Behind the Dematic Acquisition of Reddwerks

Last spring, I chatted at ProMat with the director of distribution for a leading specialty retailer, who had an interesting take on the exhibitors.

Rather than push hardware, he argued, system integrators should become software companies.

I ran that quote by Ulf Henriksson, president and CEO of Dematic, last week during a conversation about the announcement that Dematic has agreed to acquire Reddwerks, one of the early entrants into what is now being called warehouse execution software, or WES.

Henriksson argued that what’s happening in the industry is one step beyond software. “It’s all about the algorithms,” he countered.

“Why do you think Google is investing in robotics and artificial intelligence companies? If you think about our customers’ requirements today, they’re buying automation that needs to be integrated together for the benefit of simplifying their daily work. Over time, even the software application is secondary. It’s about intelligent automation and robotics.”

With the Reddwerks acquisition, Dematic joins the ranks of other system integrators that are adding WES functionality to their tool kit. A relatively new acronym, a WES is that layer of software between a WMS and WCS in highly-automated facilities.

In many instances, the WMS is managing order planning, receiving, storage, shipping and inventory management before handing orders off to a WES, which then directs the order fulfillment processes themselves. Other system integrators playing in this space include – but aren’t limited to – Vargo, which developed its own WES some time ago; Intelligrated, which acquired Knighted back in 2012; and Swisslog, which acquired FORTE Industries earlier this year.

According to Henriksson, Reddwerks brings real-time decision engines to optimize the flow of materials and information already managed by Dematic systems.

It is especially strong in waveless order fulfillment – rather than create a batch of work once there are enough orders to drop into a distribution center, waveless order fulfillment is constantly re-optimizing workflows as orders that have to be filled faster than ever drop into the queue.

Done right, it also allows end users to rethink basic warehouse designs. “If you can manage the queue more effectively, you need less hardware,” Henriksson said. “If you sort and pick in the rack, you can shrink the overall footprint – and if you can do that, you can place a DC closer to the consumer and reduce the cost of delivery.”

He added: “When you think about queue optimization, algorithms matter and Reddwerks has good ideas on how to do that optimization.”

First, a few basics. The deal was announced on November 18 and is subject to approval by Reddwerks’ shareholders. Once approved, it will operate as a subsidiary of Dematic under the tradename Dematic Reddwerks.

The combination of the two companies, Henriksson said at the time of the announcement, “will enable customers to accommodate ever-changing business requirements by enhancing automation technologies with ‘On Demand’ software solutions that dynamically optimize warehouse and distribution functions.”

Why acquire Reddwerks in the first place, especially since Dematic has been investing heavily in the development of its own software solutions? Henriksson offered a few answers.

Speed to Market: Yes, Dematic will be aggressively building out its software platform over the next five years. But when it comes to the waveless concept, Reddwerks already has algorithms and solutions ready to go. “This gives us a jumpstart,” he said. “We can add their waveless, pull-based algorithms and real-time decision support tools into our offerings now. Reddwerks will save us a year or two of development time.”

WMS Functionality: In addition to its warehouse control functionality, Reddwerks has always had a level of WMS functionality that Dematic can now bring to the table. That is becoming increasingly important in highly-automated facilities, especially those with goods-to-person picking technologies. There, the warehouse control and execution systems are acting more and more like a WMS. “It’s very hard for an ERP or WMS provider to provide solutions that effectively control the equipment layer,” Henriksson said.

“When an order drops into the queue, you want the crane, the conveyor or robotic arm to move that item as quickly as possible. We believe that we have the ability to scale up the software stack, but that it’s hard for ERP and WMS to move down into the device control space. That’s the shift that’s beginning.”

Global Scale: So, what does Reddwerk get out of the deal? “The financial stability and global scale of a company like Dematic,” Henriksson said. “Reddwerks had great vision and great entrepreneurial people. But we can build this into our platform, productize it and take it globally. That’s something that would challenge a smaller company.”

Related: 5 Ways to Handle Distribution Center Peak Demand