PODCAST: How drone tech is changing warehouse management

James Cook: Okay, I'm just going to get this out here right now. Taking inventory is a job that people hate to do.

Raffaello D’Andrea: Inventory check is typically not done that often. And the reason that it's not done that often is that it's a really crappy task, error prone task. It's hard to find people to do it to do it properly. So as a result, it's just not done that often. People just live with a certain error rate in their warehouse. So, the issue rates tend to be in the, 4 or 5 percent and it's because they accumulate, right? And that results in a loss in productivity when folks want to go and grab that pallet, every once in a while, it's not going to be where they think it is. And then that creates a huge amount of lost time in, finding actually where it is. Or it could be even worse. If it has perishable goods, then the goods need to be thrown out.

James Cook: That's Raffaello D'Andrea. And that is Raffaello D'Andrea but everybody just calls him Raff. RAF is a warehouse problem solver, and he's also a pioneer in robotics. So, he got his start as one of the founders of the systems engineering program at Cornell. He then went on to co-found Kiva systems, which was eventually purchased by Amazon. And now he's at the helm of Verity, which uses drones and artificial intelligence to address this big warehouse issue, taking inventory.

Raffaello D’Andrea: Back in the Kiva days and talking to folks in the industry, it was clear that you really need two things to have a well operational warehouse. The first is, you need to move things efficiently and that's what Kiva was about. But the second one is you have to have good awareness of where everything is and have good knowledge of your system. Garbage in, garbage out. The Kiva does one thing, moves things. Verity actually does the dual of it, which is try to figure out where everything.

James Cook: On this episode, Raf joins Kris Bjorson and Sam Brasher with JLL Kris and Sam among other things, help retailers find big distribution centers. And they're going to talk about the challenges of traditional inventory methods, The benefits of automation and the future of warehouse technology.

James Cook: This is trends and insights: The future of commercial real estate. My name is James Cook, and I am a researcher for JLL.

Kris Bjorson: Kris Bjorson, Executive Managing Director for JLL. I've spent 30 years representing the retail supply chain and manufacturers and national site selection projects. At JLL, I head up our retail e-commerce distribution practice, as well as sit on our global industrial board.

Kris Bjorson: When you're working with the fortune 200, that automation happens sooner than later because the purpose of automation in any concept is to perhaps reduce your workforce and improve your accuracy. We're fortunate to come across raf initially, with the Walgreens network.

Walgreens was going from 1000 retail stores to 8000 stores over a period of time, and they needed to. Keep the regional distribution center network up to that growth mode. A gentleman by the name of Randy Lewis was the head of supply chain at the time. And he was, very passionate about finding employees with disabilities that he could employ at his regional distribution centers.

And when RAF came out and created the Kiva system where, you , could actually bring the goods to the picker. And the picker could be, there and pick goods, properly. It really began to change the game on, one, how we could select warehouse employees, and two, productivity of that employee.

We've been fortunate to see these journeys in a couple different ways with RAF's products as well as other types of products that minimize workforce and maximize productivity inside the warehouse.

James Cook: Do you find Chris that all customers care about this kind of efficiency or is it just , the fortune, whatever, two hundreds that have this in their radar.

Kris Bjorson: I believe all customers care about the level of accuracy and efficiency. The question, that comes down to is, what's the trade off versus, what I'd call the old labor driven model versus the new technology model. , a lot of the projects that I work on are national site selection projects, facilities are 500, 000 square feet and greater to the capital spend is a hundred million dollars and greater in those projects start three to four years early.

Often start with what's our box going to look like?,, term they often use is how do we create the next generation of DCs if they already have a multi layered distribution network? How do we create that next generation of DCs and what type of technology goes into it?

So often before we see deployment, or we're in the market for site selection, the clients decided what level of automation they may go on that distribution center.

James Cook: And do you think that. With the labor market still being tight. That's another reason for these companies to investigate automation.

Kris Bjorson: We've always been a believer of the client doing , the what if scenarios and, looking at, the return on investment of those. So yeah, beyond, labor reduction, it's the improvement in accuracy and inventory, the need to be right on the inventory.

