The digital transformation is divided into three action areas: First, digitize the core by increasing operational efficiency; secondly digitally enhance their products, and finally, explore whether digitization can allow them to create new types of opportunities based on new business models or new digital products.
Because about half of this company’s 2017 revenues are related to warehousing services, several of their digital projects have been related to improving efficiency and productivity in their warehouses. Dr. Harald Kolbe is the Head of Digital Innovation at the company. Dr. Kolbe explained to me that one of the drivers in committing to digitization was a desire to move from a company that waited for technology to become fully mature before implementing it, a follower strategy, to becoming a leader in their industry in using new technologies to differentiate their business.
As part of the digitalization strategy, in January of 2017 LTLS began a targeted program to meet the challenges of Industry 4.0 by automating, digitalizing and interconnecting fundamental core warehousing processes. The pilot location for this program is the Munich Airport. Typically, digital pilots are run in Munich before being rolled out in other, larger warehouse locations like Frankfurt. Dr. Kolbe said that Munich was a good pilot location because the site has good management, good worker relationships, and a modern infrastructure based on a newer facility and state-of-the-art hardware.
They have implemented nine projects to assess and test digital technologies. These have included: using optical character recognition in combination with an artificial intelligence solution from IBM Watson to automatically fill in input screens and eliminate paper in the receiving department by scanning 10,000 documents each day; smart, light weight, gloves with 2D scanners that allow for hands free picking; integrating their warehouse management system to smart watches; and the use of mobile logistics robots to reduce worker travel. It is the last area, the warehouse robots, which Dr. Kolbe and I discussed in the most detail.
Warehouse Robots to the Rescue
In May of 2017, the company began testing mobile logistics robots from Agilox (see Robots with Swarm Intelligence for a more detailed description of the technology). A mobile logistics robot (MLR) is a more advanced form of an automatic guided vehicle (AGV); AGVs and MLRs are used to reduce labor by taking over tasks that were traditionally performed by workers walking long distances or by workers on fork lifts.
Well run digitization programs allow companies to test a technology, play with it, and determine what the return on investment is likely to be before making a big upfront capital investment. That was the way this pilot worked. “It was a fast process,” Dr. Kolbe said. “We started in May of last year. We bought one of the systems (MLRs) and tested it for 3 weeks. We just tried it out. Part of our innovation strategy is to test the technology in the process it supports.” They tested using the solution in six routes in the warehouse. For example, one route involved taking goods from receiving to a put-away workstation; another route involved moving goods from a pick workstation to shipping. You start by running the robot through the warehouse. As it runs through the facility it uses its sensors to “create a map.” This digital map on the PC is then used to create routes. Locations are marked on the map where pallets will be put-away, staged, or taken.
The solution from Agilox cost about what a standard AGV would cost. But the solution implemented considerably quicker, in half a day. And LTLS did not have to invest in infrastructure. Traditional AGVs require that laser tags be carefully located throughout a warehouse, or magnets be inserted in the floors, or require other forms of infrastructure changes.
The pilot phase allowed them to have a good sense of what the ROI would be. LTLS calculated that the solution would payback in three years. As they have used the system, they have determined that their assumptions were accurate, and that there is the opportunity to improve the ROI by integrating the solution to their warehouse management system and using it at night rather than just during the day shift. They intend to roll the solution out at other locations. “We will buy another this year and maybe a third next year.”
Also, AGVs are often provided by big companies that are not always easy to work with. “It was easy to do business with this company,” Dr. Kolbe said. One example of this was that as soon as the solution was implemented it was discovered that Agilox had a blind spot for obstacles not located on the floor. If there was an obstacle located between the knee and chest level, the system did not see it. LTLS told Agilox they would be unable to use the system for safety reasons. Within 3 to 4 months, the supplier added two new sensors and eliminated the blind spot. “We had a good experience with the company. This is why we like working with startups rather than big companies.”
Automation Projects Require a Thoughtful Approach to Overcoming Worker Concerns
Whenever automation is involved, cultural issues needs to be carefully considered. Workers may fear being displaced. But this LSP is growing quickly; in Munich volumes are growing about 15 percent a year. The company has a hard time finding workers. “In metropolitan areas in Germany, there are no logistics workers available. There is literally a zero percent unemployment rate for warehouse workers, Dr. Kolbe explained. “We grow each year, but we cannot get enough workers to support the growth.”
This made it easier to explain to workers why the technology was needed. “That took some time. But after several days they got it. They accepted it.”
But then a few weeks after it was implemented, the company saw a dip in the usage of the system. The mood has changed. Managers did not understand the growing reluctance to use the system. However, the mood toward the technology was clearly becoming more critical. The warehouse manager responded by prohibiting the usage of Agilox. One day was all it took; that was enough to turn around attitudes. Workers asked that the system be restarted. “They recognized,” Dr. Kolbe explained, “that Agilox was a great support for them,” that it freed them to do more value-added work. “Now the system is fully accepted.” The workers have even created a nickname for the robot. They call it “Luci,” short for Lucifer.
LTLS’s commitment digitization is changing the corporate culture. The employees in Munich are proud to be the test bed site for new technologies. Dr. Kolbe has overheard conversations between managers and workers in Munich and workers and managers from other sites visiting Munich. “When you listen to them, you can feel the pride in how the new technologies allow them to stay one step ahead of their peers.” And for LTLS as a whole, a commitment to digital is a commitment to being a leader rather than a follower.
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