The Business Case For AMR’s In Manufacturing

The Business Case For AMR’s In Manufacturing

OTTO Motors and PULSE Integration have partnered to implement one of the world’s largest deployments of AMR technology. The OTTO material handling platform was deployed at a billion dollar company that is a household name in consumer goods. This was in part because of the ability for the AMR platform to flexibly, reliably and safely move materials but the strength of the business case was a deciding factor in the choice to implement OTTO.

The following conclusions were drawn after a detailed analysis of the OTTO platform vs alternative material handling methods for the customers. When compared for productivity and costs:

  • OTTO was 10% the cost of a full-time equivalent for manual cart movement
  • OTTO was 50% of the costs associated with a driver and a forklift.
  • OTTO was 66% the cost of an AGV equivalent
  • OTTO was 50% the cost of a conveyor equivalent

When the customer began its work with PULSE to transform its operations, four methods of material transport were considered. The customer needed a flexible, reliable and safe solution that would optimize materials movement. OTTO AMRs were found to be more flexible than a conveyor and safer than a forklift. The deployment resulted in an ROI of less than two years, and significant cost savings for the operation. The payback drivers included labor savings, increased productivity, improved safety and ergonomics for operators, lower capital costs, and a more compact facility design.

PULSE Integration and OTTO Motors Deploy the Largest AMR Fleet

PULSE Integration and OTTO Motors Deploy the Largest AMR Fleet

PULSE Integration partnered OTTO Motors, to undertake what is the world’s first in-depth analysis of automated mobile robots (AMRs) deployed at scale in industrial facilities. With hundreds of facilities across North America, this billion dollar organization is a household name in Consumer Packaged Goods. In 2 facilities spanning over 1.7M sq ft, this Fortune 500 company is 100% reliant on OTTO technology for their material transport.

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Micro-fulfillment as a Service (MaaS): Is It An Option Retailers Should Pursue?

Micro-fulfillment as a Service (MaaS): Is It An Option Retailers Should Pursue?

A challenge faced by vendors that wish to introduce new technology into the grocery industry is that many grocery retailers are risk averse. Instead of jumping at the chance to embrace new technology, most retailers take a ‘wait and see’ approach. Specifically, grocery retailers wait to see what Amazon and Walmart will do. This has been especially true regarding the topic of micro-fulfillment. Although the use of micro-fulfillment centers within a retailers grocery ecosystem makes operational and financial sense, most grocery retailers have sat on the sidelines.

That has changed as a result of the announcement by Walmart that it is going to install micro-fulfillment centers in an undisclosed number of stores. Walmart will install solutions from Alert Innovation, Fabric and Dematic.

Walmart indicated that they are still in the testing and evaluation phase and that they have not identified the optimal solution. (You can read more about the different micro-fulfillment systems on the market here).

I have proposed the use of micro-fulfillment centers inside retail stores, in buildings next to retail stores, or in offsite ‘Dark Stores’. Micro-fulfillment is a must-have for retailers. However, let me be clear, micro-fulfillment isn’t just technology a retailer can purchase and install. Micro-fulfillment is a strategy retailers can leverage to reduce costs and complexity related to fulfilling online and curbside grocery orders, create a competitive advantage, and enable growth.

Most retailers that choose to leverage micro-fulfillment as part of their strategy have entered into direct arrangements with specific micro-fulfillment vendors. For example, H.E.B entered into an agreement with AutoStore. I rank AutoStore at the top of the list for micro-fulfillment. (Dematic will probably introduce the AutoStore system at Walmart; something I strongly recommend).

Is a direct relationship with a vendor the optimal choice? Is there another option retailers can choose? Yes, there is.

Micro-fulfillment as a Service (MaaS)

I prefer retailers to purchase and install micro-fulfillment centers across their ecosystems. I believe owning and operating MFCs is a wise move strategically for retailers.

However, retailers that don’t want to own and operate MFCs have the option to utilize Micro-fulfillment as a Service (MaaS). MaaS is a service that a few MFC companies are offering to retailers. Fabric has done a great job of marketing MaaS to potential customers.

