Operations

Getting warehouse automation

right
A warehouse automation revolution is underway, but too many projects are not
delivering the results.

by Alan Davies, Alberto Oca, Ignacio Prieto, and Umit Sarilar

© Getty Images

December 2023
 Supply chain robots are flying off the shelves as and retrieval systems, goods-to-person robots,
warehouse automation gets its due after years on and collaborative robots (or “cobots”)—some
the outskirts of the Fourth Industrial Revolution. humanoid—that can work safely alongside their
The overall automation market is growing rapidly: at human colleagues. Automation providers have
least some expert sources expect robot shipments therefore refined and segmented their technologies
to increase by up to 50 percent each year through to meet different demand scenarios. In the material-
2030, with warehouse automation growing by more movement category, for example, autonomous
than 10 percent per year. mobile robot (AMR) systems are primarily used for
piece-pick or, more recently, full-pallet operations.
That is not surprising, since recent disruptions and Shuttle systems are designed to allow higher
operational challenges have demonstrated the density and productivity in case and unit picking.
critical importance of robust supply chains. In the Emerging autonomous solutions (such as cobots
quest for greater resilience, companies are now mounted on AMRs) could help repurpose legacy
looking for ways to boost the speed, reliability, infrastructure with enhanced technology.
flexibility, and productivity of their warehouse and
distribution operations. Automation has emerged Advances in computer vision, machine learning, and
as the answer. It promises to help organizations AI are increasing warehouse robots’ capabilities,
tackle pressing supply chain problems: addressing too, with the latest models able to plan their own
labor challenges, improving fulfillment quality and best routes and picking sequences while navigating
safety, maximizing space utilization, and increasing autonomously in complex environments. And
throughput. the robotics market is becoming more dynamic,
with established warehouse automation players
Supply chain leaders can now choose from a wide competing alongside a growing number of startups
range of mature, capable, reliable solutions to offering specialized solutions or highly flexible
match their needs, including high-density storage general-purpose robotic systems (Exhibit 1).

Exhibit 1
In rapidlyevolving
In a rapidly evolving warehouse
warehouse automation
automation market,
market, companies
companies face a face a tricky
tricky
balance.balance.

Warehouse automation technologies, by development stage and adoption rate,

expert assessment (illustrative)

HIGH Systems
5
1. Unloading robots Technologies Cycle counting
2. Autonomous fork trucks to use today 4 Labor and asset tracking
3. Goods-to-person
4. Voice-directed working Outbound
5. Warehouse management system
Picking
3 Replenishment
Rapidly scaling
Inbound and putaway
technologies

Adoption
rate 2
Technologies for
possible niche
application

LOW
Vision Technological Innovation Pilot Selective Broad
prerequisites developed use use use
developed
Development stage
2 Getting warehouse automation right
McKinsey & Company
 Companies plan to increase their investment in inventory turns and the balance between online
automation significantly over the next five years, deliveries and shipments to stores were inaccurate.
reaching 25 percent of capital spending on average. The new facility ended up primarily being used
In logistics and fulfillment, automation is expected for wholesale fulfillment, leaving its advanced
to account for more than a third of capital spending, automation features for case and part picking
the largest fraction of any sector (Exhibit 2). underutilized.

Are they getting their money’s worth? Too often, Creating a robust, comprehensive warehouse
no. A significant portion of automation projects fail, automation strategy is challenging. At a high level,
largely for three reasons: lack of cohesive vision, the available options range from point solutions,
a poor understanding of automation technology implemented to address specific issues within
by leadership, and misalignment of beliefs and existing facilities, all the way to complete networks
principles within the organization. One consumer of new, fully automated facilities built on greenfield
goods company invested more than $150 million sites. But even within each of those categories,
to consolidate multiple existing warehouses into there is a wide choice of technologies and
a single fully automated facility, designed to serve vendors. The potential benefits increase as these
both brick-and-mortar stores and online orders. strategies get bigger and bolder, but so do costs,
Despite the substantial investment and year-long implementation timelines, payback periods, and
planning, the company found that its forecasts for execution risks.

Exhibit 2
According to a recent survey on global industrial robotics, spending on automation
According to a recent McKinsey survey on global industrial robotics, spending
is booming.
on automation is booming.
Average share of investment in automation, by sector, % of capital spending Past 5 years Next 5 years

10 15 20 25 30 35
Logistics and fulfillment

Retail and consumer goods

Life sciences, healthcare, and pharmaceuticals

Automotive

Food and beverage

Anticipated amount of investment in automation over next 5 years, by sector, % of respondents

<$25 million $25 million– $100 million– ≥$500 million

99 million 499 million

Logistics and fulfillment 48 25 15 12

Retail and consumer goods 54 23 23

Life sciences, healthcare, and pharmaceuticals 38 23 23 15

Automotive 38 38 15 8

Food and beverage 38 31 15 15

Source: McKinsey Global Industrial Robotics Survey, 65 senior leaders and executives in automotive; food and beverage; life sciences, healthcare, and
pharmaceuticals; logistics and fulfillment; and retail and consumer goods sectors, August 2022

