08 February 2012

Contract is the key to automation success

Published:: 05 May 2009
Byline:: Nigel Mitson

How do you ensure that the efficiency gains promised in the design phase of an automation project are matched by real-world performance?

A highly automated distribution operation working at full-tilt can be an impressive sight – a steady flow product being moved from storage through to dispatch dock, with only the minimum of human involvement.

There are indeed a great number of success stories, where performance achieves, or beats, the original expectations.

And yet in some circles automation has developed a bad name; the efficiency gains promised in the design phase not being matched by real-world performance.

These instances are typically retailer distribution centres, where the automation is applied not just to bulk pallet movements but also to case sortation, singles picking and order assembly.

Solution design often involves multiple product flows and inter-process dependencies – they cannot be started up using the same thinking used for manual sites.

And when the resulting key performance indicators fail to meet expectations, wherein lies the shortfall? Who has let the side down? Is it the fault of the contractor, the software company, the operation staff?

I believe that part of the problem may lie in the contract model for the purchasing of these facilities. Firstly, the software managing the operational processes that are serviced by the automation should be delivered under the contractual scope of the materials handling equipment contractor, thus ensuring unequivocal responsibility for the performance of the whole.

It sounds obvious, but there are many arguments offered against this view.

The end point of the contractor’s fixed-price, turnkey contract is to demonstrate that his equipment plus software solution can deliver the contracted order volume. It is this equation that drives the original return on investment calculation. When the volume test is passed, the customer is given his shiny new supply chain engine, and ramp-up begins.

But this can be like handing over a Formula 1 racing car without a test driver. What is typically missing is the expertise to guide the operation through to achieve its potential.

The original designers will have moved off onto their next challenge and the operational staff are just beginning their own empirical learning process. Expertise resides in humans, but it is possible to embed this knowledge into software tools. It seems logical that the knowledge of the original designers should be captured and made available for the lifespan of the facility, via software. But these very tools are often the first thing to be offloaded in the race to the tender finish line and subsequent contract award.

Anything that is not strictly necessary to achieve the contract completion criterion becomes a candidate for leaving out.

The capital budget is set according to the turnkey tenders; the annual revenue budget is set on the basis of steady-state maintenance.

There is rarely an allowance made to spend money on ramp-up, thus some distribution centres never achieve their return on investment potential. Could it be that the standard purchasing and contract model works against the long-term interests of both the customer and the contractor?

An intermediate ramp-up contract could be the answer, or alternatively a more creative managed service contract, arranged such that the contractor has a long-term vested interest not just in the quality of his installation but also in the operating efficiency of his design concept under real-world conditions.

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