Warehouse Automation: The Hidden Costs of Not Automating

Every business decision comes with trade-offs and choosing one path means forgoing another. These trade-offs lead to what economists call “opportunity cost”, which is the potential benefits that are lost when selecting one alternative over another.

In the context of warehouse operations, this principle applies directly to warehouse automation. Decision-makers often weigh the upfront costs of implementing automation against projected returns. But what about the cost of not automating? The opportunity cost of maintaining manual processes can be just as impactful as the investment in automation itself.

What is Opportunity Cost? At its core, opportunity cost is calculated using a simple formula:

Opportunity Cost = Return of Best Option – Return of Chosen Option

While this formula appears straightforward, the real challenge lies in quantifying those values. In fulfillment operations, the cost of automation is often easy to measure by looking at capital expenses, implementation costs, and anticipated savings. But the cost of not automating is less tangible, making it easy to overlook. That doesn’t mean it’s not important.

Weighing the Benefits of Warehouse Automation When evaluating the return on warehouse automation, companies tend to focus on three primary benefits:

1. Operational Cost Savings Reduced direct labor costs: Automation helps offset the rising costs of overtime and premium pay for night and weekend shifts for full-time employees. Lower indirect labor costs: Automation reduces expenses related to hiring, training, administrative work, and even insurance costs. Fewer equipment and licensing expenses: Warehouses can cut back on purchasing and maintaining RF scanners, carts, and other material-handling tools. 2. Performance Gains Fewer missed service-level agreements (SLAs): Meeting SLAs consistently is easier with automation-enhanced efficiency. Less stock damage: Automated systems reduce human handling errors, leading to fewer damaged goods. More accurate order fulfillment: Robots and automated systems help minimize