Materials handling: From product to solution

In September, nearly 400 materials handling and logistics professionals gathered at the Canyons Resort in Park City, Utah, for HK Systems’ (now part of Dematic) annual logistics conference. In the lobby outside the conference rooms, a video demonstrated an automated materials handling solution in a beverage warehouse on a big screen display.

HK was showing off more than the solution it had put together for one of its customers. The company was also highlighting a new approach to systems engineering, a pre-configured, receiving dock-to-shipping dock warehousing solution. The idea, explained Jim Stollberg, HK’s vice president of business development, is to spend R&D dollars to develop a turnkey solution that can be packaged and sold to meet the unique needs of beverage industry distributors. In this case, the turnkey solution was an entire warehouse. Yes, the model may have to be scaled up or down depending on the size of a facility, and it still has to be integrated into a user’s IT system, but the heavy lifting in the engineering department has already been done. Ultimately, that should save money.

“When we looked at the consolidation going on in beverage distribution, we thought the industry could benefit from better technologies and practices,” says Stollberg. “But many of these distributors are too small to pay for a custom-designed system that takes a year to implement.” At the same time, most of those distributors face a common set of operating issues: They receive and store full pallets and full cases of product from bottlers and manufacturers and ship out mixed pallets to their customers. Why not come up with a turnkey solution that tackles those issues and can be implemented in most facilities in three or four months rather than a year, HK reasoned. “Our customers want to get out of the engineering business,” Stollberg says. “They want solutions that are better, cheaper and faster to get up and running.” 

While HK’s warehouse focuses on the beverage industry, the concept illustrates a broader trend beginning to emerge in the materials handling industry: Instead of selling products, the industry is beginning to sell solutions.

That represents a change in focus. For years, the industry has operated on the principle that every warehouse is unique. The result was that every solution was a one off. As such, equipment manufacturers sold individual products like conveyor, sortation systems, racks and automated storage systems. Customers, consultants and systems integrators came up with custom designs for that warehouse. A new facility presented a new set of unique circumstances that needed another custom design.

While doing it all from scratch is still the norm, a number of suppliers are jumping on this band wagon, creating repeatable point solutions for picking and labeling processes. Customers are driving the trend. “As suppliers and engineers we like to be creative every time we step up to the plate,” says Larry Strayhorn, president of TGW-Ermanco (now TGW Systems). “But our customers are pushing back. They want faster and faster returns on their investment, and they’re tired of science projects. They want proven, repeatable solutions.”

Roots in IT
The concept isn’t revolutionary, it’s just getting more traction. “In the 80’s and 90’s, our industry was focused on product technology,” says Ken Ruehrdanz, industry manager for Dematic (877-725-7500, [url=http://www.dematic.us]http://www.dematic.us[/url]). “Now, we are becoming a solution-driven market. We’re moving from a world where everything was customized, from the software to the picking station to the mini-load to one where these subsystems are becoming modular.”

Modern began to see examples of this concept a few years ago. In 2005, we wrote about a new $70 million distribution center designed by Witron for CVS in Ennis, Texas. At the time, CVS was building a cookie-cutter DC in Vero Beach, Florida, using the same solution. The drug store chain told us then it intended to retrofit the same automated picking system into its existing facilities. This past May, we featured another Witron design that had been rolled out in two facilities by Kroger, with a third in the works. “We’re taking known proven products and integrating them together into standardized systems that our customers will believe in,” says Brian Sherman, a senior engineer at Witron (847-385-6000, [url=http://www.witron.com]http://www.witron.com[/url]). “The goal is to make them as modular as possible. That allows us to do the next project better and cheaper.”

Fast forward, and in February 2008, we visited the Numina Group’s automation lab in suburban Chicago. There, the company had installed a demonstration of its packaged end-of-line labeling solution, complete with conveyor, sortation, scan tunnels, inline weighing, cubing and dimensioning equipment, and servo-controlled print and apply engines. At the time, the company had about 30 of the systems out in the market. Since Numina (630-343-2604, [url=http://www.numinagroup.com]http://www.numinagroup.com[/url]) had turned printing and labeling into a packaged solution, a customer could see just how the system would handle their real-world requirements. “Give us your data and bring in your cartons, and we’ll show you how your operation will run on automated materials handling equipment,” Dan Hanrahan, Numina’s business development director, told us.

