Upbeat intro music
Rebecca Archer
Welcome back to Beyond the Numbers with Grant Thornton – a podcast unpacking marketplaces shifts in today’s dynamic business landscape.
I’m Rebecca Archer, and today I’m joined by Richard Bycroft, Partner in Management Consulting and Primo Danieletto, Director in Management Consulting – both specialising in value chain transformation for businesses.
Today we’re talking through the evolving world of supply chain solutions – how to find the right fit, when you should consider reviewing your current processes and how it might look beyond the retail world. With industrial vacancy rates at an all-time low and a saturated solutions market, businesses need to know the rights steps to stay ahead of their competitors and create business efficiencies.
Welcome Richard & Primo!
Primo Danieletto
Thanks for having us Rebecca. Great to be here.
Richard Bycroft
Great to meet you, Rebecca. Thank you.
Rebecca Archer
Now before we begin, I wonder if you could both spend a little bit of time explaining your roles at Grant Thornton?
Richard Bycroft
Great, thanks Rebecca. Well, I'm a partner at Grant Thornton here in Sydney partners at Grant Thornton, we're pretty hands on.
So, I do spend a lot of my time with the team, with clients, working with, with the client, working with the team because that's where you know, the biggest opportunity to develop the team and deliver great results for our clients really happens. So, I've been with Grant Thornton now nine years and before that I've got an industry retail background. Over to you, Primo.
Primo Danieletto
Thanks, Rich. So, my role at Grant Thornton – I'm a director, I work in the Sydney office as well. Rich is my Sydney market lead. I've been here for the past three years and before that was heavily in industry across supply chain logistics.
My focus now since joining Grant Thornton has really been about supply chain transformation. So, everything from, you know, the business case development all the way through to complex delivery. We've done a lot of really good work and where we're continuing to work on, you know, some of Australia's largest projects as well. So, the biggest focus for me at the moment is now trying to, to expand the client base and grow the capability in the team along with Rich and we, you know, we keep reaching for remarkable and get those client results.
Rebecca Archer
Excellent. Thank you both so much. So, let's dive in. What is driving the push for automation in supply chains at the moment?
Richard Bycroft
That's a really good question to kick off with. I think there are tremendous benefits from actually automating your intralogistics solutions in particular for a number of years now. I think the labour market, you know, in that sector has been quite challenging.
So, the supply of good labour has been quite difficult. So that's one really good opportunity there in terms of making the sites much more productive and also elevating the quality of the jobs that you actually have on the sites as well because one key thing here we've got to remember is it's not just about replacing labour, it's actually about bringing automation together with people to actually deliver a great result, and that part of it is really important and that deployment of those solutions in that way is part of what we focus very closely on.
So, there's a number of different reports you can kind of reference at the moment in terms of the way forward here, but if businesses want to compete moving forward, they're going to have to invest in automation, their warehouses in order to realise those operational savings because that impacts the ability to price competitively, delivers cash flow benefits over time, return on investment and just makes businesses more competitive.
Primo Danieletto
Rich was right. Labor is a really big piece in regard to the drive for automation. Whether it's availability, whether it's obviously the indexation, so wage, price increase, that sort of thing, but I think as well there's other factors such as land availability. So especially here in Australia the past few years and if I just look at the Sydney – we're in Sydney, so I'll take the Sydney market for example.
I think in 2022/2023, we had a 0.05 per cent vacancy rate in industrial property, right, which was the world's lowest. So, we had – especially off COVID-19 – a big e-commerce boom. A lot of retailers were taking a lot of property, they were busting at the seams with inventory because there was a lot of growth, especially in that e-commerce space, and that really drove, you know, a high level of demand for Industrial property which, and then there was a lack of supply across all the states as well.
So, you would have seen per square metre rates rise by up to, you know, 60 per cent in certain areas – that is national. We started to see that pare back a bit in regard to, you know, a bit of a correction in consumer sentiment and demand, but that underlying inflation of infrastructure costs is still quite high.
