly, the interviews revealed that work-environment aspects (ergonomics and physical environment) were not considered for the investment decision but played a role in the final AWS design |
| 1) |
| All case companies stressed the importance of the warehouse (WH) role in the logistics network. The automation decision was typically part of a larger change to the distribution network (e.g. moving to a new site, or consolidating multiple WHs into one, centralized facility. Setting up a new, greenfield WH enables planning the AWS from scratch, without any predefined boundaries. However, it involves many other decisions (e.g. location, negotiation with the municipality, access to logistics and IT infrastructure). The alternative, using a brownfield WH, removes many logistics and construction decisions. However, it can put boundaries on the AWS dimensions (e.g. brownfield sites may have lower roof height, which excludes high-bay technology solutions) which could lead to an AWS investment decision that is not perfectly aligned with the retailer’s strategic intent |
| 2) |
| We noted skepticism toward being innovators to avoid uncertain payoffs and risk of downtime. However, two cases (C, H) were proud of being among the first in the world to implement their technology and develop customized solutions instead of buying standardized ones. By being innovators or early adopters, they could outperform their competitors. Another decision is to focus on one main technology (e.g. case A, B, and C) or several different technologies (e.g. D and H). One technology means simplicity in terms of integration, while a combination of technologies handles a wider range of product and order characteristics. However, it requires more integration system-wise and flow-wise. A related choice concerned technological complexity. One case company (E) pursued what they referred to as “simplicity” in the mechanics and intelligence of the system so that their own staff could understand, maintain and develop the AWS. Another (F) wanted to use their AWS as a blueprint for other sites although, when copying from/to another site, multiple operational factors (e.g. order and product characteristics) must be considered. In fact, case B invested in largely different AWS for different countries due to varying customer expectations and competitive priorities |
| 3) |
| The respondents discussed potential lock-in effects. One is that the installed technology is not flexible and cannot easily be moved. Therefore, many of the implemented AWS are high-performing, lean facilities, but they may not necessarily be optimal for handling future changes. Previous investments in relatively static infrastructure must be considered in all subsequent decisions regarding, for example, flows, processes, assortment and order structure. As each technology choice has some degree of lock-in effect, the respondents stressed a holistic perspective and future vision of the warehouse to ensure adaptiveness and long-term productivity instead of short-term optimization. One case respondent (B) commented: “We want to live with the AWS for 15, 20, or 30 years. This is a challenge for the decision-makers, that it is a long-term investment. We have a payback of four years, but it's a foundation for our continued business journey… apart from the depreciation, the AWS will give us a certain capacity or lead times, or environmental advantages.” |
| 4) |
| The choices of technology and technology supplier go hand in hand according to our case companies. One case representative (B) commented: “It is really a choice of supplier. They all have a range of technologies… this also means that the suppliers will come up with similar proposals. You can almost put their proposals on top of each other and it’s like carbon paper… they have the same knowledge and experience, and people move between companies.” The supplier choice has a certain lock-in effect as new technology and suppliers must be integrated with the already existing ones. The opportunity to establish strategic partnership is also relevant. For this, several aspects linked to relationship, trust and culture are important. Our study indicated that retailers strive to minimize the number of involved actors that must be coordinated in an automation project. One case representative (H) commented: “We didn’t want a blame game between different suppliers. So, we opted for an integrated system, one supplier that takes overall responsibility.” Another case representative (A) elaborated: “when we have a new facility, new staffing, new systems, new everything else. Should we also have the problem with two suppliers who have different WCS and different PLCs. The risk was that we build ourselves into a solution that doesn’t work and then we don't get anything shipped out of here.” |
| 5) |
| Several case companies (C, E, H) argued for the strategic importance of being able to take control and ownership of the AWS in the long term. Concerning the building itself, some opted for leasing (e.g. A) to reduce the need for capital and risks involved with construction and facility management. Others (e.g. F) argued that owning the building increased control over design aspects and strategic investments. A similar reasoning can be applied to the AWS itself. Many retailers making their first AWS investment sign service agreements with the technology supplier. Without a mature organization and internal expertise, these service agreements are essential. But long term, the dependence on an external actor may create large expenses for maintenance and error handling. Another risk is that the focus will be on maintenance rather than technology development and optimization of the system. This has incentivized several of the case companies (e.g. E, H) to build their own competencies to ultimately manage the automation technology in-house. While reducing costs, it can involve new risks, such as staffing shortages, competency gaps and access to spare parts |
| 6) |
| A critical aspect of AWS is the sensitivity to downtime. If the AWS (e.g. shuttle system) goes down, it is practically impossible to get any products out. Downtime can be caused by faulty robots (e.g. shortage of spare parts), power outage and system crashes. Several case companies had invested in back-up generators for the continuous operation of critical warehouse systems. An important point concerned the computer systems. If they are down for more than a couple of hours, then all systems must be restarted, and all order data may be lost. The case companies therefore invested in redundancy in terms of double power cables and fiber/connections and mirrored server rooms. The case companies also highlighted two higher-impact disruption risks. One was fires. One respondent pointed out that insurance companies can say no to increasing AWS if they are built too close together on a small surface. Another was cyber-attacks. One case company experienced an attack that involved two and a half weeks of total shutdown of the central warehouse. This resulted in a giant bullwhip effect that affected the entire company and SC for a long time. These risks indicate the importance of risk assessment, contingency plans and insurance coverage |
| 7) |
| Environmental impact was discussed in terms of building material, life cycle analysis (lifespan, energy consumption), the potential to produce electricity (via solar panels) and footprint. Another observation was that current AWS (1) are not used for reverse flows related to second-hand, repair and rental and (2) will have difficulties in supporting a transition to a circular economy (e.g. handling of unique, second-hand items). Future scale-up of circular logistics networks may require new types of material-handling nodes with different kinds of AWS. Concerning social sustainability, the interviewees confirmed that humans continue to play a critical role for automated warehouses and pointed out that several competencies, including mechanics, technicians and data analysts, are required to maintain and develop implemented AWS. Interestingly, the interviews revealed that work-environment aspects (ergonomics and physical environment) were not considered for the investment decision but played a role in the final AWS design |
Source(s): Authors’ own creation