At a high level, MaaS is a service whereby an MFC company will purchase or lease a building to install micro-fulfillment centers. An MFC company can also install one or more micro-fulfillment centers onsite in a company owned facility.

Once installed, the MFC company will provide the required labor (or use a 3rd party) to run the facility. Customers that sign up for MaaS ship their inventory to a MaaS location where the inventory is either stored or immediately placed inside an MFC. Retailers will have little to no upfront costs to leverage MaaS. The MFC company will fulfill orders for their customers. On average, the MFC company running the MaaS location will charge between $.58 to $.60 per line picked.

Sounds like a great deal!! It’s not. MaaS is nearly impossible to justify due to high operational costs. On average, grocery retailers can lose up to $25 on every online order they fulfill. MaaS reduces the cost of fulfilling online orders but not as much if a retailer operates their own micro-fulfillment centers.

Based on analysis completed by several strategy consulting firms, and based on my own analysis, the MFC companies offering MaaS have greatly underpriced their services. In addition, the projected order volumes that can be filled using a MaaS model will be difficult, if not impossible, to fulfill because of limitations within the MFC systems being used by the companies I evaluated.

Regardless of the limitations, I expect MaaS to grow in popularity for these reasons: Executives at some retailers will be very risk averse. To minimize risk, they will choose to essentially outsource micro-fulfillment. I know of several grocery retailers that are in the process of evaluating micro-fulfillment systems. A few of the retailers are leaning towards using MaaS as a way to reduce capital spend and mitigate risk.

Recommendations

Using real world examples, this is what I recommend all grocery retailers that are interested in MaaS to do.

Albertsons is one of the leading grocery retailers in the United States. The company is led by CEO Vivek Sankaran, former President and COO of Frito-Lay North America. I believe Vivek should be considered one of the best CEOs working today. I have written multiple articles about Albertsons and I have publicly stated that Albertsons should merge with Ahold-Delhaize. If the merger occurs, it would create the largest grocery retail conglomerate in the United States, and one of the largest in the world.

Based on announcements from Albertsons, the company is evaluating options for micro-fulfillment. Albertsons has a relationship with the MFC company, Takeoff Technologies. (I am a former advisor to Takeoff and Fabric).

Full disclosure: I have had multiple discussions with executives from Albertsons regarding the topic of micro-fulfillment. I also advised executives from H.E.B, Ahold-Delhaize, Publix, Amazon and Walmart on the topic of micro-fulfillment. However, I do not work for a micro-fulfillment company. I work for a system integrator, PULSE Integration, that has relationships with several MFC companies. I also write articles on the topic of micro-fulfillment.

I applaud Albertsons focus on micro-fulfillment. However, what should Albertsons do?

In my professional opinion, I recommend that Albertsons purchase and install MFC systems from AutoStore. If there is resistance within Albertsons for such a model, Albertsons should evaluate MaaS as an option. However, instead of only testing MaaS as a solution with one MFC company, I encourage Vivek Sankaran to speak with AutoStore, and negotiate an agreement whereby AutoStore will operate one to three MaaS locations for Albertsons.

AutoStore hasn’t embraced MaaS due to analysis they have performed that indicates MaaS is a higher cost and lower value option for grocery retailers than grocery retailers owning and operating their own micro-fulfillment centers. However, I believe AutoStore has no choice but to offer a MaaS solution due to growing interest in the topic. I strongly encourage AutoStore to partner with Albertsons.

Sankaran should also have one to three AutoStore MFCs installed within their grocery ecosystem, including installing an AutoStore inside a grocery store, to test which MFC performs the best. Sankaran can compare the results of MaaS and a company owned and operated MFC model at the end of one year. May the best MFC solution win.

In addition to micro-fulfillment, I strongly encourage Albertsons (and all retailers) to test the use of last mile delivery carts from the company Tortoise, and testing mobile retail using vans from Robomart. Both companies are generating a lot of interest from retailers. (I am an advisor to both companies).

