As
the global market increasingly caters towards a digital economy and
online shopping, it is anticipated that warehouses and distribution
centers will turn towards more automation. Distribution center
automation is becoming one of the greatest supply chain trends of 2017.
E-commerce creates this demand for automation which companies use to
their advantage to remain competitive. Now, companies engaging in
research and development efforts to explore warehouse and distribution
center automation are eligible for research and development tax
credits.
The Research &
Development Tax Credit
Enacted in 1981, the federal Research and
Development (R&D) Tax Credit allows a credit of up to 13% of
eligible spending for new and improved products and processes.
Qualified research must meet the following four criteria:
New or improved
products, processes, or software
Technological in nature
Elimination of
uncertainty
Process of
experimentation
Eligible costs include employee wages, cost of
supplies, cost of testing, contract research expenses, and costs
associated with developing a patent. On December 18, 2015,
President Obama signed the bill making the R&D Tax Credit
permanent. Beginning in 2016, the R&D credit can be used to offset
Alternative Minimum tax and startup businesses can utilize the credit
against $250,000 per year in payroll taxes.
Understanding Distribution
Center Automation
Companies that offer their products online are
challenged with recent consumer demand increases as online shopping
becomes more popular. To remain in the market, these companies are
“hiring” robots to fulfill some of the tasks human laborers are
overburdened with in warehouses and distribution centers. Many robots
in these settings transport products on the floor, saving people the
time it takes to traverse the space looking for products in an order.
Before the robots, people would walk miles a day to pick items off
shelves and put them in boxes. Now, robots complete tasks of loading
and unloading, retrieving and putting away, as well as pallet stacking.
On a global scale, the International Federation of Robots (IFR)
anticipates a 15% annual growth rate of robot implementation in
warehousing and distribution center applications.
In warehouses, the most time consuming activity is
picking, which involves taking items off shelves when an order is
placed. The most effort in this operation consists of traveling to pick
up the product and bring it to the next location. Research to automate
the process found that increasing productivity can result from dividing
picking into separate jobs. In other words, the traveling task would be
separated from the picking task. The former can be fulfilled by a
robot. In automating the entire picking process, ASRS technology is
employed. This acronym stands for automated storage and retrieval
system. ASRS includes computer-controlled systems that facilitate
robots to automatically place loads from defined storage locations. As
a result, there is more dynamic and accurate case delivery to locations
along the racks where pickers must retrieve them. ASRS eliminates
extensive travel times required in the traditional, manual picking
process. Automation of this process also resulted in creating
multi-level racking systems. Robo-carts are placed on each level with
instructions to only pick up products on that level that are requested
by an order. Once the product is retrieved, the robo-cart delivers the
product to the end of the level where a lift drops it at the next
picking station.
One of the warehouse jobs laborers dislike the most
is unloading and stacking. Fortunately, robots are designed to
accomplish such tasks with built-in 3D vision sensors. These sensors
help robots determine pallet sizes so they place larger ones on the
bottom and smaller ones on the top of a stack. It is anticipated that
such robotic developments will not displace workers, but will instead
help workers increase their overall efficiency.
Kiva Systems, based in Boston, creates ground-based
drones that deliver packages throughout warehouses and distribution
centers. In most of its setups, Kiva incorporates custom shelving known
as pods. These are mobile and flexible enough so robots can move them
easily around a space. A Kiva installation also includes a grid of 2D
QR code installed on the floor of the space, an intelligent pack
station with scales, lasers, and sensors, and a software system that
links these components all together. In 2012, Amazon Inc. bought
Kiva for $775 million and renamed it Amazon Robotics, Inc. Since then,
Amazon deployed Kiva robots. It started with 15,000 robots and has
since grown to 45,000 robots. Note that not all Amazon warehouses are
now utilizing Kiva robot automation. However, those that are
experienced significant expense reductions of 20%, or $22 million in
savings per center. This comes as a direct result from increased
efficiency. Before the robots, a typical cycle in an Amazon fulfillment
center would take 60 to 75 minutes. With the robots, the cycle is
reduced to 15 minutes, even though the inventory space expanded by 50%.
The space expansion was made possible because Kiva pods create more
efficient use of the available space. These improvements are
expected to continue as Amazon integrates more Kiva robots in its
fulfillment centers.
