The role of automation in warehousing and distribution centers (DCs) is undergoing a profound transformation. While reducing labor costs was once the primary driver for adopting automated systems, today's material handling automation solutions have expanded beyond this narrow focus to become a core component of broader supply chain strategies aimed at optimizing inventory replenishment, enhancing picking efficiency, and reducing transportation costs. This shift signals a fundamental change in how businesses perceive automation's value—from pure cost savings to strategic advantage creation.
Automation: From Cost Center to Profit Engine
The office supplies giant Office Depot's new distribution center in Newville, Pennsylvania, exemplifies this evolution. At its core is an integrated picking solution combining mobile robots for high-density storage and transport, light-directed picking technology for accurate item selection, and high-speed conveyor and sortation systems that rapidly move products to packing areas. While this level of automation is commonplace in high-speed assembly lines, it represents unprecedented sophistication in distribution environments.
While the technology enables Office Depot to achieve significant throughput with relatively small labor forces, the primary motivation wasn't merely reducing DC labor costs. Instead, the solution serves a broader supply chain strategy—an enabling technology that will allow Office Depot to fundamentally transform its store replenishment approach. "We believe the future belongs to the bold," said Brent Beabout, Office Depot's VP of global network strategy and transportation. "We're in a commodity business where supply chain is the differentiator. We plan to be at the forefront."
This perspective contrasts sharply with traditional material handling automation approaches that justified systems primarily through headcount reduction. It raises important questions: Is Office Depot's case unique, or are user communities changing their perception of automation? Within warehouses and DCs, does the future truly belong to those bold enough to embrace automation?
Reconstructing the Labor Equation
The market is experiencing a shift in perspective, with nearly all interviewed experts agreeing that end users are examining automation more critically than ever—even if this interest hasn't yet translated into increased orders. "We may still be early in the cycle to determine the market impact," noted Bruce Strahan, President and CEO of The Progress Group. "But users are reviewing the past three years and concluding that all their layoffs and downsizing weren't pleasant. They want to prepare for future demand drops without daily concerns about adding or cutting ten employees."
Moreover, as companies like Office Depot view logistics as profit centers and enablers of broader corporate goals, "they're attempting to use automation as a competitive advantage against industry rivals," said Sean O'Farrell, Business Development Manager at Witron. Solution providers describe an evolving perspective on automation among end users, particularly regarding DC automation. Traditionally focused on conveyor and sortation systems, this view is changing. "Today's DCs require more intelligence than in the past when the main task was moving pallets out the door," observed Larry Strayhorn, President of TGW Systems. This complexity is driving interest in automated guided vehicles (AGVs), robotics, automated storage solutions, and semi-automated solutions involving software, lights, and voice systems.
While reducing labor costs remains a key automation metric for many projects, some organizations operating with minimal staffing are developing new perspectives on labor and automation. "Clients are gaining confidence, have available cash, and access to inexpensive capital," explained Jim Stollberg, VP of Global Product Management at Dematic. "Given unemployment rates, they're clearly not rehiring. Many are choosing to invest this capital in automation." Stollberg and others believe many of these jobs may never return. After workforce reductions, companies are evaluating labor-related costs differently to justify automation—including increased training costs from high DC turnover rates and labor shortages.
There's also growing recognition that complete automation rarely makes sense in distribution, while improving remaining workforce productivity delivers ROI. "My first automation project in manufacturing focused on eliminating as much labor as possible—we likely over-automated," recalled Strahan. "Today, there's understanding that people remain essential to the equation, so how can automation enhance what employees do?" This might involve adding semi-automated solutions like voice- or light-directed picking to manual processes. "While voice and light technologies haven't changed much, users realize they make floor employees faster and more accurate," Strahan added. These technologies also address workforce diversity: "A Spanish speaker wearing headphones can work alongside an English speaker—both productive. That's compelling."
This approach might also incorporate mini-load automated storage/retrieval systems (AS/RS) or carousels delivering products to ergonomic workstations. "The goal isn't eliminating people," explained Tom Coyne, CEO of System Logistics. "It's helping employees reach their potential by eliminating walking, reading, waiting, or other irrelevant processes—assisting workers, not eliminating positions."
Similarly, companies are examining manual processes to eliminate non-value-added labor components. "They justify projects not by eliminating positions but by enabling better employee performance," said Bruce Buscher, VP of Sales at Jervis B. Webb's Smart Handing Division. For example, Webb implemented an AGV system to automatically remove cartons from workstations during two shifts. "Cartons required removal several times per shift, taking someone away from work for about 15 minutes per cycle," Buscher noted. "Our AGV handles special containers—when full, a line worker presses a wireless call button, and the AGV removes the waste."
Finally, companies are adopting automation to create safer, more ergonomic work environments, particularly with aging workforces. This is already significant in Europe, where regulations limit weights workers can move per shift or day—a growing concern for some U.S. facilities. "One client is adding automated palletizers to its tote handling process," said Jim McKnight, SVP of Systems Sales and Marketing at Intelligrated. "Since totes can weigh 50-60 pounds, beyond labor reduction, palletizers offer major ergonomic and safety benefits."
