Episode 16

Potential Road Blocks When Investing in Automation

with Jeff Hedges

Jeff Hedges

President & Owner

In this episode, Tee Ganbold sits down with Jeff Hedges, President & Owner of JHedges Consulting to talk about the evolution of Automation and how companies are utilizing the ever-changing technologies in the supply chain to increase productivity and drive growth.

Topics in this conversation include:

  • How Jeff got into industrial automation (1:53)
  • How large the material handling industry is (4:26)
  • Caution signs to look for when investing in the industry (6:26)
  • Startups (14:11)
  • The development in AI in software (17:51)
  • The micro-fulfillment movement (18:29)
  • The returns process (19:11)

 

Jeff Hedges is an Advisor, Coach, Educator to VC/PE firms & automation companies that specializes in robotic warehouse automation.

Automating The Chain bridges the learning gap between business executives and their technical counterparts. Each episode we learn from CTOs and experts in industrial automation as they explain their technology in an accessible way. For more information, or to subscribe, please visit https://www.automatingthechain.com/.

Share this Episode:

Share on linkedin
Share on twitter
Share on facebook
Share on email

Transcription

Tee Ganbold 0:09
Welcome to Automating The Chain, the weekly podcast and webinar specifically engineered to support and educate executives as they explore the potential of industrial automation. Each week we sit down with an executive leader or their technical counterpart of an international organization to discuss how they plan to leverage industrial automation to advance their business, who also have startups focused on automating the supply chain, explain the technology in an accessible way. Experts in the field will color in historical and current case studies. Without further ado, let’s get into the show.

Hi, Jeff! How are you?

Jeff Hedges 0:55
Hey, Tee Ganbold. Great to talk to you again.

Tee Ganbold 0:58
Great to talk to you. I feel like we’ve been speaking quite a lot lately. You’ve become the person I call.

Jeff Hedges 1:06
Wow. You’re a great— You’ve got a lot of experience, too. You’re great to listen to.

Tee Ganbold 1:11
Jeff, I want to introduce you as the former president of OPEX Corporation. You were president of eight years and really climbed the ranks with quite a lot of experience in developing the commercial side of the business. You have over 34 years in industrial automation, so that’s a lot of time. I have to say, I was not born 34 years ago. I’m giving away my age, but I’d love you to talk about how you got into industrial robotics, what you’ve been doing for the last 34 years, and what you’re doing for the next 34 years.

Jeff Hedges 1:55
How I got into it, man. Let’s see, when I got out of college I had a computer science degree. I ended up working at Syracuse University for their annual giving group or department. Basically, they had a telemarketing operation. Every night, about 200 university students would come in and they would call alumni, as we all get calls from our universities and request donations, right. I ran a group of students that did the statistical analysis and put all the information together because SU had dozens of colleges. The College of Forestry, the College of Science and they each did their own fundraising and stuff. From there, I stumbled into this obscure company in Rochester, New York called Retrotech that specialized in technology upgrades or retrofits for automatic storage and retrieval systems. Basically, I came on board with that background in telemarketing to help them penetrate the industry, and more specifically, identify companies that had the type of equipment that they were looking to provide their services for. So the owners, Rich James, and Len DeWeerdt would spend a day every week with me educating me about the material handling industry. And so that kind of launched my excitement about material handling. But for the path that followed, I’ve worked with a number of companies in the industry—and ultimately OPEX—help move new technologies, new ideas, new companies, into the material handling market and I guess that’s where I flourish: helping companies get started, figure out where their solutions apply, what industries they might want to penetrate, and how to introduce their product to the material handling industry.

Tee Ganbold 4:02
I wanted you to give a bit more context as to how large material handling as an industry and a sector is. A little bit of more context. OPEX had 1,000s of employees and to give a bit more insight as to where you took the company in eight years. And then we can go a little bit deeper into what you’re doing now if that’s okay.

Jeff Hedges 4:27
The industry’s billions of dollars globally. Interestingly that’s a small percentage when you look at automation, it’s a small percentage of the overall warehouse industry. Where we’re seeing these point solutions like AMRs and robots and artificial intelligence entering the market, I see that as expanding the potential within the material handling industry. More affordable solutions that companies that have automated tech can start applying. At OPEX we started with a great idea. They had a product called Perfect Pick. I came on board 2012, it was pretty well-vetted, and we launched it, took it to market, and just had wild success. From the first system to now they’ve got dozens that are installed globally, along with a complimentary product: an item sorter called Shirt Sort. So we really entered the market as a new toy, if you will, kind of the belle of the ball at the first appearance at Pro-Matte, and things just kind of took off from there.

