Ready to automate your warehouse but don’t know how to calculate the ROI of the automation? Read on for some expert tips!

Warehouse automation systems help businesses stand out from the competition, reduce costs, and streamline overall operations. However, the true value of these systems comes down to the return on investment (ROI) of warehouse automation. 

Calculating ROI is essential for businesses to justify their costs and plan for future expansions. Here are five essential tips to accurately calculate the ROI of automation for your warehouse operation. 

1. Understand the Full Spectrum of Costs Involved

The first thing you must do to accurately calculate the ROI of warehouse automation is to understand each of the costs associated with your system’s implementation. The cost of implementing these systems is more than just the initial purchase of the hardware itself. The different parts to consider include:

• Initial Investment: This initial cost includes the automation equipment, software, additional hardware, implementation partners, and any additional staff hired.
• Installation and Integration: Once you have the equipment, you need to integrate the solutions with your existing warehouse management system (WMS). These costs may also include hiring professionals or additional overtime pay for existing personnel installing the system.
• Hardening Your Network: Often, a warehouse is not equipped with a separate network powerful enough and/or dedicated to running a robotic system. You will need to consider the costs of procuring new network capabilities, installing routers, and working with an IT team into your overall costs.  
• Training Costs: Your staff will need training on how to use and maintain the new system, which takes time and energy away from other tasks. 
• Maintenance and Operational Expenses: Running an automation system isn’t free. You’ll have to consider regular maintenance costs as well as any additional operational expenses, such as electricity, that come with using the equipment over time. 

Add these costs to get a clearer picture of the total investment needed to implement a new automation project. This data is also important to have on hand when seeking approval from stakeholders. Consider these costs when evaluating an automation partnership as often many of these costs are wrapped up into a total contract value. 

2. Quantify the Benefits of Automation

After you calculate the initial costs, you must quantify the benefits your warehouse automation system brings to your operations. Some of the benefits to consider include: 

• Increased Productivity: Using a warehouse automation system greatly speeds up processes like picking, packing, and sorting. This benefit is quantified by comparing the throughput of your automated system versus manual operations.
• Reduced Labor Costs: Automation reduces the need for manual labor, especially for repetitive or physically demanding tasks. This benefit is quantified by calculating the reduction in labor hours and other associated costs. Be careful in this calculation, however. A robot isn’t a 1:1 comparison to a human worker. Be sure to account for all costs associated with human workers and the workload a robot is taking on.
• Improved Accuracy: Automated systems reduce human errors, especially in inventory management and order fulfillment. To quantify this benefit, calculate the cost savings from reduced product returns, corrections, and customer service issues.
• Enhanced Scalability: Automated warehouse systems handle increased volumes without the need for more staff or space. To quantify this benefit, estimate the value of scaling operations efficiently. 

3. Consider the Intangible Benefits

Not all benefits of warehouse automation systems are tangible. There are also intangible benefits, like improved employee satisfaction, enhanced customer experience, and risk reduction.

With a warehouse automation system, repetitive tasks are handled by autonomous solutions rather than human staff. This reduced monotony improves worker satisfaction and reduces turnover in the long run. Faster and more accurate order processing also improves customer satisfaction, which leads to a strong brand reputation and repeat business. 

Because labor-intensive tasks are now handled by warehouse automation systems, the risk of workplace injuries is reduced. This lowers your insurance premiums and reduces costs associated with injuries. 

Though these benefits aren’t tangible, they improve your operations and lower expenses. By reducing employee turnover and injuries, your business saves money on rehires, training, and workers’ compensation payouts over time. 

4. Calculate the Payback Period

The payback period is the time it takes for the benefits of the warehouse automation system to cover the total costs. The formula to calculate this is:

Payback Period = Total Investment Costs/Annual Savings and Benefits

This is a straightforward formula that helps you assess the financial viability of your investment. Ultimately, a shorter payback period means a faster ROI. A faster ROI makes the adoption of the automation system more valuable.

5. Use a Dynamic ROI Model

Because warehouse operations and market conditions are always changing, it’s important to use a dynamic ROI model that adapts as needed.  You do this by:

• Regularly updating cost and benefit estimates
• Considering future technologies and upgrades
• Adjusting for economic factors

As your operation grows and market conditions change, you’ll want to update your calculations to reflect the current realities. You should also take potential system upgrades and expansions into consideration to ensure your ROI model works long-term. Finally, consider inflation and interest rate changes as you analyze your model to ensure your calculations remain accurate. 

Final Thoughts

By following these five tips, businesses will develop an adaptable framework for calculating the ROI of warehouse automation systems. By calculating this value, businesses better justify not only the initial investment but also the decision-making for future implementations and expansions. 

The goal of automation isn’t just to reduce costs—it’s to build a more efficient and resilient operation. By doing this, warehouses continually adapt to the ever-changing demands of the supply chain industry. 

Calculating the ROI of warehouse automation should consider all aspects of the investment and integration, from initial costs to intangible benefits. Making informed decisions will help your business reach operational excellence, future-proof operations, and differentiate you from the competition. 

Contact us to schedule your workflow assessment and learn how our automation solutions can improve your warehouse operations.