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Sector Insights

Liabilities for automated warehousing and distribution centres

25.02.2019 Trade, Transport

Joanne Waters

Joanne Waters Senior Registered Foreign Lawyer (England & Wales)

The growth in e-commerce has brought the efficiency of warehousing and distribution centres to the fore. Rather than being bottle-necks and costs centres, warehouses are increasingly being seen as an asset, providing opportunities for value-added services and cost efficiencies.

To realise the potential of warehouses to drive efficiencies, more and more companies are turning to automation. Automation in this part of the supply chain can take many forms ranging from simple barcode scanners and RFID tags to completely automated distribution centres with widespread use of machines.  The common features across this range of automation options are:

  • Increased collection, use and management of electronic data compared to a non-automated warehouse;
  • Increased reliance on computers and software programmes;
  • Increased use of non-human operated systems; and
  • Increased use of highly skilled workers to maintain automated systems.

The benefits of automation include increased efficiency, in terms of both costs and time, reduced spend on human workforce, space savings and safer operations.  It is therefore not surprising that some of the world’s largest retailers (such as Amazon, Nike and Coca Cola) all operate automated warehouses.

However, as with the introduction of any new technology, the automation process is not without its risks.  An automated warehouse operator is of course exposed to the usual risks associated with the storage and handling of goods, such as theft, loss or damage to goods and delay in delivery. But automation also brings with it a new range of risks, as follows:

System breakdown

The more reliant an automated system is on a computer programme to manage and coordinate the complex interrelations of tasks in the automated warehouse, the higher the risk to the system in the event the computer programme or computer itself fails.  This could be caused by something as mundane as a power outage and requires companies to implement sufficient back-up systems to allow the warehouse to continue to operate or to restore operations as soon as possible.

In addition, where a smaller element of the system breaks down, such as a section of conveyor belt or a single bot, the expertise required to maintain and repair the system is likely to be different to the skill set of the current workforce.  Automated warehouse operators will therefore need to ensure they employ a sufficient number of high-skilled workers to keep the systems operational.

Interactions between human employees and warehouse bots

Any context in which humans and robots or automated machinery interact brings with it the risk of clashes between those parties, and the risk of potential serious injury to human employees.  These risks can be mitigated to some extent by minimising the zones in which humans and robots both operate and by implementing clear operational safety policies.

Risk associated with increased use of the “Internet of Things”

As ever more objects become connected to the internet, they become exposed to the types of cyber risks traditionally seen in other computing contexts.  Cyber-attacks and breaches of cyber security are on the rise and the introduction of automation in the form of internet-enabled and connected objects potentially increases the areas of vulnerability in a business. Automated warehouse operators will therefore need to ensure that they have in place a clear and complete cyber security policy that is regularly reviewed to ensure it is up to date.

With an increased cyber-risk comes an increased risk of loss of data.  Whilst that could have a significant business impact if inventory and order data were held to ransom or otherwise lost, external risks also exist in the form of regulatory sanctions for loss of personal data.  For example, as discussed in the May 2018 edition of this Newsletter the GDPR regime in the EU exposes companies to significant fines in the event of breaches of data protection rules.

Risks associated with increased use and reliance on technology

Whilst there seems to be a technological answer to most problems these days, the increased reliance on technology is not without its downside.  Both software and hardware are rapidly superseded, leading to a risk of obsolescence once a particular system is installed. Warehouse operators looking to automate their systems will need to carefully consider the costs and ease of maintenance and upgrading of the system to ensure their investment has the longest possible life span. They may also need to expand their workforce to include highly skilled computer engineers, programmers and software engineers to help maintain and upgrade the system as necessary.

Operational constraints

Some automated systems are not yet equipped to deal with a large variety of packaging shapes and sizes.  Installing these systems would therefore require a change in the range of products handled by the warehouse or a standardisation of the packaging of those products.

In addition, certain automated systems such as conveyor belts offer less flexibility once installed compared to a manual warehouse which limits the warehouse operator’s ability to reconfigure the warehouse to deal with a changing customer or product base.  These limits will need to be carefully considered before any investment decision is taken.

Conclusion

As with all new technologies, all of the risks of using them cannot be foreseen.  Companies can to a large extent mitigate those risks by installing back-up systems and redundancy and also by seeking appropriate insurances.  However, current insurance policies should be studied carefully to ensure they offer coverage of the new risks from automation and that certain types of losses (such as data) are not excluded. In addition, companies looking to automate should carefully study the terms and conditions of the manufacturers and suppliers of the automated systems. It is likely that these will contain wide-ranging exclusions and / or limits on liability making it difficult for the warehouse operator to seek recourse from the manufacturer / supplier for losses suffered in the course of operating the system.

Article authors:

Joanne Waters