Tee Ganbold 5:37
We have been speaking extensively about where the market’s going, there’s so many opportunities, and we both agreed that the roadblocks and the challenges of investing in the industry could be more informative to anyone who’s investing right now, whether it’s with large corporation— I mean, every manufacturing company, CEO, or CFO is probably looking at investing in robotics. However, you mentioned that giving them insights as to the challenges, what roadblocks they might stumble upon could be fascinating.

Jeff Hedges 6:19
I wouldn’t call them roadblocks. I guess I’d call them caution signs as you move forward looking at automation. Everybody’s bracketing their conversations around the COVID effect. So if you want to look at how COVID— I look at it in terms of what has COVID shined a light on? In terms of things that I think we should be aware of. And I know CEOs and executives are now hyper-focused on how it’s affecting their business, but one area specifically is labor. When COVID hit we had this issue with availability of labor. How do you identify people that want to work in the warehouse environment? Do you offer bonus pay for people to work in an open environment like that that struggles with making sure that your social distancing properly, you’re protecting your employees, you’re investing in PPE equipment and stuff. So all of a sudden labor became a popular issue to talk about. But most of these executives should be aware of the fact that labor’s been an issue for a while. Many, many customers that I worked with in the past have said that, “One of the reasons that we’re looking at automation is not necessarily the cost savings that we would get from applying automation over the labor costs, it’s the fact that we can’t find people to hire and retain.” Labor in warehouses a lot of times, typically has a high turnover rate. You’ve got a large investment in training. Tee Ganbold, I just talked to a buddy the other day who is working with a customer—three PL customers—that told me that they employ 300 people in their warehouse. They had 100% turnover last year. So they hired 350 people for 300 positions within the year. I talked to a buddy yesterday— two days ago that reached out to me and said, “Hey, we’re looking at implementing AMRs. You got any suggestions?” And we talked about labor, he can’t find people to hire. He’s in North Jersey. So this labor issue is gaining a lot of attention. But here’s the interesting thing: The US Bureau of Labor Statistics predicts that as it tracks the availability of workers, the workforce aged under 65, that is projected to steadily decline until roughly 2035 when we reach a point where there are more people in retirement than there are available workers. So this should shine a light on a labor issue that isn’t going away. And then you have the caution that what if we have another COVID-type issue that comes up? How are you going to deal with that? And it directly affects labor. So that then drives this driving or this increased interest in automation, which leads to my other point, which is post-COVID. Many companies, because they have seen 100, 200, 300% increase in their order volumes, even exceeding maybe what their holiday their peak volumes are, there’s this big question about where are my non-peak volumes going to fall post-COVID? Are they going to settle at a higher rate than they were pre-COVID? And everybody seems to be, “Yes, they are.” But nobody’s sure. Is it 10%? Is it 50%? Is it 80%? Well, knowing that distinctly drives what type of automation you might invest in, and so my caution is that we have a lot of companies now that are investigating automation. We have a lot of companies that are executing their plans for automation and a lot of integrators are telling me that they’re killing it. They’ve got backlogs in 2022. But back to this friend that I talked to a couple of days ago, he’s looking at implementing an AMR solution, but it’s a very specific point-to-point delivery solution. If his business were to grow two, three, four, five, or 100%, above what it is, that solution may become not as effective for them, so he might have to invest in something else. So in one sense, “Oh, well, he’s not thinking too far forward.” The other sense is, “He can’t pin down where the numbers are gonna fall, so he needs automation that’s flexible enough to grow with his business as his business is growing, rather than where he thinks it’s going to be in a year or two.” So that introduces the other challenge. Typically integrators, automation companies will work very closely, hand-in-hand with a customer to evaluate their data on their order volumes over the past two or three years. Historical data. And then based on that, we’ll take a projection: “Well, you know, in the next five years we think will achieve this type of growth.” And that can help drive the type of automation solutions that can support that growth. The hurdle right now is we don’t know if that projection is going to be reached in five years or one year. So again, back to the flexibility question, if you reach your projected growth model for whatever you invest in, what’s your plan B? And so the caution is, when you’re looking at automation, you’ve got to ask the question, “If I designed this for x, what happens when I reach x? How do I go beyond that?”

Tee Ganbold 12:35
I love the theme of flexibility, whether it is a robot that’s flexible or a system integrator that enables you to have low code— which is something that a company that is sponsoring Automating The Chain is doing. Flexibility seems like the key word. On the glamorous side of the labor’s discussion, one of the most interesting things is how do we get young people in? Or how do we make this industry attractive again? Seriously. A lot of people, when I say I’m in industrial automation, they look me in like, “But why?”

