Logaltel Logistics

This case was co$-$authored with Vaggelis Giannikas, at the University of Bath School of Management.

It was two months since Thalia had joined Logaltel, a third party logistics $(3$PL$)$ provider owning and operating five large warehouse bases across the United Kingdom $($each hosting three to four warehouses$).$ As the new Chief Technology Officer, she had been asked to make a recommendation to the executive board about the best way to invest in new ware house technology. Investment that potentially could fundamentally change both the operations and the image of the company. $$It was made clear to me that, while the senior team very much supported investing in new technology, it did not want to take any unnecessary risks to the ongoing service provided to our clients$($Thalia$).$ Logaltel delivered inventory management services for its clients, who operated in two types of market. Around $80$ per cent of the company$$s revenue came from the clients that served business$-$to$-$business $($B$2$B$)$ markets. These clients required Logaltel to receive, store and ship their products stored on pallets. The other $20$ per cent $($which was growing really fast$)$ came from those same business clients that also served business$-$to$-$consumer $($B$2$C$)$ markets. Instead of deal ing in pallet loads, this service required Logaltel to pick $($assemble$)$ relatively small orders $($sometimes containing just a few items or boxes$)$ that needed to be shipped directly to end customers. This rapidly expanding B$2$C business had resulted in most local warehouse managers assigning sepa rate areas of each warehouse to process B$2$C orders, although the majority of warehousing space was still assigned to serv ing B$2$B operations. The increased complexity of B$2$C operations had also prompted the development of an upgrade to the firm$$s warehouse management system $($WMS$).$ This is the software system responsible for planning the receiving, storage, picking and shipping operations, the first phase of which had been introduced very recently. It had boosted the performance of both B$2$B and B$2$C operations but had been a long and expensive development and imple mentation process.

New warehouse technology

Under consideration were various innovative technologies that had the potential to automate Logaltel$$s currently predomi nantly manual operation for picking goods that used a combination of forklifts, picking carts and staff to pick the items of an order. After a review of available technologies, Thalia shortlisted her two preferred technologies, both involv ing types of automated guided vehicles $($AGVs$).$ One technology was appropriate for B$2$B operations and used driverless forklifts that could store, pick and move pallets around a warehouse. These could easily operate in the existing warehousing setting, requiring only minor modifications to a warehouse as they interfaced very well with common materi al$-$handling systems $($storage shelves, pallets, etc.$)$ often found in the industry. The second technology was more suitable for automating B$2$C operations. This mobile robotic fulfilment system enabled workers to avoid the time$-$consuming and costly activity of walking around the warehouse collecting individual items for customer orders. Instead, workers could stand in a predefined area while AGVs carried shelves full of items to them. Although offering significant efficiencies, this technology would require a complete restructuring of B$2$C warehouse areas because it fundamentally changed the way items were stored and transported. Moreover, there were limitations in the size of items that could be stored on the specialised shelves the AGVs moved around, meaning that traditional operations had still to be used alongside automated ones for the technology to be practically applicable. Both technologies had the potential to significantly reduce labour costs and improve productivity. According to Logaltel$$s Chief Financial Officer, both would give a financial return well within the firm$$s minimum requirements based on expected growth projections. The issue for Thalia was whether to recommend adopting both technologies immediately, or start with implementing just one of them, and if so$,$ which one? Moreover, should implementation start with a pilot project at one site or be adopted throughout the network of ware houses? In an attempt to summarise the different financial factors at play, Thalia$$s team had helped her put together a table $($Table $8\mathrm{.}4)$ with some key information. In addition, Thalia had spent a lot of her time talking to different stakeholders in the company, trying to get their views on the topic.

Current $$ manual operations Proposed technology $$ driverless forklifts Current $$ manual operations Proposed technology $$ mobile robotic fulfilment systems Forecast growth in orders within three years Worst case $8\%15\%$ Average $10\%35\%$ Best case $12\%45\%$ Payback period of new technology investment per growth scenario Worst case $22$ months $30$ months Average $18$ months $12$ months