The Business Case for Warehouse Investment is Changing

by Christopher Davis, Principal at GoBlock USA

For many years, and especially since the start of the pandemic, the vast amount of cash poured into warehousing projects has been justified by the calculus of replacing hourly labor with capital investment in automation.

“I can’t find enough labor, and I have the cash to invest…”

Even simple back-of-the-napkin financial justifications could convince Boards to invest in the latest automation. This has driven the market for warehouse automation to $18 billion this year — up from $11 billion just five years ago.

But, that investment is about to slow…

Notice I said slow, not stop, and the nature of this slowing is important to understand.

At a macro level, the United States’ dominance as the global consumer market has become apparent to all. To quickly serve that market, goods must be warehoused in the States. So, warehousing will continue to be a significant industry in the USA, and investments will follow.

At the micro level, decisions on how to deploy investments into those warehouses are made by individual company leaders. For the last decade, these investments were primarily (but not solely) justified to solve the problems of labor availability and labor cost.

But now, the labor picture is changing.

While job openings are still very high, and unemployment remains very low, there has been a significant turn in the labor market. The Bureau of Labor Statistics recently released the Non-Farm Job Openings for August 2022. The US Non-Farm Job Openings have dropped for 5 months in a row — and it is the most dramatic drop since the pandemic and the Great Recession.

We are at a labor market top. You may not feel it in your warehouses yet, but you will.

In the next six months, you will see an increase in job applications for your open warehousing positions, and some of your labor problems will improve.

You will also have less cash to invest in your warehouses due to the economic slowdown and rising interest rates (see our article on how the changing cash position will affect investments).

In summary, more job applicants and less cash to invest means fewer robots in warehouses.

“Well, I must continue to improve, and even more so now that the economy is slowing. I will be under more pressure than ever to reduce costs.”

Agree.

To continue to reduce costs, it is a matter of how you adjust those investments within the budget dollars you already have. For the foreseeable future, you will be asked to focus investments in those projects yielding a short-term cash payback (that is, less than 1 or 2 years) rather than a 3–5 years accounting payback.

Investments in labor can provide those short-term cash paybacks and improve customer quality and service levels.

While you will enjoy the easing of labor availability, the challenges of warehouse labor will remain significant. A recent article by Business Insider explored how the warehouse job is one of the more demanding jobs in the US and one of the better paid. The report compares the modern warehouse economy to the manufacturing economy in the 20th Century, and Alex Kowalski at Cornell makes this observation:

“Warehouse workers,” he says, “are the assembly-line workers of contemporary capitalism.”

So we have to continue to invest in this human workforce. Investments to make the job more attractive and more productive can be effective. This might include investments in ergonomic and safety equipment, human wearable technology to improve accuracy and experience, order quality and cycle time incentives, and career training on the technologies you have already deployed.

Again to quote the Business Insider article:

“People are used as if they’re machines, and they really resent it,” says Steven Vallas, a professor of sociology at Northeastern University who has studied Amazon’s warehouses. “There are strong connections between the hardships of the job — including the productivity monitoring and algorithmic control of their work — and psychological distress. There’s an alienated feeling toward one’s job.”

Now is a good time to change that.

One firm providing this type of human-first investment consulting is the Joshua Tree Group. Their Purpose statement reads:

“We help companies produce the most efficient, safe distribution operations while creating a culture that makes their facilities a great place to work.”

Investments that make your warehouses a great place to work — while improving productivity, quality, and safety — can provide quick paybacks and long-term gains. They are great investments for you to consider right now.

GoBlock USA and Takle is an implementation firm for supply chain projects and the IT supporting those projects. We partner with growing companies to work as their Advocate and represent their best interests to the industry. We collaborate with solution providers to successfully meet our clients’ business case, and bring the solution from concept into reality.