I think some of the other reasons to automate, if take a real people lens, is that there's a lot of workplace injuries that happen and automation is also seen as the powerful to try and reduce those repetitive task injuries and increase the safety of the workers. So, it's not just purely, you know, dollars and cents, there's also that people element, and I think the other piece which Rich was saying is that you know, if you aren't automating there's potentially an economic moat that you're not building so you're not having that competitive advantage and therefore your variable costs are just going to rise because all you can do is throw more labour at it. So, automation, you know, in an intralogistics setting looks at trying to give you that operational leverage.
Also, the other reason why I think business is starting to automate as well is because they've grown organically. So, therefore their network footprint has also grown organically and they've sort of reacted to oh, we need more stock here, we're bursting at the seams of this facility, we'll get another facility, we'll get a 3PL and now a lot of that legacy network is now being reviewed and they're going, okay, well how can we consolidate this and how much do we need to invest to start, you know, getting that future ready supply chain that isn't just for you the next couple of years but it's, you know, the next 10, the next 20 sort of thing, and I think that's where businesses are at the moment, obviously each at different scale and each on different timelines, but that seems to be the market shift at the moment.
Richard Bycroft
Yeah, really good points. I think the other thing is the accessibility of great technology as well. I think, you know, the technology in this space is advancing so quickly and businesses ability to be able to retrofit solutions rather than, you know, decommissioning the whole site and then having a very expensive CAPEX build, you know, it's becoming much more flexible and flexibility is really important in an uncertain world as well. So, solutions are becoming much more flexible, less rigid and more affordable, which is great.
Primo Danieletto
Yeah, I think, on Rich's point as well is that so there's more flexibility, there's newer tech, but Australia as a market has always been a bit of a laggard in regard to bleeding edge or new frontier technology, and what you'll find now is automation's been around for like decades.
Like you know, the likes of the big vendors have been around for you know, 50 years, some of them right, if not more, but what we're seeing now is a level of market maturity that everyone knows, okay, this is tried and tested. If we're going to make a big bet on automation, then we know that it works. Even you know, the likes of the AMRs and, and that sort of thing, which was relatively new to Australia 10 years ago, everyone goes, okay, that's now state of play, that's there. We're a little more risk adverse when we start trying to put tech into our warehouses, and we've got that level of maturity now where I think people are comfortable to start putting automation in.
Rebecca Archer
So, what are some of the triggers for businesses to be reviewing their supply chain solutions?
Primo Danieletto
It depends, right.
So, the themes that I'm seeing is it normally starts at a higher level when you start seeing your variable cost to fulfill increasing faster than what your margin that you're making. So, there's normally a review there. That's one piece.
I think the other piece is when you start looking at capacity issues and throughput issues at service level, those are some of the other triggers where businesses go, okay, we're not fulfilling to our customers as much as we thought we should be or at the right service levels because we're constrained because of capacity, because of the throughput, maybe availability of labour or because of the way that our network is shaped. Those are some of the key triggers, but I think also because we've had such a shift in, and I talk about e-commerce and retail because I think it's the easiest to consume – we've seen a shift from the way that you know, the markets are consuming therefore that there's now a change in, okay, we're not just going to do wholesale distribution or you know, distribution to stores. We now need to have it online and now that's changed to, we need to have omnichannel fulfillment so that way we've got a touch point for each customer digitally that they can access to, but then how do we execute on that? What does our network look like and how do we make sure that the likes of competition in Australia, Amazon – you order it and you get it in, you know, the same day or in two hours – how do we replicate and compete against that?
I think those are some of the key triggers which are really coming to the forefront, and a lot of businesses are now saying, how do we adapt and what do we look to, where do we look to invest?
Richard Bycroft
Yeah, certainly the economic opportunities it presents is a huge trigger.
