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Warehouse-RoI

How to Evaluate Return on Investment in Drones for Inventory Counts

How To Ensure RoI From Drone-based Cycle Counting In Warehouses

As drones get adopted by warehouse managers for inventory counting, it is important to determine how the investment in autonomous drone fleets will create business value in a reasonable amount of time, with minimal technical and operational risk. The promise of drone-based barcode scanning, versus more expensive alternatives such as RFID and ground robots, includes relatively lower capital investment, quick payback, ease of scalability and rapid progression from PoCs to production deployments.

However, there is a sweet-spot for autonomous drone-based stock takes – not all warehouses can expect meaningful return-on-investment (RoI) immediately. In fact, there is a relatively well-defined segment of the warehouse market that is emerging as the ideal candidate for aerial inventory management. Of course, early adopters of warehouse automation technologies are already reaping the commercial and competitive benefits of aerial inventory management.

Rack-Pallet Storage

The inherent benefits of aerial inventory counts make them well suited to scanning items stored in rack-pallet configuration. Consider the top-view of a typical storage area – with A1, A2 … being the aisles and R1, R2, … the corresponding racks. A4 is illustrated as a very narrow aisle (VNA).

Warehouse Top ViewTo determine the viability of drone flights, we do need to factor in the width of traditional aisles (Aw) as well as VNAs (VNAw). The time taken to cover a rack using an autonomous drone will, of course, depend on aisle length (AL) as well as rack height. Slot width (Sw) is not as critical neither is rack depth (Rd) – the one limitation with drone-based barcode scans is that only 1-deep items can be accurately counted. For deeper storage, RFID tags need to be used for each item – these can then be read by RFID scanners mounted on drones.

Now consider the isometric view of a typical rack-storage area. There are likely to be shelves/rows of different height (H1, H2, …) along the rack height. Similarly, there may be one or more pallets in a bin location and one or more barcodes on a pallet. The power of visual barcode scanning (versus handheld barcode readers) is that it does not matter how many shelves, items, barcodes, etc. are to be scanned – so long as they are in the drone’s field of view, they will be captured as images, automatically read, and archived for future reference and audits.

Warehouse Isometric ViewThe topmost surface of racks is sometimes used to store items – the maximum height of such storage (Hmax) must be factored in while computing the time taken by the drone to cover the entire rack. Clearance at the top of the rack (Hclear) matters because overhead fans may cause turbulence, resulting in unstable drone flights, and hence an inability to navigate precisely and read barcodes accurately. Such ambient conditions (including temperature, magnetic interference, lighting) must be analyzed and addressed in the standard operating procedures designed for fully autonomous drone missions.

Should Your Warehouse Deploy Autonomous Drones For Cycle Counts?

Most certainly yes, if:

  1. The cumulative linear feet (i.e. number of aisles * length of an aisle) of rack-pallet storage in your warehouse is at-least 2,500 feet, and the racks are at least 25 feet high.
  2. Items are stored in 1-deep configuration with front-facing barcodes.
  3. Barcodes may be partially torn or obscured, covered with plastic, or misaligned.
  4. You would like to significantly increase your cycle count frequency.
  5. You would like to meaningfully reduce the hours kept aside each day for cycle counting.
  6. At-least 2 full-time equivalent (FTE) resources are currently required in your warehouse to perform cycle counts.
  7. During peak season(s), you need to pay over-time and/or hire part-time labor to augment the full-time resources.
  8. Autonomous counts, with minimal human intervention/supervision, are strategically important to your warehouse operations.
  9. The labor cost savings alone result in a payback period of 1 year or less, from the date of production deployment.
  10. You envision significant usage of drone-based image/video data after the missions – for purposes such as inventory audits, tracing sources of inaccuracies, optimizing cycle count frequencies and hours, etc.

Business Value From Drones in Warehouses

The business value to be created by drones in warehouses will stem from a variety of use-cases such as:

  • Cycle count
  • Item search
  • Empty & full slot detection
  • Inventory audits
  • Roof inspection
  • Corrosion detection
  • Perimeter security, etc.

Further, for a given use-case, such as cycle count, the value will be realized as a combination of:

  • Cost savings
    • Fewer full-time resources to be engaged in inventory counts
    • Lesser utilization of equipment (forklifts, reach trucks, scissor lifts, ladders, barcode scanners, etc.) needed for inventory counts
  • Revenue improvements
    • Faster, better fulfillment due to better inventory location accuracy
    • Shorter shutdowns for wall-to-wall counts
  • Safety improvements
    • Fewer worker injuries, lower healthcare reimbursements
    • Lower personnel-related liabilities

In fact, the value will increase as we factor in the positive impact on:

  • Capital tied up in buffer stock
  • Revenue risk due to stockouts, mis-shipments
  • Losses due to shrinkage
  • Productivity losses due to absenteeism
  • Operational inefficiency due to labor shortages
  • Margin reductions due to audit/regulatory penalties, etc.

RoI, Payback, and TCO

While it may take years to realize the entire business value from the factors mentioned above, the reality is that unless the payback period on the drone investment is in quarters (not years), most warehouse stakeholders are unlikely to adopt drones, beyond perhaps a few PoC or pilot deployments. This, in turn, requires cost-effective drones paired with SaaS solutions, that directly align the (capital, operating) expenditure on autonomous drone solutions to business outcomes.

In fact, the total cost of ownership (TCO) for drone solutions remains largely uncertain, since most drone solutions in the market use custom, monolithic drones that carry a substantial risk of unreliability, lack scalability and are subject to software-driven obsolescence. The only way to mitigate this risk is to use reliable, off-the-shelf drones with a flight history of millions of hours and short lead-times for bulk orders.

The cost of capital for the warehousing industry in the developed economies tends to be in the range of 10% to 15%. Thus, a viable business case for drone adoption must demand an IRR of 20% or more in the base scenario, to allow for negative surprises during the PoC -> Pilot -> Production journey.

Thus, a truly compelling value proposition for a drone solution must involve:

  • Positive RoI that can be demonstrated from the labor and equipment savings alone,
  • Payback period of less than 1 year, and
  • TCO that can be reliably modeled, and closely coupled to business benefits.

With the launch of the FlytWare Proof-of-Concept package, you can immediately adopt drones for inventory cycle counting.

Write to us at info@flytbase.com or schedule a call with the FlytWare team.


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