Another company based in Canada called Clearpath
Robotics Inc. created a robot named OTTO to enhance workflow in
warehouses. It is intended to relieve burdens of moving materials
around so that human laborers can devote their time to higher value
activities. OTTO is a self-guiding robot that delivers goods around a
floorspace. Unlike Kiva’s robot, “OTTO’s intelligence allows it to
‘learn’ the warehouse landscape without the aid of a floor-guided track
system.” The robot can be told a point of interest and will
navigate itself to that location at a constant, safe speed. Clearpath
Robotics makes other robots for land, air, and sea applications.
In October 2016, a study was conducted to analyze
the priorities in warehouse investments. It was found that almost 40%
of the interviewed warehouses were investing in automation from 2016 to
2019. Those interviewed understood that e-commerce fulfillment is
labor intensive and costly, and that the optimal way to deal with it is
via automation. Furthermore, in the same study it was hypothesized that
3D printing will lend a hand in promoting development and adoption of
robots and drones in warehouses and distribution centers.
The International Federation of Robotics held a
panel at the end of 2016 to discuss the future trends of industrial
robot installations from 2016 to 2019. It is anticipated that during
this time period, human-robot collaboration will grow, becoming more
beneficial than previously anticipated. The top 5 nations with
expansive robotic applications are China, Japan, United States, South
Korea, and Germany. There will be continued growth in the United
States, in such a way that from 2016 to 2019 growth will amount to 5%
to 10% per year.
Investments in warehouse and distribution center
automation are expected to provide significant R&D tax credits to
those engaging in such activities. Depicted below is a potential
R&D tax credit scenario created by R&D Tax Savers:
Automation’s Impact on
Future Jobs
The International Federation of Robotics affirms
that increased automation will have positive impacts on labor demand.
In fact, the warehouse robots “take over dull, repetitive tasks, and
free up people to perform more value added work.” Automation
creates a chain effect in which one activity leads to the next. The
chain is outlined as:
Since January 2017, warehouse worker salaries
increased 6% compared to the 2.8% increase seen in all other
professions during this timeframe. In March 2017, 945,200 jobs were
accounted for in the warehouse and storage sectors alone. This marks a
5.3% increase from 2016. Just as Amazon is increasing its robot
installations, it is also increasing its number of available positions.
In April 2017, Amazon announced it was creating 25,000 more jobs for
part-time workers. Although some workers are concerned their
salaries will decrease or they will lose their jobs, many companies
that automate their warehouses are finding new ways to benefit their
workers. They are being given new incentives and opportunities to
increase individual output and efficiency. During holiday seasons, the
part-time offerings are attractive to temporary workers, such as
students.
Robots that are developed for warehouses are
intended to work alongside human laborers. Known as collaborative
robots, these robots will reduce the number of steps in a process that
a worker would traditionally undergo to fulfill an order. In a
collaborative setting, a worker may take a product off a shelf and put
it on a rack that is led by a robot. The robot would then bring the
product to workers at the next station, where they will be packaged and
then shipped. Such advancements will benefit the workers by helping
them increase their productivity and efficiency.
Collaborative robots are already in high demand. In
2012, Boston-based Rethink Robotics Inc. introduced Baxter, a humanoid
capable of kitting, packaging, loading, unloading, machine tending, and
material handling. Costing $25,000, Baxter is a viable solution
for some businesses seeking to improve functionality and manufacturing
processes. Rethink Robotics has started a new generation of
industrial robots called Sawyer. This one executes many tasks that
traditional industrial robots were incapable of. Sawyer is applied to
CNC machining, PCB handling and ICT, metal fabrication, molding
operations, packaging, testing and inspection, and loading and
unloading. Sawyer works collaboratively and safely alongside
human workers.
European companies are also developing collaborative
robots. KUKA, a German manufacturer, is one of those companies. It
created a one-armed lightweight robot to automate “delicate, complex
assembly tasks…it has sensors to optimize safety [and] fast teaching…
[to] work safely and practically alongside humans.” Similarly,
Universal Robots, a Danish manufacturer, creates robots that automate
almost anything, from painting to labeling to loading products. The
company has three collaborative robots that can be integrated into
almost any production environment. They are designed to mimic the size
and flexibility of a human arm. Many industries already employ these
robots, including automotive, food and agriculture, furniture and
equipment, electronics, metal and machining, plastic and polymers,
pharma, and many more. Their list of applicable abilities are endless,
including picking and placing, lab analysis and testing, polishing,
machine tending, screw driving, and more. Other collaborative
robots have been made and introduced into the services industry,
facilitating to the needs of customers during in-store experiences.
