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.
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.
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?
Working with an F500 company, OTTO deployed the OTTO Materials Handling Platform at a brownfield and greenfield site. PULSE then compared performance with:
- 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.
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.
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.
- First deployment of OTTO AMRs at scale at an F500 company demonstrates clear benefits in productivity, cost savings, and robustness.
- Analysis reveals that a single AMR unit represents just 10% of the equivalent human labor cost, 20% of forklift operating costs, 50% of conveyor costs and 66% of AGV costs.
In the context of manufacturing, resilience means agility – the ability to react to and adapt to change at speed, whether it be in response to fluctuations in demand, market conditions, supply lines, the availability of labor, or otherwise.
The COVID-19 pandemic has tested the resilience of manufacturing operations worldwide like never before. Yet in the midst of the turmoil created by the biggest global crisis in 75 years, mobile robotics has been singled out as one of the most promising of all emerging technology sectors, offering a vital tool in the race amongst manufacturers to adopt COVID-safe, flexible, and digitized working practices.
Yet for all the optimism, manufacturing firms rightly ask one crucial question about AMR adoption – where’s the evidence that it will have the promised impact on my operations?
While there are plenty of examples illustrating the benefits of small deployments, the business case for full-scale adoption by large firms has been lacking robust evidence.
Until now, that is.
A World-First for AMRs
PULSE Integration partnered with OTTO Motors to carry out one of the world’s first large scale deployments of autonomous mobile robots for materials handling in manufacturing.
The project involved the deployment of the OTTO Materials Handling Platform to provide the backbone of advanced manufacturing and eCommerce intralogistics at an F500 company. It took place over two sites, a brownfield and a greenfield.
Brownfield deployment at an existing 700,000 square foot facility, half of which was given over exclusively to the use of AMRs to provide transport of raw material pallets, work in progress pallets, and finished goods pallets in place of forklifts.
Greenfield deployment at a brand new 1 million square foot facility, where AMRs were deployed exclusively in a 400,000 square foot area to collect materials from human pickers to take to automated machining cells, and also to perform autonomous collection of materials from automated cells.
By relying 100% on AMRs within the dedicated zones, PULSE was able to carry out a robust cost-benefit analysis in comparison with manual handling (use of hand carts or carrying good), forklifts, conveyors and also with Automated Guided Vehicles (AGVs), which run on tracks and therefore don’t offer the same freedom of movement as AMRs.
Clear Cost Benefits
1. AMRs vs. Forklifts
The findings were unanimously in favor of AMRs. At the brownfield facility, PULSE found the OTTO 1500 platform worked out at just 20% of the equivalent operating costs of forklifts. This was based on the calculation that a single unit operating around the clock, 24 x 7 x 52, cost $40-50k per vehicle per year. The equivalent cost of a single driver working 4.2 shifts per week, plus the forklift lease, comes in at $200-280k.
At the greenfield facility, PULSE deployed OTTO 100 units managed by the OTTO Fleet Manager IoT system. With an average cost of $15-25k per vehicle, the OTTO 100 represents just 10% of the labor costs of human drivers when compared on a 1:1 basis.
2. AMRs vs. AGVs
In comparison with AGVs, PULSE found that the overall productivity of the OTTO 1500 units was broadly similar and that AGVs even showed some advantage in wide-open spaces. However, in the tight, narrow spaces of a compact facility, the smaller footprint and better maneuverability of the OTTO 1500 showed clear performance benefits.
Freed from fixed paths and guideways, the AMR is, for example, able to navigate independently around obstacles and pedestrians and can maneuver flexibly within the footprint of a pallet. This makes it much more efficient when operating with work cells or production machinery. Overall, PULSE calculated that this gave the OTTO 1500 a 66% cost efficiency advantage compared to an equivalent AGV system.
3. AMRs vs. Conveyors
Compared with conveyors, meanwhile, which operate in fixed positions that cannot easily be rerouted as demands change, PULSE calculated that a single OTTO 100 unit could do the work equivalent to a 250 LF conveyor. This worked out as a 50% cost saving, although this was based on optimum loads. When conveyors, as so often happens, are sub-optimally loaded for throughput or when loading only happens sporadically, the cost benefits of the AMR can be even higher.
Finally, as well as significant cost efficiencies, PULSE’s analysis revealed that ROI on AMRs at this kind of scale could be as little as a year.
With payback driven by labor savings, increased productivity and efficiency, enhanced ergonomics, improved safety, lower capital costs (compared to conveyors) and the opportunity for more compact facility design (compared to AGVs), PULSE calculated that ROI for large scale deployments on system lease could be under 12 months.
Using vehicle-only lease, this would push up to 12-24 months, while upfront capital purchases would be typically paid for in two years or less.