Jeff Hedges 13:20
What’s wrong with you? How do you make it sexy, right?

Tee Ganbold 13:24
We can see that reaction and I think that behavioral change is going to be getting people excited about something so critical to our global economy or national economy, or regional economy. This is why we’re sitting here today. So let’s move on to the topic of what you’re doing now. So you’ve now got a consultancy firm, you’ve got a huge amount of startups and corporations, but also investors who are turning to you and getting your expert opinion or you’re getting to help them on particular projects. What is the demand you’re seeing? And where do you think that’s likely to grow?

Jeff Hedges 14:11
Let’s talk about startups. I’ve been fortunate to engage in discussions with a number of startups, and the fascinating part is a number of these are in stealth mode, they don’t want anybody know what they’re doing yet. The demand is understanding where their solution set applies. The struggle is I’ve got this great solution looking for a problem type thing, but understanding how their focus, how their art project or science project can be utilized in the material handling industry. It’s fascinating. I talked to some off the charts intelligent people, but a number of them know very little about material handling, and it’s interesting because a lot of these startups are looking way beyond material handling. They want to move into agriculture, healthcare, self-driving cars, apply their AI solutions to anything outside of the warehouse, but a lot of these startups recognize that the application in the warehouses is almost a secure environment. It’s a little more controllable than the real world. So they’ve got great future plans, but trying to help them get launched, introduced, and even beta-tested in the warehouse environment is one of the biggest challenges that they have. The second one is funding, understanding how to present their picture to a group of investors so that they can clearly and succinctly outline what problem their solution solves and where it can play in the marketplace and what the potential growth is. I work with a couple of companies on trying to help them simplify if you will, or more strategically present their message and stuff. There’s gobs of VC and angel investors and private equity investors that are anxious to invest in automation, but what I’m starting to see is a shift from—there’s been a lot of investments in autonomous mobile robots, robotic picking technology—I’m starting to see a shift in interest in artificial intelligence, in AI, almost the brains behind running and controlling all this type of equipment.

Tee Ganbold 16:51
Absolutely. And just a fun statistic: Saudi Aramco has a fund investing a billion into automation, industrial automation. When you hear statistics like that, you know that onshoring is a thing, the industrial robotics is definitely a thing, and every country is trying to secure the future by investing in companies or technologies that are going to enable them to have food security, water security, and so on. These are the trends I hear and also read about. So let’s go to forward-thinking, more optimism. What are you excited about in the next five to 10 years? What keeps you going every single day? What are you excited about in the supply chain automation space?

Jeff Hedges 17:51
So where I’m at right now, and I would say I work more as an advisor, I’m really excited about the development in AI in software. I see equipment like AMRs, robotics, the arm, the cameras, the grippers becoming commoditized. On top of that, the platform level, the intelligence behind driving the traffic control interpretation on vision kind of taken off and bleeding into many other areas even beyond the warehouse. I’m really interested, I’m intrigued with the micro-fulfillment movement. You hear a lot about how it’s being utilized for grocery distribution. I’m anxious for grocery to be a success in that area, and it is, because I think that’s going to quickly fall into adoption by retail companies. Moving into what I call ultra-micro-fulfillment centers, where automation is utilized in a very small footprint, even like a storefront in a major metropolitan area, there are already movements under development to look at that type of application. But then I’m very interested in the returns process. I think micro-fulfillment and ultra-micro-fulfillment will find their best success when they can be bi-directional. So I order something online, it comes from a micro fulfillment center, it gets delivered to my house. Well, what if it’s delivered to my house—which they’re already doing—with autonomous vehicles, whether or not it’s starship or Neo or gatech or all these other nifty autonomous vehicles and little robots? What if, once it delivers your product, it can also accept a return and take that return back to the micro-fulfillment center? Now you don’t have an empty vessel producing no profit, coming back empty-handed. That intrigues me. I think see that being a big—

Tee Ganbold 20:01
Actually, because of optimization of who might want to return in the neighborhood, that could be part of the next stage. Autonomous vehicles could deliver and the next stage is what around the corner could be returned, as you said, most efficiently. Jeff, I think we have to get you back on. Honestly, I’m so grateful for your time and I’m sure we’ll have you back on soon with one of your companies you’re advising. So thank you so much for your time today and looking forward to having you back on Automating The Chain.

Jeff Hedges 20:42
Excellent. Thanks, T. great talking to you.

Tee Ganbold 20:45
Thanks so much for listening! If you’ve enjoyed this episode, please leave us a review and let us know what you liked. To follow along with future episodes, be sure to subscribe on the podcast platform of your choice, or head over to AutomatingTheChain.com for the latest updates. Until next time!