Justifying the Cost of Your Automation Project continued from page 25
perishable items. To avoid having to throw away expired items,
it is important to not only know the location of each SKU, but
also their expiration dates. A WES helps control the shipment
and placement of these products so that the item with the closest
expiration date is picked before an item with a later date to avoid a
loss of inventory.
Return on Investment
While there are several financial tools commonly used to justify
capital expenditures, the payback method is the most common
method of calculating return on investment (ROI). This is the
time required for the amount invested in an asset to be repaid,
or balanced out, by the net cash flow generated by the system;
investments with shorter payback periods are typically considered
better investments. However, this method rarely accounts for the
time value of money. By calculating the ROI of an automated sys-
tem using cash flow projections and capital budgeting forecasts,
you will be able to see the abundant benefits to your warehouse
production.
In addition to cost comparisons, once you add in the benefit of
the longevity of the system, the investment is more than validated.
Many automated systems can be operational for 25 years or more
before needing to be replaced. With easy access to online calcula-
tion tools, it is extremely easy to determine the Net Present Value
(NPV) and the Internal Rate of Return (IRR) of your investment.
These figures should indicate if there is an appreciable justifica-
tion for the initial cost difference associated with installing an
automated storage/ retrieval system (AS/RS), versus building a
conventional system. Before deciding, it is important to compare
both of these systems by establishing cash flow differentials and
then apply the cost differential to the cash flow benefits.
Conclusion
It is obvious that automating your warehouse can lead to numer-
ous benefits not found with conventional systems. Not only will
you make better use of your cube space and reduce your overall
building footprint, you will also increase productivity, inventory
accuracy and control, enhance your workforce and minimize
product waste. When compared to conventional systems, ware-
house automation has a lifespan of more than 25 years and can
often yield ROI in five years or less. The benefits of an automated
warehouse will poise you for profit potential and cost savings for
many years to come.
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The Satellite Review
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