New ROI Considerations
While labor remains automation's primary driver, several other variables are entering ROI discussions. One is flexibility, noted Bill Casey, President and COO of SI Systems. "Manufacturing clients want solutions they can take when expanding or relocating," he said. This increases interest in technologies like AGVs and carts over traditional fixed conveyors or overhead handling systems. "If changes occur, they can reprogram AGVs or carts, or if relocating, simply load them onto trucks for setup at new locations," Casey added.
The AGV market has never been stronger—and not just among manufacturers. "Entirely new AGV markets exist," said Mark Longacre, Marketing Manager at JBT Corp. and Chair of MHIA's AGV Systems Group. "Equipment costs have dropped, software makes them more intuitive in warehouses, and they handle more diverse scenarios than before." Beyond transporting pallets or products between workstations, AGVs now often store/retrieve pallets from drive-in and push-back rack systems—even loading trucks.
Flexible automation also lets end users scale solutions with demand changes. "We designed a fully automated robotic workstation with palletizing and stretch-wrapping capabilities," said System Logistics' Coyne. "But one European client initially implemented manual palletizing, planning to install a robot later this year." Similarly, TGW developed a pallet-building solution combining automation with manual palletizing. Conveyors deliver cartons to ergonomic workstations where operators—not robots or software—determine optimal pallet configurations. After building a layer, stepping on a footswitch lowers the load for the next layer while a stretch-wrapper automatically wraps it. "The idea is removing as much material handling as possible while maintaining flexibility to easily build pallets," explained Strayhorn.
Adopting a Holistic Perspective
Like Office Depot, companies controlling their stores and distribution/transportation processes are justifying automation by taking holistic supply chain views—starting with store operations. "In Europe, we're implementing retail systems focusing on improving DC material handling to reduce store operating costs," said Strayhorn. Previously, companies implemented systems building store-friendly pallets—with all items placed for specific store aisles. The most sophisticated examples designed pallets so top layers would stock one aisle end while bottom layers stocked the other. Now, some systems take this further by loading products into containers—not just pallets—in shelf-sequence order. "We developed a system picking women's T-shirts by size and placing them in store-ready cartons sequenced for the women's department shelf," Strayhorn noted. "Store staff just opens a tote, places the carton on the counter, and they're done."
Similarly, a Witron client in Southern California justified highly automated systems through transportation savings. "The system builds store-friendly pallets, saving each of hundreds of regional stores about half a labor hour," said O'Farrell. "But automation builds taller loads than manually possible, achieving 20-40% transportation savings by better utilizing truck cube space."
Targeted Automation
A final trend might be called targeted automation—embracing automation where it makes sense and intelligent manual processes elsewhere. "One automation rule is that end users should seriously study lean operations before automating," advised Strahan. "Don't over-automate or automate what shouldn't be automated." Rather than spending $20 million to automate 100% of storage, spend $5 million to automate 20% while still gaining productivity from smart conventional processes. According to Intelligrated's McKnight, CVS champions this approach. While CVS has built some of North America's most automated DCs, Intelligrated is collaborating on a project involving conventional wide-aisle, low-level distribution systems. "Through automation experience, CVS learned the importance of finding the right niche," McKnight said. "They'll implement unmanned automation where appropriate, but won't hesitate to adopt limited-automation-enhanced conventional solutions when those make sense."
Accordingly, material handling companies are developing flexible, scalable solutions enabling such targeted automation. One example is SI Systems' mobile A-frame. "Designed for warehouses with 16-64 fast-moving products anywhere, where demand spikes create bottlenecks," explained Casey. "You position the A-frame, lock it down, and complete order fulfillment for any stackable fast-movers. If demand increases, just add another unit." Similarly, Swisslog developed a high-density storage solution using bins with robotic extractors moving on overhead grids. "Users needing more throughput simply add bins or robots," said Markus Schmidt, Swisslog's SVP. "You can start small and scale easily."
The Next Frontier
Recent years brought major advances in automated case picking and palletizing solutions using automated storage, conveyor/sortation systems, and robotic palletizers. The next frontier is piece picking—distribution's most labor-intensive activity and error-prone process. "Piece picking is what we're all striving to conquer," said TGW's Strayhorn. "Some solutions exist, but none have fully satisfied end users yet."
The most common automated piece-picking approach is goods-to-person solutions using automated storage/transport systems to deliver products to ergonomic workstations. There, lights, voice, or screen images automatically tell employees how many items to pick and where to place them. These solutions typically consolidate slow-moving SKUs into space-saving storage while eliminating employee walking. Witron created a variation for operations combining case and piece picking. These systems use AS/RS to automatically replenish pick faces, light-directed picking to optimize piece picking, and software to match picked items with case-picked cartons/totes at palletizers.
Other providers like Axium developed robotic piece-picking solutions fully automating the process for consistent products. These developments, combined with increasingly sophisticated automation software, may herald a brighter future for material handling automation. "The most important development is that industry and end users focus more on creating solutions than selling equipment," concluded Strahan. "We're seeing greater understanding of automation and applications than in the past."