Robotics & Warehouse Automation 24th May 2021

Warehouse Automation Vendors Focused On $4bn After-Sales Services Market

Jason Depreaux
Jason DePreaux

Jason has covered a wide variety of industries in his 10+ year market intelligence career, including power, mobile, data center and healthcare technologies. At Interact Analysis, Jason is focused on expanding our robotics portfolio as a principal analyst in our Robotics and Warehouse Automation team.

This month Interact Analysis released the first detailed assessment of the after-sales services market for warehouse automation installations.

A large and growing opportunity

Warehouse automation services, also commonly referred to as after-sales services or lifecycle services, generate revenues from automation projects following their commissioning. Like any complex digitally controlled electro-mechanical system, automation equipment requires regular attention and maintenance to ensure its smooth continued operation. Services are, in combination with product quality, a way to maintain and enhance its standing and value in the marketplace. Moreover, profit margins on service often tend to be higher than those derived from the sale of the hardware.

Our latest market report found that $4.3 billion in revenue was generated from after-sales services by OEMs and Integrators in 2020. This includes remote services, on-site services, spare parts, and modernizations/upgrades. Accounting for customers that perform service in-house or outsourced to third parties, nearly $5 billion in additional servicing potential exists within the industry, suggesting ample prospects for growth.

COVID-19 affirms the significance of services

Whereas business from warehouse automation projects tends to have a degree of volatility from year to year, the service business has demonstrated a steadier pattern of growth. While automation warehouse order intake was up, a slight revenue contraction stung the hardware market in 2020 as large capital expenditures were put on hold with the onset of the COVID-19 pandemic. In contrast, the service business remained buoyant as much of the revenue stream is recurring in nature and system-critical maintenance continued to be performed.

As the installed base of automation projects increases, so too will the service opportunity. Moreover, the complexity of systems, increased cost of downtime, and dynamic customer requirements make regular service and upgrades more critical. We forecast that the global service market will average low double-digit growth through the next five years and reach $8.7 billion by 2025.

Comparing OEM/Integrator to Automation Hardware revenue

Business models are evolving to meet customer demand

So critical is the provision of ongoing troubleshooting, repair services, and spare parts, that virtually all OEMs/and integrators offer some form of lifecycle service. The development of that service capability beyond the basics depends on the maturity of a vendor’s installed base as well as a significant investment in manpower, training, and organization. Each step in the evolution provides additional revenue opportunity commensurate with elevated financial risks and human resource challenges.

Diagram of Evolution of Automation Services

A La Carte Services – make available a variety of service options which customers pick and choose either on a contract or ad hoc basis. Vendors may provide price incentives through service bundles or contract offers. There may be some flexibility regarding geographic proximity if air travel to customer sites is a convenient possibility.

Full Service – provides the same basic services as an a la carte offers, but with the major distinction of guaranteeing service response time and/or system uptime. In doing so, the service provider assumes a level of risk: penalties may be incurred if there are delays in service provision, causing unnecessary down time. Geographic proximity to the customer site becomes more important in meeting these agreements.

Resident Maintenance and Operations – in providing full time staffing to maintain and/or operate the automation equipment, the service provider must have direct presence at the customer location and assume all the challenges of recruiting, hiring, training, and ensuring a constant presence at the customer location, in some cases with an onsite HR representative.

Warehouse Operations – is the logical extension from resident operation, though currently only reserved for customers of the largest projects. Full warehouse operations (in essence providing some of the services of a 3PL) are being offered on a limited basis by micro fulfillment providers like Fabric.

Hardware-as-a-Service – is a model that has some popularity in the Autonomous Mobile Robot (AMR) industry to lessen the barrier of adoption of this relatively new technology. However, there is still a strong desire on the part of customers to own large capital asset, and a resistance by vendors to “become the bank” for customers. Nevertheless, automation providers are now considering how a “pay-per-use” combing the equipment sales, service, and operation, might be received. There are likely to be trials of this model in the next 1 to 3 years as the customer base seeks to offload risk in the face of uncertain future demand. Should this become a reality, the lines would forever blur between new business and aftersales service.

Overall, the outlook for warehouse automation services is extremely positive. A growing installed base presents additional opportunity for integrators to attach service. At the same time, the increasing size and complexity of projects will favor the specialized expertise of the incumbent installers. We can expect to see core maintenance and repair service offers augmented with more operational capabilities in the future to address changing customer requirements and bolster recurring revenues further.

This article features findings from Interact Analysis’s new research report, Warehouse Automation Services. For more information, please click here.