Commonwealth Supply Chain Advisors recently published a ground-breaking white-paper titled, “Beating Murphy’s Law in Warehouse Automation Projects.” The full paper examines a number of the reasons why automation projects fail to meet expectations, and what companies can do to beat Murphy’s Law. This blog is fourth in an ongoing series on “Beating Murphy’s Law in Warehouse Automation Projects.”
A key tactic to avoid disappointing project results is to explain the concept of Murphy’s Curve to the executive team and financially account for the inevitable drop in productivity during implementation. Plan for Murphy’s Curve. Build it into the project ROI model through a solid risk mitigation plan.
Some key cost increases which often occur during the Murphy’s Curve period at project startup include:
- Temporary labor costs: Often more labor will be required in the weeks (or months) following the technology deployment. Workers must become acclimated to the new processes and technology, and productivity rates will almost certainly suffer at first. Additionally, managers must get used to different ways of releasing work into the new system to be able to balance labor and workflow across the operation. It is rare to get this right the first time, even with sophisticated warehouse control software (WCS) systems. Additional labor and supervisors will likely be required, and perhaps even an additional shift will be needed on a short-term basis.
- Expedited shipping costs: Even with additional labor, it may not be possible to keep up with outbound order volumes in the first few days or weeks after go-live. It may be necessary to subsidize the cost of expedited shipping on some orders to maintain customer service levels.
- Additional inventory carrying costs: If the project involves relocating the distribution center from one site to another, then it may be necessary to purchase additional inventory in order to allow the facilities to operate in parallel for a brief period.
- Unknown costs – contingency factors:Additional costs for labor, shipping, and inventory represent only the “known” areas where overruns can be expected. Each project inevitably contains unexpected, “unknown” costs that present themselves once the project begins. These unknown events are what often come to mind when the phrase “Murphy’s Law” is used – anything that can go wrong often does go wrong. A few real-life examples of unplanned-for events plaguing warehouse automation projects include:
- A company that was expanding its distribution center discovered that the incorrect sprinkler heads were used when the building was constructed many years before and was forced by the local fire marshal to upgrade the entire sprinkler system in both the existing and new portions of the building.
- A company that was constructing a new distribution center encountered a period of unseasonably bad weather which severely delayed the foundation work and set the entire project behind.
- A company that was installing new pallet racking in California was unable to find a certified slab drawing of the building they had moved into and was forced to have core samples taken for the seismic analysis after weeks of searching for the drawings.
In each of the above (true) examples, the problems which befell the project were difficult to anticipate but resulted in both time and cost overruns. Adding a certain percentage of contingency time and cost to the project budget is the only way to ensure that the budget can withstand some of these unexpected manifestations of Murphy’s Law.
The above costs should be estimated as accurately as possible and included as project costs in the accounting model. While doing so will almost certainly increase the payback period for the technology, failing to account for these factors will result in a return-on-investment projection that is incorrect. If the project will not meet the corporate ROI guidelines once the additional costs from Murphy’s Curve have been factored in, then perhaps the rationale for the doing the project in the first place should be reconsidered. Don’t fall prey to thinking that the current project will be the exception to the rule. Remember, the productivity drop from Murphy’s Curve occurs even if everything goes according to plan. There is an inevitable adjustment period as operators and managers get used to using new technology, which will result in loss of efficiency even in the best of deployments.
To read Commonwealth’s complete white-paper titled, Beating Murphy’s Law in Warehouse Automation Projects, click here.