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.

The Instacart Deception

The Instacart Deception

One of the most read and quoted books on military strategy and tactics is called The Art of War written by Sun Tzu, a Chinese general, philosopher, and military strategist. One of Sun Tzu’s most famous observations is that “All warfare is based on deception.” I like the quote and I agree with the majority of the strategies proposed by Tzu.

The quote could also have been written to state the following, “All business is based on deception.” In fact, deception is a common practice in business. For example, Apple founder Steve Jobs hid the bugs that could have destroyed the reputation of the iPhone. To prepare for a demo of the iPhone in 2007, Jobs painstakingly identified how to demo the phone in a certain way that camouflage all of the bugs. It worked. The demo was a massive success.

I believe we are witnessing another executive and company practice the art of deception in plain sight, Apoorva Mehta and the company he founded, Instacart. Here’s why.

 

Instacart’s 20-Year Game 

A challenge faced by some executives, especially executives that run startups, is appearing more capable and intelligent than they really are. This isn’t a slam or criticism, it is a fact. I’ve interviewed dozens of executives that lead or work for startups and I’ve been able to get them to open up to me about their fears. The biggest fear I identified is the number of executives who had to accept that luck played a large role in their success and that sooner rather than later, the success or failure of the company would depend on their leadership abilities and business acumen. The executives were afraid because they weren’t leaders or skilled in business. Over 50% of the executives I interviewed went on to fail.

Apoorva Mehta legitimately deserves credit for recognizing the need for a company to fulfill online grocery orders and deliver them. Mehta worked very hard to get Instacart off the ground. However, many retail analysts recognize that Instacart not only benefitted from luck, but their growth can directly be traced to actions taken by others and events that haven’t occurred for over 100 years.

If Amazon hadn’t acquired Whole Foods, and if COVID hadn’t appeared, I wouldn’t be writing this article. The acquisition of Whole Foods by Amazon scared the majority of grocery executives into thinking Amazon would soon take their customers. Instacart benefitted from the panicked executives who contracted Instacart to provide online grocery fulfillment and delivery.

Prior to COVID, only 3% of grocery sales were online. When COVID arrived, the need for online grocery fulfillment and delivery exploded. To the credit of Instacart’s executive team, they took full advantage of the opportunity to grow their business.

 

(Note: I continue to read articles or hear talking heads on news programs claim that COVID is a ‘Black Swan‘ event. This is false. The shift to agrarian life 10,000 years ago created communities that made epidemics and pandemics possible. The Black Swan event wasn’t COVID. The Black Swan event was that many countries voluntarily shut down their economies creating a global economic disaster).

Will Instacart continue to grow in a post-COVID world or will the luck run out? I believe Instacart will grow because Mehta and his executive team are already planning well into the future.

According to Mehta in a recent Forbes interview, he’s “playing a 20-year game.” Mehta also states that Instacart isn’t trying to take away customers from the grocery retailers they serve, and that Instacart has no plans to “ever sell groceries directly.” Is that true? Let’s turn to Sun Tzu for guidance on how to answer the question:

“All warfare is based on deception. Hence, when we are able to attack, we must seem unable; when using our forces, we must appear inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near.”

If Mehta is playing a 20-year game, what then does the future hold for Instacart and it’s customers? Are we honestly to believe that the Instacart of today will look very similar to the Instacart in 2040 except for better analytics? Even though online grocery fulfillment will increase to become 50% or more of a retailers business, we are to believe that grocery retailers will be happy to turn over their customers and business to Instacart? Gosh, is Instacart going to run the grocery stores too in a mutually beneficial relationship with their retail partners where love and respect drives all?

Based on discussions I’ve had with numerous industry experts, retail analysts and individuals who work for Instacart, this is what customers of Instacart can expect in the coming years in my humble opinion.

Instacart will go public in 2021, 2022 at the latest.

I’ve been told by multiple sources with first-hand knowledge of the matter that Instacart is actively engaged in discussions about opening micro-fulfillment centers (MFC). Fabric is one of the companies Instacart has spoken with about Micro-fulfillment as a Service. (Note to Instacart: Drop your insistence on technology exclusivity and acquire Fabric). Instacart has engaged in discussions with other MFC vendors according to executives I spoke with this.

Instacart will need a minimum of 50 MFC locations to begin with but the number of MFC facilities could eventually exceed several hundred. The challenge for Instacart will be convincing their retail customers to sign up for the service. Make no mistake – Instacart will convince a few customers to contract Instacart for fulfillment. When this happens, a flood of customers will follow. (I believe a partnership with AutoStore for Micro-fulfillment as a Service is the best strategy for Instacart to pursue. I don’t believe micro-fulfillment is enough. AutoStore is an ideal company to enable Instacart to become a fulfillment powerhouse).

Micro-fulfillment centers will allow Instacart to remove grocery fulfillment from the stores of their retail customers and reduce costs. This is actually a wise move and it is something I’ve recommended several times to Instacart. Grocery retailers can ship inventory to each Instacart MFC and leveraging technology from Fabric or other MFC vendors like Geek +, Attabotics, AutoStore, etc., online and curbside pickup orders can be automatically fulfilled using the MFC. Some products will continue to be picked by hand. Instacart will be able to reduce the costs associated with fulfilling orders significantly increasing their value to their grocery customers.

