Warehouse Automation: Risk And Reward

Before taking the plunge, make sure you’re aware of the risks and rewards of warehouse automation.

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Warehouse automation can provide your company with a multitude of advantages, especially when it comes to workplace safety. It can eliminate risks, decrease injuries, and cut down on tasks that could expose employees to injuries. However, it’s not as simple as flipping a switch. You can’t set it and forget it because there are certain risks that come along with the automation process – everything from cyber-attacks to a decrease in operational awareness. Before taking the plunge, make sure you’re aware of the risks and rewards of warehouse automation.

Installing Automated Systems Can Improve Workplace Safety

The primary purpose of warehouse automation is to increase productivity while lowering the total cost of operations. As a result, safety is improved because repeatable tasks are eliminated and hazardous duties are replaced with those requiring a higher skill set or level of training. This can mean fewer worker compensation claims.

Perhaps the simplest form of automating a warehousing system within a distribution center is a well-thought out series of conveyance. You can do this by starting to integrate networking systems, bar code printing, labeling, applying, weighing, scanning, and diverting. Implementing these processes will substantially reduce human hazard. This isn’t easy, but it is quickly being adopted in today’s world of warehousing and typically performed by systems integrators that combine software and hardware to develop a customized solution. The long-term expensive risks of the pre-automated state, such as sprains and strains, go away while machines, sensors, devices, and controls take the environmental readings and move product and material. In other words, automated warehouse systems eliminate the chronic small claims that never seem to close out. Automated operations aren’t paying medical care and court fees for several years following the incident.

Steve Phillabaum

Here are three examples of potential injuries that are eliminated through the automation process:

  • By using a laser scanner or camera that reads product bar codes on a conveyor belt, workers don’t need to engage in repetitious actions to capture product data that could injure their eyes or hands.
  • The systems components report into the network that is telling the conveyor system when, where and how to divert product down the correct lane. This prevents human error that could cause distribution center jams, a bottleneck of product or damaged and broken product that spills throughout the distribution center.
  • Multiple movement or placement of product isn’t needed, such as lifting material around to weigh, scan, group, match, or sort it. Instead, a well-designed system can do all of these functions in a matter of seconds.

Luke Atkinson Foley

There are different aspects of worker safety. The physical ones are clear and obvious while the technological ones aren’t always as easy to spot. Intellectual property, data, and identity theft – these are all things that your workers may become more susceptible to after implementing an automated system. While automating your company’s distribution system should decrease worker compensation claims, it doesn’t mean claims of another kind won’t occur.

While some companies think they can handle everything internally, this isn’t always the case. The industry involves many complexities and most distribution centers have several types of software for warehouse management systems to deal with all of these moving parts. However, this creates a new exposure.

Cyber-Attacks and Business Interruption Insurance

As we’ve seen over the past few years, businesses are becoming mobile entities and warehouse management is no different. Distribution companies use tablets throughout their operations because they are convenient and provide immediate access to vital information. However, the problem is this information is also immediately accessible to hackers. Even if a distribution company has the world’s best firewall, they will need to purchase and make use of third party software to run their operations.  The more sophisticated the automation system is in the warehouse, the easier it is to infiltrate, hack, alter, or steal intellectual property.

As recently reported by The Washington Post, federal agents notified more than 3,000 U.S. companies in 2013 that their computer systems were hacked. This equals $100 billion in annual costs for companies and consumers. Cyber-attacks can shut down your businesses operations, so it’s imperative that your broker has business interruption expenses covered.

Having a business interruption policy in place will cover any profits your company would have earned – based on financial reports – had the cyber-attack not occurred. Some policies can also cover operating expenses, including utilities, since these expenses continue to accrue even if your business has to take time to recover.

Considerations and Exclusions

Knowing that a hacker can attack your automation system from anywhere in the world, having worldwide coverage is also essential. Another thing to look for when reviewing your policy is making sure cyberterrorism is not excluded.

Should a data breach occur, you should keep in mind the costs associated with managing such a crisis. This includes money that will have to be spent on forensic investigative procedures, as well as a public relations plan to make sure you’re effectively communicating with all of your stakeholders.

Taking these steps will help put your company in a strong position if a cyber-attack should occur. We encourage business owners to consult their insurance broker to ensure they are properly covered.

Another major consideration is the cost of automated systems. Size and scope dependent, automated systems can carry a cost range from a couple hundred thousand dollars to several million dollars.  Having an understanding of the reward should be combined with the knowledge of the new-found risks, such as the capital investment and expected return. In any case, if installed and used properly, there will be significant return through warehouse safety and cost savings.

Distractions and Decrease in Operational Awareness

In addition to making distributors more prone to cyber threats, these technological advances can create distractions, data addiction and less operational awareness within the automated distribution center than there was in the pre-automated state. With this in mind, rest breaks are even more critical for employees performing physical work in support of maintaining the systems. These can help avoid fatigue levels that could result in a greater risk of accidents and a reduced quality of work. This is critical in an automated systems environment. It is equally critical to employee safety that pre-shift safety briefs and stretching take place to help avoid incidents altogether. Best practices case studies show that leadership involvement from shift supervisors helps facilitate this easy-to-implement activity.

A new automated system will seem alien to all employees. Newly hired employees are not the only workforce segment in need of general ergonomics training and task-specific training; because of the new automation solution all employees need to start from safety ground zero and learn how to safely operate the new equipment. A structured formal training program is the path to a safe and efficient workplace where employees will be comfortable with the new system.

Employees should also be re-instructed on how to avoid heat stress in hot, humid environments. New automation equipment can create different environments to include heat exposures as well as hearing loss.

The company lockout/tagout procedures must also be updated to reflect the operations, maintenance and layout of the new system.

Your insurance broker and risk management consultant should be part of the warehouse automation discussion. We believe when the new-found risks are countered with appropriate operational plans, there is much reward to be had.

Luke Atkinson Foley and Steve Phillabaum are Producers at The Graham Company and can be reached at LFoley@grahamco.com and SPhillabaum@grahamco.com.

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