Comparing return on investment of intermediate vs end-to-end solutions

• Intermediate Automation: Systems like AMRs or Tote AVs that provide targeted efficiencies, often with a quicker ROI. These technologies often focus on just one or few processes within a warehouse (often the most labor intensive processes), which leads to lower capital expenditure.
• End-to-End Automation: Fully integrated systems that automate most or all processes within a warehouse to enable large-scale, high-throughput distribution centers. Technologies often included in end-to-end solutions are pallet crane high-bay storage, automated depalletizing, shuttle systems, high speed sortation, automated carton erecting, automated palletization – all integrated into one single solution.

Many times, companies will evaluate and drive buying decisions with ROI leading the charge. It makes perfect sense – if you spend a lot, you want to limit risk by ensuring that money pays for itself in a short amount of time. In this context, intermediate automation solutions frequently offer shorter payback periods. However, the potential savings in operational expenses from more comprehensive, end-to-end automation solutions are often overlooked. So, how do you determine the best choice for your warehouse?

First, it’s important to recognize the similarities between intermediate and end-to-end automation: they both will save you money, improve your operational capacity and accuracy, and in time, make that bottom line look great. But they differ in a very important way: how significantly these aspects of your business are improved.

Intermediate automation often times provides ROIs in the realm of 2-5 years which can be a quick win for many companies. Imagine implementing a system that reduces your full-time equivalent (FTE) count by 25%, increases your capacity by 25%, and leads to reduced errors in picking – SOUNDS GREAT! Then add in a quick payback, and all of the sudden, you’re on your way to significant labor savings in just a few short years. This is what makes intermediate automation so attractive for companies taking their first dip into automating. But it’s important to remember – this is still a significant capital investment and maybe your operation can justify end-to-end automation.

With end-to-end automation, the obvious comparisons drawn are the increase in ROI time and capital expense. It makes sense: the more automation you purchase, the higher your upfront costs will be. Because of this, many end-to-end automation purchases are made by very large companies with plenty of experience with automation. However, the beauty of end-to-end automation is the increased cumulative labor savings that can be seen when compared to intermediate automation. Take a look at the graph below:

The blue and orange on the graph represents the labor savings of each type of automated warehousing solution; the blue being Intermediate and the orange being End-to-End.

At the left, both solutions start below the “Break-even line”. This is done to represent the difference in initial investment. Like I mentioned, intermediate automation will have a lower capital expense, whereas end-to-end will be more expensive.

Crossing the break-even line shows the point of return on investment. You’ll notice that an intermediate solution crosses sooner than an end-to-end solution. Due to the lower up front cost, the intermediate solution is able to pay for itself faster than the end-to-end solution.

However, in the middle of the graph is a point of inflection – this is where things become interesting. The labor savings of the solutions suddenly cross. Because the end-to-end solution saves more FTEs, the labor savings accrue much faster than the intermediate solution. While both solutions save on labor costs, the gap between intermediate and end-to-end becomes increasingly large immediately after that inflection point. This results in a lower total cost of ownership (TCO) over the life of an end-to-end solution when compared to intermediate.

With the understanding of ROI vs TCO of intermediate and end-to-end solutions, I hope it helps in steering your decisions when it comes to automating. If you’re curious about more benefits of automation, be sure to check out my next blogs on how automation improves safety of warehouse operations and returns processing!

Vanderlande has extensive experience in delivering both intermediate AND end-to-end solutions across the globe to a diverse customer base. Let us help you navigate all of the options and design the system that delivers the most value for your business. Contact us today to begin or continue your warehousing automation journey!