Automation: The economy inside and outside the four walls

Will 2013 be the year the economy finally gets over the blues and gets in gear? At the moment, I’m watching business experts debate that point in my hotel room at CNBC. Many of the commentators believe the economy continues to just stumble along. 

Marci Rossell, a self-described optimist and the former chief economist for CNBC, had a different view. “I believe 2013 will be the year the US consumer starts to feel the effects of a recovery that started four years ago,” Rossell said this week in Park City, Utah, at the Material Handling & Logistics Conference sponsored by Dematic.

And, while nearly six long and frustrating years have passed since the housing market crashed in 2007, Rossell compared the economic progress we’ve made in six years to the more than 20 years of stagnation Japan has experienced since its economy crashed in 1990. “Japan taught us what not to do,” Rossell said, comparing the actions of our regulators to Japan’s missteps when it tried to right the ship. She also pointed out that Japan has now launched a program of quantitative easing, similar to the one launched by our Federal Reserve, and that it is having an impact. “We don’t need Japan to grow like China to have an impact on the global economy,” Rossell said. “We just need it not to be sick. It is the most important international story of 2013.”

While economic growth has been slow in the US, Rossell pointed out that economic activity is now higher than it was before the recession. She also noted improvements, such as a rebound in the housing market in many markets as well as a stabilized banking system. “I believe we can do better than 1.5% growth,” Rossell said. “I’m an optimist.”

That view was shared by John Baysore, Dematic’s North American CEO. It is certainly optimistic at Dematic. Baysore announced yesterday that the company grew by 25% in fiscal 2013, posting $900 million in sales. In an interview, he told me that he expects sales to grow between $50 and $150 million in 2014 – if achieved that would mark Dematic the first materials handling provider to top $1 billion in North American sales. He pointed out that the materials handling industry is expected to grow about 12% in 2013. “We clearly took market share,” Baysore said.

He attributes some of that growth to investments in R&D, including $45 million in 2013, a figure that he is going to increase to $67 million in 2014. Much of that increase will be devoted to software development.

Regarding what’s driving our industry to grow at a 12% rate when the overall economy is poking along at 2%, Baysore offered various drivers:
-The increase in e-commerce is creating the need for complex and sophisticated order fulfillment processes. Managing those processes requires software and automated technologies as the number of orders scales up;
-Customer expectations have never been higher. Retailers are not only promising overnight and even same-day delivery, the customer expects the perfect order. Right product, right place, right time and right price has never been more important;
Technology has improved. It not only enables complex order fulfillment processes, it improves throughput, shortens cycle times and improves accuracy.;
And, it is more reliable.
Despite a high unemployment rate, the availability of labor is of more concern than ever. “High turnover rates mean that you’re constantly training new employees,” Baysore said. “Pickers make mistakes.

The final driver is legislation, including stringent ergonomic standards similar to those in Europe. “This is not an issue today,” Baysore said. “But I believe it’s going to be an issue in the future.”

Caution is still the view from CNBC. But as someone who is married to a retailer and talks to leading companies about their distribution center projects, both Baysore’s and Rossell’s views ring true. My wife has seen a real willingness on the part of customers to spend money in her store. “They’re shopping like the old days,” she told me last weekend. Similarly, any number of companies have told me they’re expanding their distribution capabilities as they plan for growth. They may not be celebrating like its New Year’s Eve just yet, but they’re no longer singing the blues. Let’s hope that’s true for the consumer as well.

Maybe I’m an optimist too.