You could almost turn it around the other way and say why, why wouldn't you, in a way. But the really critical thing though is, and Primo's touched on a lot of the different solutions that are available, is really getting the right solution for your business. That's the critical thing.
You know, how much capital have you got to invest? How much change have you got in your forward view of your strategy? Because there's a bit of a trade-off between efficiency and flexibility. So, something that's churning out the same widget day in, day out through your shed, you can make that very, very, very efficient, but then if you introduce a new product category or a new route to market, a new sales channel, then that's going to struggle to adapt. Whereas there's opportunities that may be less efficient but more flexible. So, in the long term might be better for your business.
So, the critical starting point is how much have we got to invest? What opportunities have we got to invest in other areas? Because businesses don't just invest in supply chain, they've got many opportunities for the best use of capital and that's absolutely critical. You want a good return on investment on this and you want the business to continue to thrive and to grow.
Rebecca Archer
I would imagine though, when you're reviewing and potentially then implementing could be quite expensive. For businesses who are experiencing a tight cash flow, but they really do want to do something to improve efficiency, here should they start?
Primo Danieletto
Rich touched on a few items there. You've got to take stock and go, okay, how much capital do we have to invest? And then where's the right level investment? How do we right size it? And then also is it capital expenditure or is there ability for us to make it operational?
So, there's a lot of solutions out there and then depending on some of the other constraints around – maybe you've got a lease that you've only got three years until that finishes or you've never really tipped your toe in with automation or intralogistics automation, so you want to go evolution rather than automated revolution, right?
There's multiple options and I think the commercial models that are coming out now for some of the really flexible options for AMRs and Cobotics, and that sort of thing – it means robots as a service.
So, just as you would buy, you know, maybe your business intelligence sort of reporting to a software as a service, there's solutions now that have, you know, Robots as a Service or some sort of operating lease, which limits the amount of capital that you need to invest in that specific system and puts it on a contract, and you know, depending on the vendor you might, or systems integrated, you might have a pilot agreement to test it out and then move into a more longer term contract.
Those are some of the options that are available, and then even more so in that sort of model, such as Robot as a Service, depending on the technology and the vendor itself, there might be a pay-per-pick model. So, there's really this movement and I think it's really going to open up the small to medium market to automation and, and it's going to be ‘pay for what you use.’
Now there'll still be, you know, some capital investment because you might have to put in mezzanines, you might have to, you know, do a systems upgrade. You might have to buy some peripheral tech around the actual automation itself, and that may not be all inclusive depending on the technology, or the vendors you go with, but there's much more, I think, less capital intensive ways to be able to get that incremental but cash benefit from automation than there was, you know, 10 to 15 years ago.
Rebecca Archer
I wanted to ask for businesses that potentially are quite resistant to change or traditionally haven't had to look at changing very much about the way that they operate. How much of a challenge is this issue for them?
And what examples maybe can you relate to us where you've seen someone who maybe has been sort of had to be dragged along into this process but has really embraced what it's been able to do for their business.
Primo Danieletto
We spoke about this at CeMAT and it was one of the things about, you know, automation readiness, and if you are looking to automate, there's sort of two camps, right? And think of it as a continuum, but then you've got multiple dimensions on that continuum.
It’s really about you in an optimisation sort of camp or do you have to go in transformation? And I think there's a couple of approaches here.
I think businesses that have, you know, a certain level of continuous improvement, optimisation is sometimes the easiest step because you can start progressively moving and incrementally adding – whether it's automation, process improvement, change management, most of all of that has to come together and then to try and get those gains.
The other side is that depending on the business and their level of change readiness to this sort of transformation, sometimes you do need a big change. So, when your performance plateaus from your optimisation initiatives, that's when you need to have that executive endorsement all the way through down to the operational team and you've got to move into more of a transformation initiative, and that's really where, you know, you build the platform to say, this is the reason why we're moving through this new automation journey. This is what it means for the business; this is what it means for you, and this is how you're a part of this change, and then the transformation itself is sort of like a reset and a force for everybody to get on board and move.
