When it comes to warehouse automation, the U.S. grocery industry has long been the final frontier. For decades, grocers' warehouses and distribution centers remained untouched by the wave of automation sweeping through the nation's DCs. While pharmaceutical, electronics, and consumer goods facilities all around them installed the latest automated material handling systems, grocers clung to their manual ways.
Although there were some technical concerns, the reasons were largely financial. In a business known for its paper-thin margins, automation simply wasn't seen as a justifiable expense. "[Grocers] have such a low-margin business, they tend not to put their investment in warehouse technology," says Jeff Waller, president of the Atlanta consulting firm Waller & Associates. "They put it in the storefront."
But now that's starting to change. Within the past five years, several large grocers, including Kroger Co., HEB Grocery, and Stop & Shop Supermarket Co., have embarked on projects to partially or fully automate some of their distribution centers.
As for what's behind the reversal in thinking, it's partly the prospect of long-term labor savings. On top of that, the grocers say they stand to benefit from improved picking accuracy, a reduction in product damage, and higher throughput. But the fact remains, automated systems represent a hefty investment. And while some big players may have capitulated, it's still anything but clear whether their smaller counterparts will follow their lead.
Man vs. machine
A wholesale shift to automation would represent sweeping change for the grocery industry. Grocers' distribution facilities have long been labor-centric operations, with workers handling the distribution process from start to finish. In a typical operation, palletized products from suppliers are unloaded from trucks by workers on forklifts, who ferry the pallets to rack storage. Other workers break the pallets down into cases and later, assemble them into mixed pallet loads for delivery to individual grocery stores.
By and large, this work has been accomplished with little more than forklift trucks and pallet jacks. "The plain old forklift gets the job done quicker and for a lot less money," says Steven W. Simonson, a partner at the Raleigh, N.C.-based consulting firm Tompkins Associates.
Furthermore, up until fairly recently, systems that could handle complex grocery operations—with their thousands of stock-keeping units and diverse array of carton sizes—weren't widely available. For the most part, when grocers deployed technology in their DCs, it was in the form of voice or labor management systems—technology designed to help associates work more efficiently, not to replace them.
But technological advances have altered the equation, leading a few of the big players to start replacing at least some of those workers with machines. "We're seeing a real interest in automation in the grocery industry," says Mike Kotecki, a senior vice president with systems integrator HK Systems of Milwaukee, Wis.
In the past five years, HK has automated about 14 grocery warehouses in the United States, Kotecki reports. One of the first was a 2004 project at Stop & Shop's distribution center in Freetown, Mass., where HK installed automated storage and retrieval systems (AS/RS) that can accommodate both pallet and case picking. The system HK designed features cranes that automatically deposit pallets delivered by forklift into storage and then, when the pallets are needed for orders, remove them from storage and shuttle the loads to a station for loading into outbound trailers. For mixed-case pallets, the crane lowers pallets to floor-level bins, where order pickers select the needed items.
HK has also designed an automated mixed-case picking solution featuring a dynamic pick module for a grocery customer that Kotecki declined to name. At that customer's facility, workers break inbound pallets down into cases, which they deposit into totes or trays for storage by the unit's crane. When items are needed for orders, the crane ferries the trays to pick locations on the sides of the rack. Workers then retrieve the items for assembly into mixed pallet loads.
Case by case
Like HK, systems integrator Witron Integrated Logistics Corp. of Arlington Heights, Ill., has recently seen a flurry of interest in automation among grocery retailers. Within the last five years, Witron has installed its Order Picking Machinery (OPM), a fully automated case picking and palletizing system, at centers operated by big grocery chains like Kroger Co. in the United States and Sobeys Inc. in Canada.
At these facilities, the automated system takes over at receiving. Transfer vehicles whisk incoming pallets to an induction area, where a special machine removes cases from the pallets in layers and loads them onto plastic trays for storage in a mini-load AS/RS. When the cases are needed for orders, cranes remove them from storage and feed them to Witron's Case Order Machines, which assemble them into mixed-load pallets in a store-friendly sequence. In these DCs, the only contact forklifts have with pallets is at the receiving and shipping docks.
These systems come with a high price tag. An automated system of this level of complexity generally costs more than $1 million, says Brian Sherman, a senior engineer and account manager at Witron. And that's not the ceiling. Kotecki of HK says costs can run into the tens of millions for a big, complicated installation, like a fully automated rack-supported system for a hundred-foot-tall building with triple-deep rack storage.
Cost still a barrier
It's that million-plus dollar price tag that remains a sticking point for many grocers, particularly the smaller operations. Marc Wulfraat, director of supply chain strategy at consultant TranSystems Corp. of Kansas City, Mo., has run the numbers for some of his grocery clients. His conclusion: Automation doesn't make sense unless the company is paying its forklift operators $60,000 or more a year.
Outside of some unionized operations in big cities, most grocers don't pay their forklift drivers those kinds of salaries, Wulfraat says. Indeed, April 2009 figures from the Web site salary.com put the average pay for a forklift operator in the United States at $30,292.
Although the numbers alone may not justify automation, there are other factors that may come into play. For example, in Kroger's case, automation helped solve some longstanding employee recruitment and retention problems, says Simonson of Tompkins Associates. "They weren't finding quality employees, and turnover was killing them," he says.
For the most part, however, grocers still seem inclined to put their capital into technology that boosts sales in the store rather than in the distribution center. "Grocery companies tend to be behind the technology curve in distribution compared to Wal-Mart, who's on the leading edge," says Waller. "But competitive pressures will get them there eventually."