Current Warehouse
Automation
Many companies currently invest in warehouse
automation in order to remain competitive in the digital economy.
Quiet
Logistics: Although this company is not directly engaging in the
digital economy, it is an e-commerce fulfillment provider for online
brands that include Zara and Bonobos. Quiet Logistics launched the
petite Locus robots in its warehouse facilities. They work alongside
human laborers. Their job is to pick up products and bring them to the
workers to package and ship. These robots are expected to increase
productivity by 80%.
Adidas:
This
shoe manufacturer revolutionized its factories and warehouses with
robots. Over the next year or so, it plans to produce over 500 pairs of
running sneakers with robots. Adidas will still have human laborers who
complete parts of the assembly process; however it is looking towards
more automation of the overall manufacturing process. Adidas is also
exploring 3D printing of soles for the Futurecraft 4D shoes with
Silicon Valley startup Carbon. The printing speed is 10 times faster
than other 3D printing methods which will help Adidas, coupled with its
increasing automation, produce over 100,000 pairs of the Futurecraft 4D
shoes.
Patagonia, Inc.: In an effort to keep up with high demand for
products during the holiday season, Patagonia turned to Dematic Corp.,
a supplier of logistics systems for factories. Dematic offered the
company belt-driven technology that controls the speed at which
materials move along conveyor belts. This is meant to optimize
efficiency and decrease the issue of bottlenecks from arising. As a
result, within 9 months, man-hour efficiency increased 20% and power
consumption was reduced by 30%.
Zappos:
This
incredibly popular and successful online retail company, now owned
by Amazon Inc., has a solid reputation for its customer service and
satisfaction. It ensures that deliveries occur within 24 hours or an
order placement. Zappos upholds this policy with the use of warehouse
and distribution center automation. The company has completely
automated warehouses based on Kiva systems. As a result of automation,
Zappos also reduced energy costs by 50%. UPS Worldport:
This is the hub for the UPS and is located in Kentucky. Because of its
use of robots, the center can handle over 84 packers per second,
translating to over 416,000 per hour. This helps it deliver on time and
maintain customer satisfaction levels.
Ikea:
Considered
one of the leading “speed” furniture companies in the world,
Ikea gains this title in part from its automated warehouses. They have
automated storage and retrieval systems that capitalize on warehouse
space. As a result, they can store even more products. At peak
efficiency, 13 cranes that comprise one warehouse, for example, can
move over 600 pallets per hour. This translates to almost one
pallet per minute per crane. Storing, processing, and shipping are
faster now than in the past. Orders are completed within 24 hours, when
in the past, it would take over 72 hours per order.
C&S
Wholesale
Grocers: The CEO, Rick Cohen, founded a company called
Symbiotic to create technology that automates distribution center
processes. At first, the system was made just for the grocer’s
facilities, but since then it has been tested by Target, Walmart,
Coca-Cola, and various other companies. As it pertains to food
retailers and wholesalers, it is anticipated to diminish distribution
center labor costs by 80% and allow operations to exist in warehouses
that are 25% to 40% smaller.
Seegrid
Corp.: This Pittsburgh, PA-based company created robotic pallet
trucks and tow tractors. Unlike some other robots, these do not require
additional infrastructure. The vehicles use evidence grid technology to
navigate. In other words, they combine multiple views of an environment
to generate probabilities about the space and where they can travel.
360 degree stereo cameras are mounted on the vehicles to produce the
images and discern viable travel routes in a given space. The average
forklift operator would cost between $20 and $35 per hour. A Seegrid
robot, on the other hand, works for as little as $2.24 per hour.
Conclusion
In recent years, research and development funded the
adoption of robots in warehouses and distribution centers. This form of
automation is required for companies to keep up with consumer demand
that is derived from e-commerce and the modernizing digital economy.
These robots are intended to work alongside existing warehouse workers
who are taxed with tedious, time-consuming tasks that often deter
people from seeking out these types of jobs in the first place. But
now, warehouse and distribution center automation creates new avenues
for improved productivity and efficiency. Companies and individuals
engaging in the development and integration of warehouse and
distribution center automation are now eligible for R&D federal and
state tax credits.
