Prominent Pointers of Warehouse Automation Business Model- You Must Know
There are several famous and prevailing business models within the warehouse automation market. Here in this section, we will discuss the key players and their capabilities in both the broader material handling and warehouse automation market. Look into three critical aspects, namely
- Equipment provider’s business model
- Industry trends
- Growth and consolidation
There are approximately 30 companies globally capable of providing warehouse automation solutions with the top 10 companies driving innovation and leading consolidation activity. Warehousing operations are a critical factor for the success of any supply chain centric business, especially low margin, high volume businesses such as eCommerce and retail; competitiveness comes down to reputation for excellence in execution and installation and the physical capabilities of the equipment.
Business Model
An automated warehouse facility might take about 3-4 years to complete from scratch, with asset lives of shed and equipment ranging from 3-25 years. This re-emphasizes the importance of relationship building for the success of Robots For Warehouse Automation Online equipment providers’ business models. A brief understanding of warehouse automation equipment providers’ operating model and the critical success criteria, starting with the new equipment tendering process, is given below:
- The client invites contractors to tender for a concept study, which costs approximately €1-2m and money is generally reimbursed by the contractor if it is chosen. The concept study can last up to two years and involve analyzing the client’s business needs, studying warehouse flows, deciding on A-B-C sequencing of goods (throughput and nature), ROI analysis of needed equipment, and determining warehouse layout and choice of software applications to integrate everything. This process is done by external consultants or by the providers themselves.
- After the initial feasibility study, the contractor submits the final offer to the client. At this stage, 4-5 competitors are narrowed down to two as competition intensifies. It is an ‘all or nothing’ business, where you either get the full contract or walk away with nothing as end-to-end integration of the equipment is what the customer is looking for. The industry is very competitive, and the difference in price between the final two competitors can be as less as 0.5% (for example, on a $100m contract).
- Once the contract is awarded, this is the phase in which the equipment provider carves out its margins, which is typically achieved through the following three levers:
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- Project management
- Construction of project
- Services
The most critical issue for an automated warehouse equipment provider is not to interrupt existing operations. The client relationship will likely evolve towards a partnership as switching costs are high, and providers have a continuous presence on the ground for maintenance and service work. One successful installation might potentially land contracts to construct additional distribution centres or upgrades of existing ones. Another common feature of the industry is relationship-based pricing, where deals are done not on a one-off basis but the basis of a long-term relationship; typically, initial outlays are reduced in exchange for promises of future business.
Economics of Warehouse Automation
Depending on the level of automated system installed and the requirements of the warehouse automation, an investment in warehouse automation technologies could produce a three-year ROI.
One of the leading players of warehouse automation solutions has classified the extent of automation most typically implemented by warehouses and distribution centers into four categories:
- Conventional picking and process improvements
- Mechanized solutions
- Semi-automated installations
- Fully automated solutions
Industrial Growth Drivers
We expect the growth of the material handling equipment market in general and automated warehouse solutions, in particular, to be driven by several key industrial and macro trends.
Among the industrial trends, we see the adoption of new technologies relating to the (Industrial) Internet of Things, increased pressures on and demand for efficient and flexible distribution operations, and growth in automated solutions across crucial end markets:
- Technology availability
- Rising customer expectations
- Increasing Manufacturing Complexity
Macro Growth Drivers
In terms of macro trends, changing demographics, increased urbanization with price pressure on land and overall economic growth trends contribute to increased demand for material handling equipment:
Rising Labour Costs And Shortage Of Skilled Labour: – These limit the supply of labour available for logistics and distribution operations, which leads to upward pressure on wages. Total labour costs are also affected by an increased focus on Health and Safety regulations.
Increasing Urbanization In The Developing World: – This puts pressure on the price of available land and, combined with the already growing cost of land in developed markets, further contributes to the demand for Autonomous Warehousing Solutions Online and the spatial efficiency that comes with them.
Emerging Markets: – Growth in developing countries such as China and India and the overall middle class in the developing world looks set to drive demand for material handling equipment alongside increasing spending power and demand for industrial products.
Consolidation: – Another critical trend underlying our complimentary view of this industry is the recent increase in M&A activity and subsequent merger amongst the top players.
