Automation: TGW moves from cost cutting to growth

There’s an interesting discussion going on inside business today. After four years of cutting to survive, is it time to begin investing for growth?

Yes, there’s a lot of uncertainty around rising gasoline prices, an upcoming presidential election, European banks and whether the employment picture will continue to improve or sputter. Still, many companies are asking whether enough is enough. “Many companies have cut costs to the point that if they do more, they’ll save their way out of business,” said John Clark, director of marketing for TGW Systems.

Clark and I had a chance to talk about materials handling automation at TGW’s North American office in Grand Rapids two weeks ago. For the most part, I talk to solution providers on the telephone or visit them briefly at trade shows. This year, I’m attempting to get out of the office so I can learn a little more about the industry leaders. That led to a day in Grand Rapids visiting TGW, Dematic and viastore. I’ll write about my visit to viastore next week.

Walking around TGW’s shop floor, where workers assembled conveyor systems as we watched one of the company’s mini-shuttles in action, Clark said he thinks that mindset is beginning to change. “Companies are buying systems,” he said. TGW’s name change from TGW-Ermanco to TGW Systems at last year’s ProMat was meant to reflect that shift from buying products to buying solutions. In fact, TGW announced a 34% increase in global revenues for 2011. I was followed into the building that morning by a contingent from a consulting company and an end user who were considering an automation project.

What’s changing the mindset? Clark attributed it to a couple of key points.

Customers are become more intelligent: “We’re a global community now,” Clark said. “End users can easily see what’s going on around the world and Asia and they’re asking if the same kinds of automation can help them too.”

There is less perceived risk: As the number of installations worldwide increases and software improves, automation systems are more proven and reliable than in the past.

The ROI from technology has changed: As the cost of technology has come down, “you can now get an ROI in 18 to 24 months on some systems,” Clark said. He added that companies taking a holistic view of their supply chain are justifying their systems beyond what is happening inside the four walls. “They’re asking if there are savings on reverse logistics or savings on labor in the store by shipping store ready pallets and counter displays,” Clark said.

Automation is breaking into the 3PL market: As 3PLs take on more challenges, like direct to consumer order fulfillment, a combination of shorter ROIs and longer contracts are putting automated materials handling solutions in the reach of that market.

How then is TGW adapting to a growing market. “We saw a lot of interest at ProMat last year and at Modex,” he said. “We’re being invited to bid. Now we have to close the deal.”