Finally, I recommend that Albertson (and all grocery retailers) to improve the customer experience for online grocery delivery by providing their customers with a DynoSafe or a similar product. This article outlines the importance grocery retailers “winning the porch.”

Publix, Kroger, Ulta Beauty, Sephora, Macy’s, owners of malls, convenience store chains, and large retail development companies should also test MaaS and operating MFCs within their retail ecosystems.

What’s Next for Micro-fulfillment? 

I am convinced that Instacart will invest heavily in micro-fulfillment centers starting in 2021; probably with Fabric. Instacart will go public in 2021. By 2022, 80 to 100 micro-fulfillment centers will be dedicated to Instacart’s needs. By 2025, Instacart will become an online grocery retailer fulfilling orders direct to their customers. Instacart will end their relationship with their current customers. I anticipate that Instacart will open Instacart-branded stores in select locations. If I’m correct, Instacart should acquire Fabric in 2021. (Instacart is in an interesting position. I recommend Shopify, Google or Facebook to acquire Instacart).

Amazon is investing heavily in micro-fulfillment. I anticipate that Amazon will soon unveil a 20,000 square feet MFC built inside one of their AmazonFresh branded stores. I’m convinced that Amazon has no choice but to explore the use of Nano-fulfillment centers inside Whole Foods stores. I designed one of the first micro-fulfillment centers specific to the needs of Amazon. You can read about it here.

Amazon is creating a business model whereby they will sell more groceries through their Amazon branded stores than through Whole Foods. Why? Because Amazon is going to sell branded CPG and organic products inside its supermarkets. When Amazon acquired Whole Foods, I stressed to Amazon that they should introduce branded CPG products at Whole Foods to increase customers. The stores could be re-branded to ‘Whole Foods Plus.’ Amazon didn’t introduce branded CPG products at Whole Foods and sales have stagnated.

An argument can be made that Amazon should divest Whole Foods and focus on its own AmazonFresh brand. Target is the company that should acquire Whole Foods. Target can open Whole Foods Markets inside its stores. I have recommended to Amazon on several occasions to acquire Target and also open Whole Foods Markets inside Target’s stores. Since the acquisition hasn’t occurred, I’m skeptical that it ever will. If Amazon is not going to acquire Target, divesting Whole Foods should be explored.

Amazon and Kohl’s are piloting an AmazonFresh store inside a Kohl’s store; this is something that I recommended to Kohl’s and Amazon over two years ago so I’m glad that pilot has begun. If the pilot is successful, I recommend that Amazon should acquire Kohl’s.

DoorDash, Postmates and other restaurant delivery companies must expand into delivering groceries. I strongly recommend that these companies should invest in opening their own micro-fulfillment centers powered by AutoStore or some other MFC system. Grocery retailers are actively looking for a replacement for Instacart. Postmates, for example, could open MFCs; receive inventory from grocery retailers; store the inventory inside each MFC system; fulfill online and curbside orders; and use their own delivery drivers to deliver orders.

I also believe that restaurant delivery companies that partner with grocery retailers should teach their grocery retail customers how to open dark kitchens and offer their own branded meals.

Micro-fulfillment is going to grow in popularity. Every retailer needs to ask and answer this question: What is our micro-fulfillment strategy?

For more information on micro-fulfillment, you can read articles located here and here.

Read more articles like this from PULSE’s Chief Marketing Officer Brittain Ladd

Proving the Case for Autonomous Mobile Robots

Proving the Case for Autonomous Mobile Robots

PULSE Integration partnered OTTO Motors, to undertake what is the world’s first in-depth analysis of automated mobile robots (AMRs) deployed at scale in industrial facilities.