I've seen both in the market and both, you know, on projects and it's really nuanced to each business. So, I think one of the biggest call outs is how do I understand how ready my business is and what are the key things that I should be looking for?
Richard Bycroft
Yeah, and I think there's a couple of dimensions across that as well. I think leadership, obviously, because they've got their eye on the P&L are very engaged, you know, in terms of the process – obviously it can bring strong commercial benefits.
You present a business case, which has got a strong ROI on it. Getting the solution to work once you've actually built it with the team is a critical step, and that piece of change there in terms of – because you're going to probably change people's ways of working quite considerably, you know, supporting that with the right training and making sure that you're around to embed, you know, the project and actually move, you know, the deliverable of the solution towards their targets. That's a key nurturing phase that you've got once you've gone live to make sure you embed the solution, and you get the team working and really humming with the solution at the same.
Rebecca Archer
Time, I guess with so many options out there that are available, how can a business know that it's choosing the right one and that perhaps, you know, how do they know it won't be outdated in a few years? Is there a particular sort of framework around the decision making for them?
Primo Danieletto
There are frameworks that you use to make these decisions and obviously it's going to be very nuanced to the business. So, what's right for Rich's Discount Retail Shop to, you know...
Richard Bycroft
Primo, it's not discount, it's luxury.
Primo Danieletto
Yeah, to Primo's Discount Retail Shop might be very different, right? But I think the framework is really about understanding the business itself and what the customer's after. It's looking at scalability, the requirements of scalability for your business, what level of flexibility that you need and how simple you can make the solution to make and then also make it effective.
That's probably at a very high level the framework that you would look at, how you would score the vendors, and you know, the level of technology maturity and, and that sort of thing and how much you're buying, whether it's CAPEX, whether it's a RaaS model, it's going to be very situational.
But I think the framework really needs to start with the customer in mind and then, you know, what are the key triggers in our business and that makes us need to change. So, whether it's, it's a network piece, a capacity piece, it's a labour piece, maybe it's all of the above, and then it's really about trying to figure out, you know, the level of flexibility, the level of scalability and how simple that you can make this sort of operation. Those are probably the key things.
Richard Bycroft
That was comprehensive Primo.
I think that once you've got all of that, and as you can tell it's kind of a multi lens kind of way of looking at the operation and how you actually implement this solution – once you've got all that, we've got a process that takes all those inputs and formalises it into a set of design principles, and those design principles align that make sure that all those elements are aligned so the solution delivers on all of the requirements, and once you've signed off on those design principles that embodies your ROI basically in the deliverables of the solution, you've got a really strong North Star to run your project from – to make sure that we don't deviate from this without very good reason, and there's got to be a lot of rigor around any deviation from those design principles because otherwise we can drift away from delivering on budget, on time or the actual efficiency gains that we're actually shooting for, and has to be a strong governance around making sure that if there are changes made, all the knock on effects in the project are considered and managed.
Primo Danieletto
I think Rich's point around the design principles is key because sometimes you can get distracted by a new piece of technology or another system that you can put into play or another approach because it's in vogue at the moment, or it's something that is exciting because it's a new piece of technology or something like that, but it can distract you from what are we really trying to achieve and what is this project or transformation or optimisation project about?
That's where the design principles come, because as Rich said, it gives you those parameters or that container that you need to stay in, and anything that doesn't fit within that should automatically be deselected because there's been a lot of rigors put into that and that's how the business stays on track.
Richard Bycroft
Yeah, you touched on a really interesting point there as well, because in the technology space, it's a little bit like EVs that there are a lot of new disruptors coming into the market which might, on the face of it, offer a very compelling offer, but to Primo's point, if it's completely new, then that vendor may not have the experience integrating that solution into businesses like yours, into the ERP system that you've got into your warehouse management system and all those kind of things, and that that level of complexity needs to be considered as well, and you've got to kind of weigh up things with a proven track record where things have been integrated and been successfully deployed versus something that is completely new in the market – might be compelling from an initial investment perspective, but you do need to consider the whole picture.