If the customer can't pick it up. Whether it's at a store or, even some DCs have the offer to pick up. They can't pick it up in there and they have to ship it. A profitability on that unit, goes quickly into negative profitability when that unit's got to get shipped.

It's a real difference in profit, more than just accuracy. It's a different profit margin for the client if they can get it right.

So, Sam, let me ask you a question.

James Cook: Give me a sense of scale. How often is product turning over in like a modern warehouse?

Sam Brashler: I’m Sam Brashler. I'm in a senior vice president at JLL.

I'm typically engaging with the smaller, more regionally focused. Ecommerce or retail driven companies; much less capital expense there, but I think their turnover in a warehouse and, our range would typically be in the 200 to 300, 000 square foot range. For these facilities, they're typically turning their inventory over 8 to 10 times a year, right? So, it goes back to your question earlier to wrap about how often things are getting misplaced and his reference to how often they're actually doing inventory checks. When they're doing it manually it is certainly a major issue for them.

And if, I've walked through enough of those warehouses. When you see it live, it's very easy to understand. How things can get lost and misplaced in there when there's not the right technology and the right system in place

James Cook: How often do you see them thinking about inventory management systems? Is this something that's top of mind?

Sam Brashler: always, it's absolutely top of mind. It comes up constantly as a pain point, it's a directive that comes down from the C suite to get more efficient to be more tech focused, to investigate these types of solutions, the issue and the major barrier for them is the capital expense, right?

It's much easier for the fortune 10, the major retailers of the world. To allocate capital to investment and automation and research and automation, right? But for these smaller companies where money's tight, it's hard not only to invest it, but to know how to invest it,

there's oftentimes where they say, hey we really want to get better with automation on our warehouse management system and our shipping process. But we don't know where to start. We don't know which system is right for us. We don't have the time or the money, or the building capacity, to put some type of test module in place. Most of these companies are, entrenched in warehouse buildings that they've been in for many years, their second-generation buildings. They don't have the advantage of, doing this big ground up developments where they have the opportunity 4 years in advance to start talking about what the box looks like, the clients I'm dealing with the most part are pigeonholed into a box for them that they didn't design and allocating space. Time, money, resources to testing and understanding automation better is almost impossible for many of them.

James Cook: This this begs the question, Rafa, I'll, I'm going to ask you now. how difficult is it for a client to roll out, the Verity system? Is there a lot of infrastructure and technology that they have to put in place.

Raffaello D’Andrea: With the Verity system, you actually need these relatively small. Some of our sites only have two of them and some of the bigger sites that are over a million square feet. We have more than 10 of them, but always less than 20. And what we need in terms of infrastructure is just a power cord. To the chargers and Internet access at the chargers, which mostly is just Wi Fi. That's it. When we go commission the system, we can do it in as little as a week. We just go on site and we do some mapping to make sure that the drones can fly everywhere where they're supposed to fly. , once they're. Airborne and they can map things themselves. Then this becomes an automated process. So the capital outlay is very small. The infrastructure is minimal. We can go in any brownfield. We have something which we call a demo program where we go on site and we just say, Hey, just free up two aisles. We'll set up in two days. We'll give you a demonstration for two days. Go and call your C suite so they can come and have a look at it. We'll take it down in one day. And then we're gone. We'll show you things like go hide something, go hide a pallet, obviously within these two aisles, and we'll go find it for you or go and create a whole bunch of artificial errors and we'll create a human readable list that will tell you these are where you have errors in your warehouse.

We're aiming for a consumer like experience with automation that simply does not exist.

James Cook: So, Kris, let me ask you a question. so, we're talking to Raf based out of Switzerland and you're based out of the U S but you have a global view. What regions of the world are most advanced for warehouse automation?

