Finance in Retail
Customer Footfall Analysis
February 12, 2025
In the previous few articles, we have already seen what retail warehouse automation is. We are now aware of the different degrees of retail warehouse automation which is prevalent in the industry.
We also know that such automation is very popular because there are several financial advantages which arise from such automation. However, it would not be appropriate to mention only about the advantages and not mention about the disadvantages.
In this article, we will have a closer look at the financial disadvantages which accrue to retailers as a result of warehouse automation. The details related to some prominent disadvantages have been mentioned below:
- High Initial Costs: It needs to be understood that warehouse automation can only be accomplished by using specialized hardware and software. Retailers have to deploy advanced robotic techniques in order to get the maximum advantage. Now the problem with robotics is that it is still an evolving technology. As such it is quite expensive to deploy.
Also, since robotics is rapidly evolving, it is possible for the deployed technology to become outdated fairly quickly. As a result, the costs required to automate a warehouse can be quite high.
In some countries, where the labour cost is very high, automation might be financially viable. However, there are many countries where the labour cost isn’t vey high. In such countries, warehouse automation might simply become unviable.
- Limited Flexibility: The operations of warehouses where automation is widely used tend to be quite rigid. This is because of the fact that these operations are heavily mechanized.
There are predetermined paths where automated robots are expected to move at predetermined time of the day. The problem is that automation limits flexibility to a large extent. This lack of flexibility could mean higher turnaround times in the long run. As a result, this lack of flexibility has very real financial ramifications for retailers across the globe.
- Only Effective for Large Warehouses: As mentioned above, a lot of the equipment and machinery which is required for warehouse automation is very expensive. This also means that retailers planning to utilize such warehouse automation must have very large warehouses where thousands of deliveries are processed every day.
It is only this large scale of operations which can make such a huge investment worthwhile. Hence, it is fair to state that only large retailers can take advantage of such mechanization. Smaller retailers will not find the initial expense financial viable because they do not have the scale of operations required.
- Need for Preventive Maintenance: It needs to be understood that automating a retail warehouse is not a one-time expense. The greater the degree of automation in a warehouse, the higher the need for preventive maintenance as well. This is because machines, by their very nature, can break down at any point of time.
Since the operations of the entire warehouse is run mostly by machines, the breakdown of even a single machine can lead to a huge loss. This is because such a breakdown can adversely impact the productivity of individuals as well as other equipment. As a result, retailers have to spend a lot of money on scheduled preventive maintenance of warehouse equipment. This is done to ensure close to zero downtime and hence no impact to the operations of the firm.
- Job Loss: The introduction of extensive warehouse automation has a huge impact on the workforce of the retail company as well. This is because it is obvious that warehouse automation is done to cut down the manual efforts required. Hence, when manual efforts are drastically reduced, it is possible that some of the workforce may have to be laid off because of a job loss.
It is a known fact that any form of job loss in an organization triggers a panic response in the other employees. As a result, the impact of warehouse automation may end up trickling down to various departments within the retail organization.
- Upskilling and Retraining: It also needs to be understood that the typical warehouse worker in an automated warehouse has a significantly different skillset as compared to regular warehouse workers. They need to be upskilled and retrained so that they can correctly handle the equipment. They may also be required to fix minor issues with the equipment if it breaks down during operations. Such upskilling and retraining can be quite expensive. Also, it may be difficult to find workers who are capable of and willing to undergo such training.
- Over Dependence on Technology: When retail companies implement end to end automation in their warehouses, they end up creating an excessive dependence on technology.
The problem with technology is that it changes very fast and becomes outdated. As a result, retail companies also have to make sure that they spend top dollar on maintaining the technology. It is also imperative for them to keep upgrading from time to time. Such over dependence on technology can be detrimental to the daily operations of the warehouse.
The fact of the matter is that even though retail warehouse automation seems like an inherently good value proposition, there are various downsides to it.
At the present moment, end to end warehouse automation makes financial sense only if the warehouse is very large. Only a small percentage of warehouses fit this criterion. As far as the others are concerned, a combination of the disadvantages mentioned above ends up being a deal breaker.