Primo Danieletto
Yeah.
Rebecca Archer
So, let's say a business has implemented a new solution and it's successful, it's all working smoothly. Can you talk to us about the kinds of efficiencies and the changes that that business would see in their operations?
Richard Bycroft
Great question. Yeah. There are tremendous benefits to be had by, you know, successfully implementing this kind of technology.
I mean, you can see significant reductions in operating costs, you know, from a third to a half in terms of operating a DC – depending on the type of business that it is and how systematic you can actually make the fulfillment operation. You know, if it's got like, for example, if you sell little packets of multivitamins, for example – or is it vitamins in Australia?
Primo Danieletto
It's vitamins.
Richard Bycroft
That can be very, very efficiently delivered through automation solutions. If, however, your product range is more varied in terms of size, shape, weights and those kind of things, you've got different sales channels to fulfill at the moment. There's potentially less of an opportunity to get significant benefits, and you might go for a hybrid model where you automate part of your operation and part of it then remains manual, where it makes sense. Because a manual human solution might actually be more efficient if it's something that's an unusual size, heavy weight or it's particularly fragile.
Primo Danieletto
Yeah, absolutely, and some of the other costs that you can start to see… so, there's obviously operating costs, but then depending on the project, if you've got storage capacity constraints, then all of a sudden whether that turns into you now needing to get a new lease or you may be able to reduce the footprint of that lease, right?
So therefore, you could still get the same size warehouse, but you might have future proofed yourself for another four to five years or you could essentially reduce the footprint that you actually need. So, you know, that's one saving.
Obviously at the beginning we spoke about labour as well and how you can become more efficient depending on the solution, the sales channels, the volume, the product mix. There's a fair amount of factors that you need to take into consideration.
The other cost, which I think a lot of businesses don't necessarily think about per se – and it's more related to the people. There's an efficiency, but then there's, there's also a speed of getting your operators because there is a fair amount of churn in warehousing and logistics – getting your operators up to speed on how to use that technology is actually much quicker than being able to get someone who's just, you know, got an RF gun or a paper pick list having to, you know, walk around or go on a forklift and try and find the products because it systemises that task and you know, it can make it much more, in some instances gamified. So that way it's easier to interact and understand the technology and the process that they need to deliver.
Richard Bycroft
Yeah, it's a good point. So that throughput and efficiency is really important from a customer perspective as well. So, you know, reliability of delivery is something that's particularly important to Australian consumers.
In terms of speed of delivery, that's something of increasing importance. You know, same day, next day delivery could be a competitive edge. It's probably more important in the United States to consumers and Europe as well but probably coming, but to Primo's point, it does increase your ability to actually get things out to customers sooner, quicker, you know, and have an edge over your competition and crucially deliver on your customer promise. It's really critical that if you're an online retailer, if you say it's arriving tomorrow, it does actually arrive tomorrow because you may, it might be a dress for a special event over the weekend, it might be a book, you're going away, you know, you have to deliver on your customer promise.
Primo Danieletto
Yeah, absolutely.
Rebecca Archer
I think when we hear the phrase supply chain, a lot of us would automatically think about a retail business, particularly in the wake of the supply chain constraints because of the COVID-19 pandemic. We all had that vocabulary around retailers and supply chains, but I would imagine the solutions that we're talking about today also apply to other industries, is that right?
Primo Danieletto
Yeah, absolutely. So, you know, we work with other clients in automotive, pharmaceuticals, that sort of thing. It's not just focused on retail, but I think retail is probably the industry everyone sort of understands and knows and loves, right?