Kris Bjorson: Mhm. Yeah, as Raf knows, he's sitting right in the heart of it, in Switzerland, so we've seen certainly the evolution that we've typically seen in the U. S. is EMEA adoption first, Asia Pac second, U. S. third. And whether that's based on labor laws or based on availability of labor, or progressiveness of the companies, to adopt technology, all of those things may be contributed in factors, but, often it's very, common for us to see especially in the retail supply chain that things are happening first, as pushed by, EMEA to Asia pack to the U.S. has been the typical progression of, Of events, at the distribution as well as the retail level, I would say.

James Cook: graph? Has that been your experience as well, that your initial clients were close to home,

Raffaello D’Andrea: Yes, that is true, but I think that the reason is mainly because we were here. We launched our product in 2020 is when we were doing our pilots with two clients and then COVID hit. So it was super convenient. We were fortunate that we were here in Switzerland. We didn't really have lockdowns here, so we could actually, learn a lot before we formally launched our product in 2021. But if you think of Kiva, that's a U. S. Based company. We launched first mobile robots using distribution. We're in the United States, not in Europe, not anywhere else. And I think that if we had been based in the United States, that would be the same. It's just an accident of history that we're based here in Switzerland.

In many ways, attractiveness of our system is greater in the United States than it is anywhere else in the world because it's not a big capital outlay. I think folks in the United States a little bit more cost sensitive in terms of automation. The labor costs are tend to be lower in the United States than the rest of Europe. But because our system is already so low cost and is really targeting Folks that have many errors and warehouse in the United States have more errors than warehouse in Europe. The business case is actually much stronger for us in the United States than it is in Europe.

Kris Bjorson: The amount of industrial square footage per capita that the United States has compared to any other country in the world, right? The opportunity for rafts products, with the human air, on the accuracy of inventory, the opportunity in the U S would be greatest for that system to be deployed.

James Cook: What are the barriers and Chris, maybe I'll just stick with you for a second. What are the things that clients are afraid of around technology? Are they worried that things are going to get worse.

Kris Bjorson: Yeah. You know, I, I think the barriers over time, , get these large clients that roll out these waves of distribution centers. If you don't catch it at the right time in this sort of evolution of that wave of facilities coming out, it's often that, we get six to eight facilities into a rollout.

Before they reconsider, how do we, change the footprint, change the technology, change the way it's going to look. My gut is that it's often, they're trying to implement something and not going back to the drawing board as often as they should.

James Cook: Yep. That makes sense. So Raph, one of the interesting, often knocks against new technology and automation is that it might take away some jobs. , what are the roles in warehouses for inventory right now?

Raffaello D’Andrea: A system like ours doesn't take jobs away. It takes people. It tasks away, it takes the task away of doing inventory, but typically inventory is done by people that are already at the warehouse. And because it's done infrequently, you don't have dedicated inventory people.

Usually what happens is it's, it's time to do inventory, get everybody and and let's get this done, which is usually why. It's so error prone. It's a job that people hate to do. It's actually a dangerous job. You can, you have to go at heights. Sometimes you have to go 30, 40 feet up in the air on a scissors list.

It's not something that people like to do. you're not really taking jobs away. And in fact, what we find that our clients with a system like ours is that, they do the task way more often than they used to before a system like ours, they may only do inventory once a quarter, as soon as they have our system, they're basically doing inventory every night. Our system flies at night and spot finds the errors and then those errors are corrected the next day, and you just have a really nicely sanitized warehouse where your errors, instead of being four or 5 percent now are close to zero.

James Cook: And I, I'm just thinking out loud here, but with that reduction, with that increased efficiency, could you make an argument first? This has increased sustainability to is their energy savings because of this.

Raffaello D’Andrea: Absolutely. We wrote a white paper on this. We were actually selected for the World Sustainability Awards in 2022. We didn't win, but we were pretty close, which is interesting for an automation solution to actually even be considered for an award like that. And the reason being you may think at first it's because, our system can do inventory and complete darkness because we're, we don't need equipment to do it, but actually the.

Biggest reason why we can have such a huge impact on CO2 reductions is because of waste. A system like ours reduces errors in a warehouse close to zero. That means that you have much less waste and waste is a huge part of CO2 emissions when you have to put things in a landfill or when you have to dispose of goods or when you have to move them.

