Many U.S.-based retail and e-commerce brands are questioning whether now is the time to modernize their fulfillment operations with new greenfield facilities, or if it makes more sense to enhance existing warehouses with new technology. There is no one-size-fits-all solution.

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For U.S. retailers and e-commerce companies operating globally, efficient warehouse and distribution centers are critical. However, deciding how to invest in these facilities is becoming increasingly more complex. Many supply chain and operational leaders rightfully question if they should build new fulfillment facilities or instead “sweat their warehouse assets” by adding automation to existing facilities.

It is a question of mission-critical importance. For many brands, expansion and growth plans require an expanded fulfillment footprint in new international markets, while others – particularly those in low-margin sectors like grocery and food – must embrace more automation in their fulfillment and distribution operations to remain competitive. 

A litany of external contributing factors makes it even murkier whether retailers should sweat their warehouse assets. The cost of capital remains high, consumer buying behaviors remain uncertain, and inflationary forces continue to roil markets. 

In the face of such realities, companies must carefully consider whether it makes sense to invest in greenfield warehouses or if, alternatively, the best path forward is to improve existing brownfield facilities. There are benefits to both approaches.

The Case for Greenfield Investments

Modern warehouses and distribution centers are highly efficient, enabling exceptional throughput, order accuracy, and storage capacity. Purpose built to utilize the most advanced automation – from Automated Storage & Retrieval Systems (AS/RS) that offer built-in sorting and sequencing capabilities to robotic pickers and automated mobile robots (AMRs), they enable unprecedented performance.

Today’s greenfield facilities also make more effective use of vertical space, a benefit that enables brands to operate warehouses on a much smaller footprint, a key factor in areas where real estate is expensive or in short supply. Most importantly, they also provide significant gains in ergonomics and better enable warehouse employees to avoid injuries, particularly those that stem from highly repetitive work.

Notably, new warehouses also build on evolving economies. With them, retailers can effectively bend the curve between increasing labor rates and the decreasing cost of automation. 

The Case for Modernization of Existing Facilities

In contrast, the modernization of existing brownfield facilities requires less capital investment. Importantly, new technologies, among them Automated Case-handling Mobile Robot (ACRs) – while not offering the performance of the most advanced automation – can still significantly impact throughput, storage capacity and other performance metrics.

Timing is also a significant factor. New facilities can take several years to design, build and operationalize. Brownfield facilities can be significantly improved with automation in a matter of months.

Sweat Your Assets or Not?

Such benefits require U.S. companies engaged in global business to weigh a number of considerations when determining if it makes sense to build a new warehouse or distribution center, or alternatively, if they are best served by sweating their warehouse assets. What then should brands do to determine which approach makes the most sense for them?

To set the ideal course, businesses must begin by creating an integrated team that includes warehouse and operational leaders, among them CEOs and CFOs. Important parameters, including growth projections, the lifecycle and status of existing warehouses, and whether the efficiency of existing facilities can be effectively increased with lightweight applications of automation, should be explored.

During this discovery phase, retailers and e-commerce companies must conduct the due diligence required to ensure they make the right long-term decision to address their organization’s unique needs. Importantly, this includes creating a comprehensive business case that analyzes critical factors, including capital expenditures, revenue goals, expansion efforts and other important considerations.

The Foundation for Any Fulfillment Modernization Effort

An effective business case is the foundation for any modernization effort and begins by setting and defining ROI goals. On the most basic level, this includes determining if the cost of automation outweighs the cost of labor. Numerous details, including the number of SKUs that need to be stored and distributed, the throughput speeds required, the amount of storage needed, and how such variables will change in light of growth plans all need to be considered. 

Just as importantly, organizations need to consider the timeframe in which these metrics should be measured. For example, if a new greenfield facility is expected to be in operation for two decades, how do cost estimates and gains play out in that timeframe? Alternatively, if improvements to an existing warehouse will enable it to suffice for ten years, the same exercise must be completed for that duration.

Retailers and e-commerce companies should also carefully consider potential “gotchas,” such as how the business case could be impacted by various risks, as well as the opportunity costs involved. Far too many brands invest in the expensive modernization of existing warehouses only to later realize that building a new facility would have offered better savings and bottom-line results with the incremental increase in outlays a new facility requires. For that reason, the business case for a greenfield facility should almost always be created for the sake of comparison, even if it is ultimately determined that a brownfield project makes more sense.

Sweating Your Assets

If it is determined that it makes sense to sweat your warehouse assets, the resulting effort should include not only supply chain leaders and operational leaders, but also warehouse managers who are familiar with existing warehouse workflows and processes. Their participation is instrumental to consider and vet potential and pertinent improvements. 

These include the previously mentioned ACRs, which use existing warehouse racks and can be installed and made operational in as little as six months. Conveyors and sorting technology, Automated Mobile Robots, palletizing robots and other forms of innovation are among the other forms of automation that can be implemented to significantly increase throughput and other performance metrics in existing warehouses.

The Path Forward

Fortunately, either approach – building a new warehouse or sweating existing warehouse assets – can help U.S.-based brands intent to excel in global business add far greater flexibility and performance to their fulfillment and store replenishment efforts. Now, more than ever before, retailers and e-commerce companies in every sector, and the employees that comprise them, stand to benefit from innovation and automation

Jake Heldenberg, director of sales engineering, warehousing, North America at Vanderlande, oversees the design of warehouse systems that enable retailers of all kinds to transform their businesses for long-term, scalable success with integrated systems that combine intelligent software, robotics and advanced automation.

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