Working with an F500 company, OTTO deployed the OTTO Materials Handling Platform at a brownfield and greenfield site. PULSE then compared performance with:

  • Forklifts
  • Conveyors
  • AGVs
  • Manual material handling

The fact that these deployments were carried out at scale was important. What we have found amongst all but the digital leaders is that businesses look to adopt the technology bit by bit, trying to hedge their bets on their investment risk and keep all stakeholders happy. The result is that you tend to get islands of automation across a business or a production facility, missing out on the network effect you get with a large scale implementation where all pieces complement each other to achieve a greater whole.

Analysis and Conclusion

The findings of PULSE’s study were unanimous – on a per-unit basis, they found that:

  •  AMRs were significantly cheaper compared to other materials handling solutions
  • 90% cost saving compared to manual handling
  • 33% saving compared to AGVs.

Depending on the investment model used (system lease, vehicle-only lease or capital funding), PULSE calculated that this would translate to ROI being achieved in one to two years.

These are significant figures for an industry that has long tended to view robotics as an expensive solution with a high bar for ROI. As McKinsey puts it, the robotics market, in the past, leaned towards customers with the biggest spending power, focusing on proprietary, non-standardized whole factory solutions that kept costs high – and meant only those firms with the deepest pockets could forge ahead.
PULSE’s study is proof that times have changed. AMRs offer a specialized automated solution for one critical area of manufacturing operations, materials handling and intralogistics. PULSE and OTTO have demonstrated how AMRs can boost agility, efficiency, productivity and space utilization in the factory, while also driving down costs.
Critically, AMRs do this in a way that is more cost-effective than other available solutions, with an ROI that fits well within standard financial reporting cycles. If, as the likes of Interact Analysis forecasts, this leads to significant growth in the mobile robotics sector, this will also help to close manufacturing’s digital divide.
The Growing Digital Divide in Manufacturing

The Growing Digital Divide in Manufacturing

There is a growing consensus that digitization is opening up a chasm in the manufacturing industry.

On one side, there are the innovative, tech-savvy firms that are forging ahead full speed with digital transformation strategies, and reaping the benefits of doing so. On the other side, are businesses that have been slower to embrace the ‘Industry 4.0’ trend and who are at risk of falling behind as a result.

Deloitte reports that early adopters of smart factory initiatives have enjoyed average gains of 10 to 12% in areas such as manufacturing output, factory utilization and labor productivity. Research published in The Harvard Business Review found that digital leaders are 1.5 times more likely to optimize production runs based on demand forecast.

Moreover, there are fears that COVID-19 could make the divide even greater. According to a survey carried out by L.E.K, 51% of businesses with existing advanced digital capabilities plan to invest more in digitized operations in response to the pandemic, compared to 30% of firms overall.

It isn’t that the benefits of digitization are disputed. According to another study carried out by Deloitte, 69% of decision-makers said switching to a digital supply chain would deliver exponential or significant benefits to their business.

Yet only a third said they were prioritizing this as a strategic objective. Asked what the barriers to digitization were, the most common answer was budgetary constraints. Other issues cited included not knowing where to start, misalignment of competing priorities across the business, and difficulties making the long term business case within a rigid financial reporting framework.

Making Good the Promise

As far back as 2016, industry bodies were heralding mobile robotics as critical pieces in the jigsaw for achieving agile, efficient “always-on” supply chains. According to Robotics.org, the use of mobile robots as an intralogistics solution would streamline workflows, cut picking errors, boost throughput, consolidate space and offset rising labor shortages and costs.

These are all benefits that the challenges of the COVID-19 pandemic bring into sharp relief. As a result, Interact Analysis has said that it believes the impact of the pandemic will lead to a long-term net rise in mobile robotics adoption.

“We believe that the impact of COVID-19 will lead to a long-term net positive for the mobile robot industry. E-commerce, near-shoring of manufacturing and adoption of robotics and automation to reduce reliance on human labor will all likely accelerate. This remains one of the most resilient and promising industries that we track.”
— Ash Sharma, MD & Senior Research Director - UK, Interact Analysis

That’s why PULSE Integration and OTTO partnered to undertake what is the world’s first in-depth analysis of automated mobile robots (AMRs) deployed at scale in industrial facilities.