Modularity is a key concept you’ll hear from systems providers. The idea is that a solution consists of a group of modules, like a storage module, a conveyor module, a sortation module and a picking module. The modules can be preconfigured and then, depending on the needs of the end user, put together by engineers and systems designers. A mini-load storage system, for instance, might be swapped out for a horizontal carousel, but the storage module is still pre-configured. That allows engineers to analyze a materials handling process and ask what standard components can be plugged in to optimize that system.

It’s all in the software
What’s making modularity possible is the sophistication of today’s warehouse control and management software systems. That enables suppliers to link all of this equipment together into repeatable solutions. Given the role of software, it’s no surprise then that this trend got its start back in the late 1990’s with the warehouse management software systems (WMS) that manage operations. Back then, most WMS’s were custom jobs, with an army of programmers heading into a warehouse to create a one-off solution. Open a new warehouse and the process was likely to start all over again. In 1996, Manhattan Associates (770.955.7070, [url=http://www.manh.com]http://www.manh.com[/url]) came up with a packaged software solution. Initially, Manhattan wasn’t trying to control the whole joint; they were focused on managing the creation of compliance shipping labels and EDI transactions being required by big retailers. “Our initial success came because we had a laser-like focus on outbound shipping,” says David Landau, vice president, solution strategy. “While our competitors were stilling doing custom implementations, we created a software package that we could implement over and over.”

Over time, Manhattan extended its solution set. Meanwhile, its competitors began to develop their own off-the-shelf modules that incorporate industry best practices for processes like receiving, putaway, order fulfillment, value added services and shipping. Now, don’t get us wrong: No WMS system is plug and play, at least not at the Tier 1 level; by some estimates a Tier 1 solution will take care of about 70% of a DC’s requirements while the rest will have to be tweaked. But the process is a lot less onerous than it used to be.

Something similar happened in the automatic data collection industry. With the advent of wireless, cellular and satellite-based communications and an expanded tool set of devices, end users demanded open standards, common development platforms and interoperability of equipment. They also wanted the flexibility to combine technologies, like barcode scanning, voice, manual data entry and RFID into a single device and solution. “With that convergence has come complexity,” says Jim Hilton, senior director, global manufacturing solutions for Motorola’s enterprise mobility business (866-416-8545, [url=http://www.motorola.com]http://www.motorola.com[/url]). “It’s our job to provide the solution that an end user needs to run their business, regardless of what they’re doing.”

Today, it’s extending into other areas of supply chain software. Recently, Charles Horth, the founder of STICorp (416-697-4110, [url=http://www.sticorp.com]http://www.sticorp.com[/url]), a provider of manufacturing execution systems (MES), told us that he’s most excited about “Wthe evolution of the MES from a custom solution to a packaged solution that can be configured and includes vertical industry templates.” And providers of warehouse control systems (WCS) are taking the same approach, says Jerry List, vice president, QC Software (513-469-1424, [url=http://www.qcsoftware.com]http://www.qcsoftware.com[/url]). “Our whole approach to this space is to develop standardized modules and functions, like conveyor routing, picking and reporting, that are platform independent and can be easily configured,” says List. There are those buzz phrases again: from a custom to a packaged solution and modularity.

Point solutions lead the way
While companies like HK Systems and Witron have created complete standardized warehouse solutions for their customers, more often than not, the materials handling industry is doing what Manhattan Associates did: They are focusing on creating solutions for real paint points, especially picking. The reason is simple: That’s where the money is.

“Picking is the most complicated process in a distribution center, it’s the one where the most labor is utilized and it’s the process with the most potential to improve accuracy,” says Dematic’s Ruehrdanz.

Goods-to-person picking is a good example of how companies like Dematic are creating modular standard solutions. These systems are used to aggregate and automate the picking of slow moving items in a warehouse. Typically, they involve an automated storage module, like a mini-load storage and retrieval system (AS/RS) or a horizontal carousel; a workstation module for picking; a conveyor module that delivers a carton or tote from the storage system to the picking station and conveys picked items to shipping; and voice, pick-to-light or a computer module to tell the operator what to pick. “Those are the basic components,” says Ruehrdanz. “Once you determine the available square footage, your picking rates, and the inventory you need to store, you can decide which modules will meet those requirements.”

