Intelligrated: The Rise of Warehouse Automation
Warehouse automation has allowed e-commerce businesses all over the world to meet ever increasing delivery demands. Intelligrated emerged as a leader in material handling in the US within a period of 10 years and earned large projects to build distribution centers for Amazon, Walmart, UPS, Adidas, Mckesson, FreshDirect, and many other world-renowned brands.
Intelligrated was founded in 2001 in Chris Cole’s basement and Jim McCarthy’s club where they smoked cigars and worked out a business plan. Intelligrated, a company that offers material handling systems used by a variety of distribution centers that sort and ship goods to retail markets or by online retailers who pack and ship orders to individuals. In less than three years Intelligrated grew to be one of the three major suppliers of high speed automated distribution systems in the United States.
Intelligrated’s Early History
Chris Cole, Harvard MBA class of 1979, managed to grow Intelligrated from a small startup to a power house industry leader in just a period of 10 year. Chris explains that the first year and a half were targeted at development and planning to build facilities, factories, hire work forces, develop the controls, software programs, and core products.
Jim McCarthy, Intelligrated co-founder, helped lay the foundation for lasting success by drawing from his comprehensive experience in the industry. Jim established the customer-first philosophy that remains critical to the company’s approach. Jim also worked to help employees pursue their own innovative ideas, resulting in numerous patents and advancing both associate’s careers and the material handling industry.
Intelligrated’s Growth Strategy
Intelligrated designs, manufactures, installs and supports complete warehouse automation solutions, including conveyors, sorters, palletizers, automated storage and retrieval systems (AS/RS), software and robotic solutions (See Exhibit 1 for video overview of solutions). These solutions increase throughput, optimize distribution and fulfillment processes and maximize productivity. Through a broad portfolio of automated equipment and services, Intelligrated made itself a one-stop-shop for all warehouse automation needs.
Intelligrated conveyors ranged in price from $3 million to $12 million. Companies such as Big Lots, Staples, McKesson invested early on and allowed Intelligrated to show them what they were capable of. The first wave of hiring was of 25 people and in just a few years Intelligrated was up to 500 people. Intelligrated grew its revenue from $38 million in 2005 to $160 million by 2007. However, in 2009 Intelligrated faced significant challenges, due to the economic downturn, in its efforts to acquire FKI, which owned a large manufacturing facility in West Chester Ohio much needed to support the business growth. In our interview, Chris described how banks pushed Intelligrated to fire 80 employees in order to maintain a specific amount in cash reserves, but he managed a deal with a bank that allowed them to keep all of Intelligrated’s employees. Chris, in turn, requested all employees making over $50k per year to take a 10% cut in salary in order to meet the bank’s cash reserve requirements and gain a loan to acquire FKI. Chris promised all Intelligrated employees that they will receive the 10% salary that was held back by the company along with a bonus, if Intelligrated met a specific revenue target for the year. Although three employees resigned based on the temporary compensation changes, Chris said that the rest of the team grew stronger. Finally, Intelligrated was able to exceed its revenue target by the end of the year, and the employees received their 10% salaries back plus a 50% bonus (See Exhibit 2 for video interview with Chris Cole describing the acquisition deal of FKI).
When asked if Intelligrated ever forecasted the growth of e-commerce, Chris mentioned that Intelligrated was the first company to install material handling equipment at Amazon. Furthermore, Chris Cole indicated that Intelligrated was never intended to be a conveyors company, but a company that sells the best possible [warehouse automation] solution to its customers (See Exhibit 3 for video interview with Chris Cole describing the early growth with e-commerce). In addition to its technology, Intelligrated’s customer support made a significant impact to the company’s ability to gain repeat business. The life cycle support team was structured in such a way that a customer could call up and receive engineering support in two minutes or less (See Exhibit 4 for video with Chris Cole describing the customer support strategy).
In 2012 Permira, a European private equity firm, acquired Intelligrated in a transaction valued in excess of $500 million. Permira’s goal was to support the company’s growth plans, including further penetration of its customer base in North America, emerging markets expansion in partnership with its global customers, increased product offerings and global capabilities through investment and selective M&A, and an enhanced focus on aftermarket services. Chris Cole and Jim McCarthy maintained a significant stake in Intelligrated and continued to lead the company.
Intelligrated’s Continued Growth
Intelligrated continued to invest in research and development and create innovative solutions such as soft-touch, a patented divert system that provides high-speed, gentle carton control and divert accuracy by reducing item impact speed by 500 percent on its sliding shoe sorter product Intellisort (See Exhibit 5 for overview of the Intellisort and soft-touch feature).
The continued growth of e-commerce, and customer demands for faster delivery times have created a need for warehouse, logistics and fulfillment solutions. Customers such as Adidas, Amazon and Walmart chose Intelligrated systems to support the growing demand of their online stores. The industry is growing at a double-digit rate, and Intelligrated has had a compound annual growth rate (CAGR) of about 13 percent over the past three years, faster than the industry overall.
A Deal with Honeywell
Safety and Productivity Solutions (SPS) is a strategic business unit of Honeywell that provides products, software and connected solutions that improve productivity, workplace safety and asset performance for customers across the globe. In August of 2016, Honeywell SPS signed an agreement to acquire Intelligrated for $1.5 billion. John Waldron, President of Honeywell Safety and Productivity Solutions, said that Inteligrated’s supply chain automation solutions complement Honeywell’s portfolio of technologies that improve productivity.
Honeywell Intelligrated: Connected Distribution Centers
As the pace of change in modern commerce is putting tremendous pressure on fulfillment operations, such customers as Amazon and HomeDepot require intelligent data driven solutions to predict asset reliability, prevent unplanned downtimes, and gather insights from data. Honeywell combined its sensing and connected software products with Intelligrated’s warehouse automation portfolio to offer the Connected Distribution Center. Designed to make the digital transformation necessary to increase reliability, Connected Distribution Center improve utilization and maximize productivity through insights and predictive analytics from sensors to the cloud. The Connected Distribution Center combines machine level sensors, smart controllers, and connected devices that gather key inputs to deliver vital information on asset health and facility performance in real time (See Exhibit 6 for overview of Honeywell Intelligrated Connected DC). This connectivity not only gives operators end to end access to data, but also provides data driven insights and predictive analytics to prevent equipment downtime, remove bottlenecks and reduce operational expenses.
The array of material handling equipment stacked, racked and running inside e-commerce distribution centers (DCs) is staggering. Each equipment serves specific purposes within a fulfillment process, yet the systems that run the equipment are interdependent. A disruption or malfunction in any of these critical components can cascade into consequent operations and impact the overall process of a distribution center. Next-generation warehouse automation systems will require machine learning, algorithms, and AI to make real-time automated decisions about storage allocation, routing of packages, order prioritization, and preventive maintenance.
In order to remain a global industry leader Honeywell SPS and Intelligrated executives need to consider the impact of potentially disruptive technologies and architectural innovation changes in the warehouse automation industry. What does the future of warehouse automation look like with the development of Industrial Internet Of Things (IIOT), machine learning and AI? Will dark warehouses, fully automated lights-out facilities in which human input is limited, dominate the future of supply chain?