You go to a shop, and you know that KeepCup or water bottle that you're buying from the stationary store went through certain nodes in the network from a supplier etc. and had to get fulfilled, and we all shop online, but there's other industries that are really leading the charge. I think retail takes probably about a third or 30 to 33 per cent of the intralogistics automation – they're the end users, but then you still got food and beverage manufacturing, which is a really big part.
You've got automotive pharmaceuticals, and then there's a lot of some of the other industries as well, which on the uptick for automation adoption, but I think those core industries that have a more homogeneous product maybe doesn't necessarily have to have the most stable volume, but has a large level of volume to get the throughput for automation is always helpful, and then also if there is a certain level of repetition in those tasks that can be handled by only one person, that's where automation can help as well because in retail if you're you know, doing unit picks and that sort of thing, that's in e-commerce, that's something nice and easy that automation can handle. The larger, bulkier sort of items such as like a big egg chair or something like that is a lot harder to put through an automated system. So, furniture for example, then pharmaceuticals as Rich or vitamins as rich was saying before. And then you know, for automotive, that whole sort of spare parts, all those small pieces as well, a perfect fit for that smaller automation.
So, I guess the other part as well is it doesn't just focus on the pick pack and storage, there's, there's other options such as, you know, automated guided vehicles that we're seeing at automotive clients that are helping move cars along the production line or even AGVs for the warehouse itself – so driverless forklifts.
So, there's, there's automation depending on the business and the sales channels that they develop the products that they have, but it may not be the same application that you see in retail that you see in pharmaceuticals as what you might see in, you know, food and beverage manufacturing or automotive.
Richard Bycroft
Yeah, there's certainly significant overlaps into manufacturing. We visited a potential client site last week which was a manufacturing operation, and the thinking, the processes, the automation opportunities are very similar in the way that you actually structure them, manage them, and deploy them as a project.
Rebecca Archer
Before we wrap up, we've covered so much today, and I'm very grateful for how much time and thoughtfulness you've brought to the episode. I wonder, is there one thing that you each would like listeners to take away from what they've heard today?
Richard Bycroft
Absolutely. If you're thinking about automating your warehouse, make absolutely sure you're making the right choice, because there are a bewildering level of choices available, and it's absolutely critical that you make the right choice for your business in terms of where it is, how much capital you've got available, understand what your forward strategy looks like in terms of new product introduction, you know, where you want to play in the future versus where you are now, and make a very considered choice. The solution you're getting supports the delivery of that strategy. It doesn't inhibit it.
Primo Danieletto
I echo Rich. It's really about doing the due diligence up front and whether that's a really big discovery piece. Now, you know your business better than anyone else, but I think there's a certain level of rigor that needs to be put into assessing whether you're ready or what level of readiness you have for change – whether it's optimisation or transformation, and then overlaying that into what a very detailed business case would look like, I think that's when you start to go, okay, our business is ready for this level of change. The numbers stack up like this, but the inputs and the assumptions and how you do the maths on whether it's the right project is super important as well, because there's initiatives that don't always go to plan and making sure that you've done the right due diligence and you can get the business, once it's implemented to business case metrics. That's the end goal. There needs to be a lot of, I think, rigor and due diligence done up front.
Rebecca Archer
Rich and Primo, thank you so much for coming on the show. For those people listening who might want to connect and maybe delve a bit deeper into your work or explore potential ways that you could help them, what's the best way for them to reach out.
Richard Bycroft
We're both on LinkedIn Primo, aren't we? So, if people want to look us up on LinkedIn. Alternatively, they can contact us through our company website https://www.grantthornton.com.au/ and they can find a link there through to Management Consulting where both myself and Primo work.
Rebecca Archer
Interested in who we interview outside of our firm? Have you heard about our other podcast series The Remarkables? Listen as we uncover and explore remarkable stories about incredible people working to better their local (and sometimes global!) communities and inspire younger generations. A link to series will be in the show notes.
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