I had the privilege several years back of working on warehouse system projects in both Germany and Panama for the same client. Both project teams were incredibly talented and developed highly successful warehouse solutions unique to the constraints and challenges faced in their respective countries. Current conditions in North America present an interesting blend of those challenges. Let’s take a brief look at factors in each country that influenced their approach and how we can apply those concepts in the United States.
German Automation
It is not uncommon to find a wide variety of AS/RS, inbound/outbound conveyor, and complex sortation systems in German distribution centers. Leasing costs in Germany are typically about 30% higher than what would be found in midwest U.S. transportation hubs. Although German pay rates are surprisingly similar to the U.S., those costs grow when vacation time, maternal/paternal leave, and other labor friendly policies are included. Additionally, Germany’s population density is about six times higher than in the U.S., which reduces time-in-transit and lessens the need for multi-facility networks (driving up facility throughput volume).
The combination of facility and labor costs, along with higher facility volumes, enables greater automation investments. This is helped by a lower worker turnover rate when compared to the U.S., which in turn allows for a better return on training expenses. However, this does place a greater importance on accurate simulations as a part of design. In addition, large capital investments can tie a company down to a particular location or technology longer than they might be comfortable with, typically beyond a five to ten year range.
Panama Ingenuity
Leasing costs in Panama are only about 11% lower than in the U.S., but labor costs are about 40% of the average U.S. warehouse worker. The combined factors make automation equipment more difficult to justify. To address this, local operations and project teams partnered to build job processes that reduced complexity and incorporated warehouse management system (WMS) modifications, eliminating the need for most manual user input of supplemental data. This approach made training more efficient and reduced learning curves for new hires, effectively offsetting worker turnover rates. The local team also adapted to what the warehouse application offered and changed some processes to avoid the need for further mods or costly system work-arounds.
As a result, the final process flows were simple, efficient, and easily trained. Although some automation would have reduced labor, the long-term payback on the investment was not justified.
The U.S. Blended Approach
Labor expense and facility cost per square foot have certainly increased in the U.S. over the past 15 years. However, this does not always provide the necessary elements for higher flow automation, as it does in Germany, due to the U.S. need for multisite networks. The U.S. is vast, with a lower population density when compared to European and Central American countries, and this significantly influences this dynamic.
Transportation costs drive the bus when it comes to determining the quantity and location of distribution centers in a North American network. These transportation costs can change significantly over time as customer buying preferences evolve, business units consolidate, and parcel or LTL innovations are implemented. Additionally, the portability of some automation solutions must be considered, particularly if the networks undergo a reshuffle every five to ten years.
In 2022 a leaked Amazon document claimed a 150% turnover rate in their warehouse labor force. A Forbes article published in October of that same year claimed this number to be twice the industry average. A 150% turn over is incredibly high, but honestly, a 75% turnover rate is also really costly. Warehouse processes with steep learning curves amplify the hiring costs. With that in mind, an emphasis needs to be placed on processes and systems that demand shorter learning curves from employees while also incorporating basic material handling equipment (MHE) to offset physical fatigue.
It is absolutely essential that warehouse operations teams be involved during warehouse system design along with the project members responsible for configuration and modification review. Furthermore, it is important for members of the operations team to be involved in the functional testing. Traditional waterfall project planning sometimes places too rigid of a constraint on the close of design. While milestones are important, there should be weight given to iterative innovation between ops and IT throughout the testing process.
Flexibility to adapt to changing transportation demands will continue to be a top priority in the United States. Sensible automation along with robust and simple process flows should be lessons we take from the best practices of Europe and Central America.