TriFactor Examines Automated Material Handling Project Justification

White Paper: "How to Justify an Automated Material Handling Project" by TriFactor, of Lakeland, Florida

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May 04, 2011, 09:17 ET

JACKSONVILLE, Fla., May 4, 2011 /PRNewswire/ -- The Great Recession has not only eroded so many jobs and also offered extremely limited job opportunities during the slow recovery, but it also effected how companies are now justifying capital projects. The scars of the economic downfall will probably be visible for quite a while, which is why the rules required to approve an automation project within the warehouse or distribution center have changed for the foreseeable future. Recognizing the new rules for justification will not only help the process of continuous improvement within a company's operations, but will also help minimize risk of negatively impacting the bottom line when deciding if a project is worth the investment.

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Cost Savings vs. Cost Avoidance

By definition, cost savings means reducing current costs while cost avoidance means reducing to possibility of incurring future costs. When most companies were reacting to the falling economy, the emphasis on automated material handling project justification was cost savings. Typically this was done by installing equipment that replaced existing labor and the associated labor savings would pay for the cost of the equipment in one to three years. The result of companies laying off workers due to decreased demand or because they implemented automation projects was that they became as lean as possible in order to fulfill their mission, which was a good strategy for most. However, with hardly any labor costs remaining to use cost savings as primary justification, we are now shifting focus to cost avoidance.

Since the worst of the recession is more than likely behind for most business, distributors are not only trying to fulfill orders with their current workforce, but also planning on slow growth scenarios and the associated challenges. It is pretty safe to say that most front line or mid-level managers are a little gun shy about requesting to add to the workforce in preparation for future growth. A more acceptable alternative would be to provide an argument to avoid adding labor by automating some processes.

To view the full white paper by John T. Phelan, P.E., please visit http://www.trifactor.com/Material-Handling-White-Papers/Project-Justification

SOURCE TriFactor