Other systems integrators are focusing their efforts on industry specific solutions. Swisslog (800-396-9666, [url=http://www.swisslog.com]http://www.swisslog.com[/url]) is also targeting the beverage industry with solutions tailored for beverage manufacturers and distributors. “Once we develop a solution and acquire industry expertise, we want to leverage that to develop a solution that can be amortized across several customers instead of just one.” Because Swisslog has experience in both the hardware and software side of the materials handling industry, it differentiates itself by taking a total supply chain approach to the solutions it provides. As an example, Swisslog’s beverage solution can build pallets and load trucks in the reverse sequence of the driver’s delivery routes. “When a driver gets to a store, he isn’t searching for the right pallet,” says Keiger. “We can also program the system to deal with changes in the demand for a product when it comes to profiling the warehouse. The system can look at an order profile and alter the replenishment plan.”

Building mixed SKU pallets is another process where standardized solutions are coming in to play. Axium (514-352-0500, [url=http://www.axiumsolutions.com]http://www.axiumsolutions.com[/url]), a Canadian company, got its start developing 8 ft. by 20 ft. robotic work cells for manufacturing assembly lines. Each cell had two robots and a section of inbound and outbound conveyor. Depending on the needs of the manufacturer, Axium could easily add or remove cells and alter the end-of-arm tooling on the robot. The company is now applying that same concept to mixed load palletizing. Everything needed to palletize 2,000 cases per hour, including the software, the inbound and outbound conveyor, the robots, the stretch wrapper and the empty pallet dispenser, can be contained on an 8 ft by 20 ft skid that can be installed in a facility. “We’ve done a substantial amount of the engineering and software programming up front,” says Frank Carzoli, director of sales and business development.

Don’t get us wrong. As with a WMS, none of these automated materials handling solutions is plug and play. “A solution doesn’t work until the conveyor is tied into the existing materials handling system and the software is integrated into the existing ERP or WMS system,” says Axium’s Carzoli. “That work will always have to be done.” What’s more, not every process can be turned into a repeatable solution. More importantly, there are some end users who will continue to look for an edge in their vertical space through a custom solution. But among leading system suppliers and equipment manufacturers, the change in mind-set has already occurred. “The trend, in my opinion, is fully complete,” says Dematic’s Ruehrdanz. “Going forward, you’re going to see less emphasis on products and more emphasis on solutions in the market.”

Kiva Systems: A company built on solutions
Kiva Systems, one of the newest entrants into the world of automated materials handling, has built a business around providing warehouse solutions rather than products. In part, that’s because Kiva’s product was new. No one knew quite what to do with a mobile robot designed to store, move and sort products. “When we talked to potential clients about turning 100 robots loose in their warehouse, they would roll their eyes,” remembers CEO Mick Mountz. “Even if a customer was interested, they couldn’t hire a consultant to design a system with 100 mobile robots because it hadn’t been done. If we were going to make inroads, we realized we’d have to take responsibility for the whole project, from end-to-end.”

The result is that Kiva offers its customers a soup-to-nuts solution to business problems in the warehouse that includes the engineering and design, implementation and integration and the maintenance of the system after the go-live. “Our products are pre-integrated and modular,” says Mountz. “So, we don’t have a separate line item for design, simulation and modeling. That’s just part of the cost of the system.”

Mountz looked to Apple, one of his former employers, for his model. “An iPod or an iPhone are so easy, my grandma can use them,” says Mountz. “The reason they work is that Apple controls every aspect of the process in a very complex solution. We took that same metaphor and said: if we’re going to be successful, we have to make the barcodes that go on the floor, we have to make the pickers and we have to do all the coding that sends the messages.” When customers began to talk to Kiva about developing a solution for mezzanines, Kiva designed the vertical lift to move its robots from the shop floor to the different mezzanine levels. Implementations are relatively quick by materials handling standards. “Zappos was shipping product four months after we signed a contract to install a multi-million dollar system,” Mountz says.

The model may work for Kiva because the company and its culture are new and, like an iPod or an iPhone, it began as a unique product. Mountz, however, argues that it makes sense for customers as well. “Technology changes rapidly,” he says. “If you’re an end customer, do you want to create a pool of experts inside your company if you’re not putting up a new building every year? I think most companies want a business solution to solve a business problem.”

This article appeared in the December 2009 issue of Modern.