Micro-fulfillment centers will allow Instacart to expand their business model. According to Mehta, he wants to expand Instacart beyond supermarkets and has signed deals with Sephora, Best Buy, and 7-Eleven. Opening micro-fulfillment centers will allow Instacart to offer ‘Micro-fulfillment as a Service’ to fulfill online orders and replenish inventory rapidly in small format stores; like Sephora and 7-Eleven, for example.

Micro-fulfillment centers will also make it easier for Instacart to become an online grocery retailer and open their own physical stores. This is something I estimate will happen by 2025 at the latest. Grocery retailers pay Instacart an average 10% per order. In 2019, Instacart was losing $2.00 on every order they fulfilled. (Mehta claimed Instacart was profitable in 2019). In 2020, Instacart is grossing $3.00 per order. When COVID is tamed, which it will be, Instacart is going to again lose money or barely break even. Maintaining the status quo won’t work.

From a strategy perspective, the smartest move for Instacart is to continue to be deceptive about their future plans. Deception isn’t illegal. From the quote above, “When we are near, we must make the enemy believe we are far away.” Instacart must continue to sign new grocery retailers and do everything they can to maintain their current retail customers. Why? Data. Instacart understands the value of data. Instacart also understands the value of convincing grocery retailers that allowing Instacart to maintain a list of their customer names, email addresses, physical addresses and other data is nothing to be concerned with.

“If your enemy is secure at all points, be prepared for him. If he is in superior strength, evade him. If your opponent is temperamental, seek to irritate him. Pretend to be weak, that he may grow arrogant. If he is taking his ease, give him no rest. If his forces are united, separate them. Attack him where he is unprepared, appear where you are not expected.”

If Instacart chooses to become an online retailer, they will easily convert customers from shopping at their favorite online retailer to shopping at Instacart. Why? Because Instacart owns the customer relationship. When Instacart launches their online grocery business, they will have the best pricing, assortment, promotions and the best advertising campaigns for brands. I warned grocery retailers in this 2018 article that if they contracted Instacart, they would be teaching an eventual Trojan Horse their strengths and weaknesses. I was right.

Instacart not only knows how to serve their current grocery retail customers, Instacart knows how to take their customers and put them out of business. Mehta recently stated that Instacart is “actively hiring dedicated Instacart analysts who will be embedded in retail partners’ headquarters to support them.” Am I the only person screaming and laughing at the absurdity of grocery executives who will allow Instacart to embed analysts?

Note to Dunnhumby: You need to target every Instacart customer and market your services. I’m amazed you aren’t more aggressive in an industry actively looking for an alternative to Instacart. Retailers have a growing desire to analyze and monetize their own data vs. allowing Instacart and other third parties own and control the data.

Grocery retail isn’t only about online shopping. The grocery industry in the U.S. is estimated to be a $1T industry with most sales taking place in retail stores. Regardless of the denials, Instacart will leverage the mountain of data they’ve collected, and continues to collect, from their grocery customers. The data will identify exactly where Instacart must open stores to serve the needs of customers. Instacart branded grocery stores will become a reality.

Instacart is going to face an extreme amount of pressure in the coming years. For two years, I’ve had discussions with Postmates, DoorDash and the other restaurant delivery companies, about the need to fulfill and deliver online groceries and also teach their grocery retail customers how to install dark kitchens and sell restaurant quality food direct to their customers. Micro-fulfillment is a major topic of discussion. Uber Postmates, DoorDash, Grubhub, etc., must invest in opening their own micro-fulfillment centers. It’s happening. (Full disclosure: I continue to advise several restaurant delivery companies on the topic of micro-fulfillment).

What about Shipt? My advice to Target is divest Shipt. The company has failed at every level to become a competitor to Instacart even though the opportunity to do so exists. Shipt never lived up to its potential, Instacart exceeded theirs.

Instacart has no choice but to be deceptive. As with all deception, however, at some point the truth becomes known. Odds are high that by 2025, the deception will end and the truth will be told – Instacart is going to become the largest online grocery retailer in the U.S., and will open hundreds if not thousands of stores.

Conclusion

Instacart has every right to do what I outlined above. In fact, I hope it happens. But will it? The unknown is whether or not Instacart will be acquired. I have stated in writing and publicly that Shopify, Berkshire-Hathaway, Facebook, FedEx, Target or Google should assess acquiring Instacart. Amazon could acquire Instacart as doing so would eliminate a major competitor. Walmart could acquire Instacart.

The challenge for Instacart is that they’re vulnerable. The sun has shone brightly on Instacart for several years but storm clouds are gathering. DoorDash and Uber Postmates have exceptional potential to go after Instacart’s customers.

Most of Instacart’s customers can enter into agreements with micro-fulfillment companies to purchase and install MFCs within their retail ecosystems thus eliminating the need for Instacart.

Instacart going public may turn out to be its last hurrah if it’s not careful. Investing in micro-fulfillment, becoming an online grocery retailer, and opening their own stores remains the best strategy for Instacart.

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.

Watch the video here

View the business case here

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.