McKinsey & Company

Getting warehouse automation right 3

 Avoid the traps seeks to improve efficiency across the entire
For any warehouse automation initiative—and network, with a comprehensive implementation
especially for large, complex projects—the roadmap spanning all sites. Substantial savings
decisions companies make during the initial and performance improvement can come from
strategy development, scoping, and planning replacing single-site solutions with network-
phases are critical to the eventual outcome. As wide vendor agreements, which can yield better
part of a comprehensive plan for navigating rates and terms.
a multi-year automation journey, seven best
practices can help a business avoid common 5. Create an efficient capital deployment
pitfalls: strategy to maximize ROI. A playbook of best
practices can help companies extract more
1. Clarify the business needs. Everyone needs value, including a centralized control tower to
to know exactly which problems (such keep stakeholders aligned; optimized scoping,
as operating cost, service level, storage procurement, and contracting; and proactive risk
capacity, productivity) they want to solve with management.
automation, and fully understand the tradeoffs.
6. Develop and pilot a robust implementation
2. Establish guiding principles for choosing the plan. Projects need sufficient time to procure
right technology. Increased complexity makes and integrate equipment. Testing must be
selection difficult. To make valid comparisons rigorous and comprehensive, covering all SKU
between options, companies need to types and throughput requirements under a
understand the nuances of technologies within pilot-then-scale approach. A more effective
a category, evaluate the vendors in a crowded implementation plan then starts with a network
supplier space, and understand the full range rollout sequence that balances the ROI of each
of potential sourcing and partnership options. step with business continuity risks. Finally,
a contingency plan minimizes operational
3. Evaluate diverse scenarios, but allow for future disruptions, while a continuous-improvement
growth. To ensure that the business case mindset incorporates lessons learned
holds up even if underlying assumptions and throughout the implementation.
parameters change significantly over time,
automation investments can be phased, with 7. Look beyond the technology. Automation
clear triggers established upfront to keep needs highly skilled teams to deploy, run, and
investments in step with business needs. A maintain advanced systems. For employees
more capable, costly system with a longer who do repetitive tasks, automation helps to
payback period might be the right choice redesign positions and provide faster ramp-up
if it gives the option of meeting additional opportunities. For highly skilled employees,
future needs. For instance, a larger initial automation knowledge can enable further
investment might allow the number of bots in career growth opportunities. Filling skill gaps
an AMR deployment to be easily increased or will require a systematic, flexible approach
transferred between sites, or for additional to the recruitment, training, and retention of
space next to an automated storage and employees, including from external sources.
retrieval system (ASRS) that would support the Companies can also address essential enablers
installation of extra modules as needed. of automation up front, including not only
reliable data and robust IT infrastructure but
4. Think of network solutions, not automation also clear (and encouraging) communications
islands. Maximum cost and operational impact as automation changes the day-to-day work of
comes from an end-to-end perspective that supply chain teams.

4 Getting warehouse automation right

Take the lead models in which the automation provider retains
If your organization is looking to invest in warehouse ownership of their equipment, reducing project
automation, three sets of immediate actions will put capital costs by 60 to 80 percent. As a third
you on the right track. possibility, some companies are optimizing their
end-to-end supply chains with fully automated
1. Formulate your vision and think big. Articulate warehouses and autonomous transportation
your strategy for supply chain automation and lay systems to minimize touches between
out a clear roadmap to achieve it. Make sure that manufacturing sites and customer delivery
the overall plan is based upon robust, granular points.
forecasts that consider growth aspirations for
total storage and throughput needs, as well 3. Secure business-wide alignment on a set of
as operational KPIs such as order profile, mix core beliefs and design principles. Establish a
variability, handling units, and picking types. Use cross-functional transformation office to set
that information to select technologies for the the ground rules for the project, including key
expected operating conditions. But don’t limit stakeholders from functions such as finance,
your possibilities to your current warehouse operations, IT, and HR. This team governs the
footprint: a greenfield approach could allow the critical design principles that will guide the
business to be reconfigured more efficiently. project and designate the leaders who will be
responsible for implementation. Finally, set
2. Educate your board and leadership on the art budget, timeline, and KPI targets to ensure
of the possible. Leading players are developing efficient use of resources.
new business and operating models to support
their supply chain automation ambitions. These
can include partnerships with emerging vendors
to create tailored solutions, or integrating
use cases with other vendors and shippers to Automation could solve pressing challenges in
generate synergies through collaboration. For warehousing and fulfillment while also helping
example, some leading e-commerce retailers companies meet long-term growth goals. But to
have acquired AMR providers or established maximize ROI, leaders must select solutions that
strategic partnerships to jointly build fully can adapt to their company’s unique business needs.
automated warehouses. Other players have Those who successfully navigate this complex path
implemented innovative fee structures to are building a major advantage over competitors
increase adoption, such as pay-per-pick who fall behind.

Alan Davies is an associate partner in McKinsey’s Miami office, Alberto Oca is a partner in the Atlanta office, Ignacio Prieto
is a consultant in the Chicago office, and Umit Sarilar is a consultant in the Dallas office.

The authors wish to thank Marcus Jacob, Aniket Joglekar, Dilip Joshi, Ani Kelkar, and Fernando Perez for their contributions
to this article.

Copyright © 2023 McKinsey & Company. All rights reserved.

Getting warehouse automation right 5