Add it Up: The 5 Calculations of ASRS ROI
When calculating ROI, ASRS not only provides a quick return, it can also save in other ways. See how it all adds up.
Whether it’s upgrading an existing warehouse or building brand new, one factor can make or break the decision to purchase an automatic storage retrieval system (ASRS) – Return on Investment (ROI). Investing in new technology and equipment is important for growing a business, however, to find an ASRS that fits your warehouse, you need to do the math. Members of MHI’s ASRS Group have calculation tools available, but what numbers do they need? Here is an ROI overview.
The Math
According to ASRS experts, there are five (5) calculations that will determine what type of system to buy, how much your facility needs, and how long it takes to hit ROI. Before making any decision, businesses need to work with their vendors on these calculations to ensure that they are getting the most value from their ASRS investment.
1. Square Footage Recovery
The main reason warehouses delve into ASRS is to make the most out of the space in their existing facility or in the new facility being built. It’s one of the easier calculations performed because numbers are readily available. And since ASRS can return valuable floor and ceiling space, ROI can be surprisingly quick.
It’s especially important for businesses to calculate square footage before expanding or building new warehouses, because they might learn they don’t need to. Commercial landlords and construction companies usually sell or build warehouses by the square foot, however, ASRS is designed to use a building’s entire volume, not just floor space.
With construction costs going up, think about it this way, a 30,000-square-foot warehouse that is leased for $20 a square foot has 180,000 cubic feet available to you. The cost of construction can be as high as $140 per square foot. Therefore, ASRS can increase the size and scale of your facility without increasing the footprint. Using ASRS to maximize your existing space instead of building or expanding can save tens of thousands, possibly hundreds of thousands, of dollars and have an ROI of less than three months.*
2) Shrinkage and Security
Another calculation for companies to track is inventory shrinkage. Shrinkage includes any goods that get damaged, lost, or stolen. Not only will ASRS reduce shrinkage in your facility, the equipment can track warehouse inventory alerting you when something does go wrong. For example, the equipment can prevent warehouses from loading three pallets when only two were ordered. Picking equipment can also be equipped with enclosures effectively turning them into vaults when moving products throughout a facility, preventing items from getting stolen or broken.
3) Health and Safety
The health and safety of warehouse employees must always be top of mind. ASR systems are not only safer, they can reduce what are called “soft employee costs.” Issues included in this calculation include employee retention, workmen’s compensation, and sick days.
If you don’t have ASRS equipment in your warehouse, your employees are working in what is called a ‘vigorous environment’ that can be detrimental to their health. These environments include activities like walking up to seven miles a day. Employees are also climbing ladders, bending over, lifting heavy objects, and reaching above their heads to move items around. All of these movements can lead to serious injuries. With ASRS, the employees no longer go to the item, the ASRS brings the item to them reducing stress, injuries, and call outs.
And for managers who thinks physical activity can be good for people, ask yourself this: How much are you paying employees for those minutes walking around the facility when they could be at their stations?
4) Data Collection
An important service that ASRS provides is the ability to track data on warehouse operations. These systems can keep track of – in real time – what is in inventory, where it is located, and how long it takes to retrieve, along with times of highest and lowest demand. Having that knowledge not only shows ROI as it happens, it also opens new pathways for facility managers to manage their time and their employees’ time, allows purchase managers to track what is selling and what is not, and for customer service agents to track shipping times, lost items, and manage returns.
If you’re currently calculating your data manually and/or storing it in different departments, ASRS will provide that data quickly and all in one place, allowing people to make decisions faster as the business changes and grows.
5) Efficiency
Calculating warehouse efficiency will more clearly show how ASRS can improve your warehouse. That’s because an efficient warehouse will make the company money while an inefficient one is a drain on resources.
One efficiency measure important for ROI is ‘seek time.’ How long does it take for employees to manually locate an item, retrieve it, and pack it versus ASRS?
Another measure is ‘pick accuracy.’ How often does the wrong part/item get shipped? How long and how many people does it take to process a return? While return times can be measured, there is a customer service aspect that’s harder to calculate but is still important to consider. If your customer receives the wrong item, how complicated was it for them to return or exchange? Does the error change their opinion of the company, causing them to reconsider a future purchase? ASRS can prevent these errors, leading to higher customer retention and referrals.
A warehouse operation that can drop efficiency scores is kit packing for products with multiple parts. If a warehouse is manually putting kits together, the chances of error rise with each item added, especially if the pieces are small, such as bolts and screws for furniture. Because of ASRS’ increased pick accuracy, the chances the wrong part or size ends up in a kit is lowered and the time an employee spends putting a kit together is also reduced.
Calculations are Done. Now what?
These calculations provide a baseline to help you narrow down a system that fits your needs. And while numbers are great, don’t forget the human aspect in the ASRS equation. Working with a trusted ASRS vendor to find the right system is paramount for getting the fastest ROI. MHI’s ASRS Industry Group has some of the most experienced manufacturers and suppliers in the country. These companies will not only help calculate ROI but work with businesses to ensure they lead to a system that provides companies with lasting value.
Still Unsure? Get ASRS for Free with a Business Grant
Bet that got your attention! While few things are ever free, if your business is looking to fund an ASRS, have your finance department research state and local business grants. These grants are usually available for smaller businesses looking to grow and can be found through state and local business development departments or chambers of commerce. While many factors go into awarding grants – amount of money available, size of the companies allowed to apply, and the number of businesses applying for the same grant – it is worth looking into to see if funds are available.
If your company is awarded a business development grant that covers the equipment cost, that’s an instant ROI.
*Individual results may vary. Contact an ASRS Industry Group member to learn more.
For more information about the AS/RS group: mhi.org/as-rs
For further articles from the Automated Storage/Retrieval Systems (AS/RS):
How ASRS is Changing the Industry for Better
Act Now to Beat Seasonal Order Picking Peaks: Your Complete Guide to Warehouse Success
Adding Robots to the Cold Chain
March 4 MHI Tech Talk Explores Integrating Racks With Automation
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