James Cook: That's fantastic. Okay. So, I want to wrap it up with a look into the future. Chris, I'm going to start with you. Your clients are some of the biggest companies out there. Looking into the future? What do you think is the next step for, automation and technology within their warehouses?

Kris Bjorson: Yeah. Thanks for the question, James. We really believe that those fortune 200 clients, both care and want to find the ROI on the AI and robotics, the technology evolution and they will begin to implement, if they're not implementing in the U S they will begin to implement so we're confident they're going to keep on seeking a way to maximize ROI.

Reduce head count at a given location and find ways to be more sustainable, more accurate, and deliver value to their shareholders.

James Cook: Perfect. Sam, you're working with both large and medium sized companies. For those companies, do you think now that we're hearing about this technology becoming a little more out of the box, a little bit more friendly to them, do you think more are going to start adopting it in the future?

Sam Brashler: Absolutely. I think as it becomes more affordable and wage rates increase labor will become an increasingly difficult. Problem to solve. And to Chris's point, I think there'll be forced to adopt some version of this or get left behind, right? Another trend that we've seen talking about looking into the future is a lot of these retailers are really striving now to try and create an omni capable network, which includes retail stores, delivering product to consumers or shipping product or fulfilling orders out of those retail locations. We've already seen some of the larger companies adopt that strategy with great success. And I think that's a model that a lot of the midsize retailers are striving towards because they already have this retail network and they'd like to ship product out of those stores as well as their DCs , that solves one problem and creates another which is that inventory needs to be much more closely tracked because it's going to turn over faster. And store replenishments will become a critical piece of it. And I think automation is really the only solution. Improving their warehouse management systems. Inventory tracking systems will be an essential part of that strategy, which we've heard from a lot of these clients striving to work towards over the next 5 to 10 years.

James Cook: Perfect. Love it. Raf, you're the scientist of the group today. So, give us your point of view. What do you think, is medium term to long term kind of the future for, automation and warehouses and this technology in general.

Raffaello D’Andrea: Yeah, I'm going to use a term that's been thrown around a lot and maybe mean different things to different people, but I really believe that the warehouses of the future automation of the future will be centered around the concept of a so called digital twin. which is a digital representation of the physical world. If you had a perfect representation of the physical world, you can make much better decisions. You can explore what if scenarios, if I do this, what happens? If I keep this much stock and there's a shock in the system, what are the chances that I'm going to run out of stock? You can actually explore what all of these scenarios to make better decisions, but you have to keep This digital twin up to date.

And that's where a technology like ours comes in. We can correct the errors to make sure the digital twin is one to one with the physical world. But not only that, errors are great feedback. Why were those errors there in the first place? Allows you to find root cause and allows you to address the reasons why you had those errors In the first place.

So, we're really talking about almost a duplicate of, the way that human beings operate. We have a model of the world. We use that model of the world to make decisions. We act. And when things go according to plan, great when they don't. We reflect and go geez, why didn't that really work out the way it should have?

And we adapt our internal model and we take different strategies next time. I think that's where things are going.

James Cook: That's fantastic for your drones, this technology, I imagine too, that there's opportunities outside of just warehouses. Have you explored, other verticals at all?

Raffaello D’Andrea: We're, one of the things that we really did right at Kiva was to really focus on distribution and not get sidetracked. Just, it's such a big opportunity. And I think for now, we're still 170 people. We have some great investors backing us. But. We really need to stay focused.

And for right now, our focus really is warehousing. Sure. Of course, there's many things that you could do with these capabilities. But for us, certainly for the next three to five years, this is where we'll be.

James Cook: Excellent. Thank you all so much. This conversation has just flown by. This is a fascinating topic. So thank you all so much for joining me today. This has been great.

Raffaello D’Andrea: Thank you. And I really enjoyed everyone's comments that were very insightful. Thank you.

Kris Bjorson: You're welcome, James and Raph, pleasure to speak with you when we've been side by side all these 20 plus years.

Raffaello D’Andrea: Absolutely.

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This episode of trends and insights was produced by Bianca Montes.