Will companies get their fingers burnt for betting too big on automation?

A fire at online grocer Ocado's warehouse sparks debate about the steady rise of automation

Mandatory Credit: Photo by Peter MacDiarmid/REX/Shutterstock (10107227b)
As the ruins still smoulder aerial photographs show the fire damage and the remains of the Ocado warehouse in Andover after the fire was mostly extinguished. The fire raged for three days starting a week ago with 300 fire fighters tackling the blaze at the giant robotic warehouse.
Ocado warehouse damage revealed, Andover, UK - 14 Sep 2017
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The Andover fire brigade was alerted at 2.34 am. About three kilometres across town, a fire had broken out in the early hours of February 5 at a state-of-the-art Ocado Group warehouse. Within minutes, firefighters were tackling a blaze that eventually reduced the five-floor facility in southern England to a tangle of smoking metal.

Later that day, Ocado executives presented quarterly earnings in a conference room in London. Chief executive Tim Steiner touted the virtues of the company’s robotic warehouses, laying out plans for Andover. He didn’t mention the fire, which raged on for three more days.

Tim Steiner, chief executive officer of Ocado Group Plc, leaves following a news conference in London, U.K., on Wednesday, Feb. 27, 2019. Astronomical share price expectations for online grocer Ocado Group Plc are in regular need of fuel, so Wednesday's announcement of a deal with Marks & Spencer Group Plc couldn’t have come at a better time. Photographer: Chris J. Ratcliffe/Bloomberg

For Ocado, the blaze was a reminder that the march of automation has a sting in the tail. Machines may be efficient and safe workers, but their environment isn’t designed for human intervention when disaster strikes. The financial repercussions can also be worse if a retailer’s risk is concentrated in a few expensive warehouses rather than hundreds of stores.

“There is a physical, configurational challenge about some of these places if something goes wrong,” said Jonathan Reynolds, academic director of the Oxford Institute of Retail Management. “There’s a gradual growth in understanding the implications of automation.”

Ocado is not the only e-commerce provider to suffer from such incidents. Fashion brand Asos has had three warehouse fires since 2005.

There's a gradual growth in understanding the implications of automation.

The online grocer said on February 5 that the fire started in what is called the ambient grid, where food is stored at room temperature. A spokeswoman declined to comment further on the cause.

The blaze began high in the warehouse and was so difficult to reach that firefighters had to cut holes in the roof, according to Neil Odin, chief officer at Hampshire Fire and Rescue Service. A sprinkler system only contained the fire in its early stages. It took more than 200 people to quell the flames.

The 22,000 square-metre Andover facility was the first of its kind when it was built in 2016 and was designed to encourage other retailers to partner with Ocado to improve their online deliveries. The site filled about 10 per cent of Ocado’s orders and revenue growth is expected to suffer until capacity can be increased elsewhere.

FILE PHOTO: Robots operating on the grid of the "smart platform" at the Ocado CFC (Customer Fulfilment Centre) in Andover, Britain May 1, 2018. Picture taken May 1, 2018.  REUTERS/Peter Nicholls/File Photo

Ocado has secured lucrative licensing deals with Kroger in the US, Casino Guichard-Perrachon in France and other grocers thanks to the technology. Kroger is pressing on with its tie-up, naming two locations for new facilities with the UK company’s software. Last week Ocado added a nearly $1 billion investment from Marks & Spencer Group to form a grocery-delivery joint venture.

Ocado has shared information about the cause of the fire with partners like Kroger and M&S, and the companies aren’t deterred, Mr Steiner told reporters at a London briefing last week.

“We are not concerned that there is a fundamental issue with the design,” the chief executive said. “Will we learn lessons from it? Of course we will. We always learn lessons from our mistakes. Can we improve things and make sure things are safer in the future? Yes. But there is no issue there.”

The burned warehouse featured 17 stacks of crates and a grid at the top where more than 600 robots fill orders in seconds. That’s about the same size as the unit’s workforce of humans, some of whom operate below the network, bagging orders.

Automated warehouses are generally taller and narrower than more traditional facilities because there’s no need for people to move between floors and it saves on rent, according to George Lawrie, an analyst at Forrester Research who advises retailers on technology to make their businesses more competitive.

The £45 million Andover facility was on the outskirts of town, but in the future warehouses will be closer to city centres for quicker distribution, he said. Ocado is already testing a service to handle one-hour deliveries from smaller urban sites.

“The fire service needs to think ahead about change and how risk develops,” said Matt Wrack, general secretary of the UK Fire Brigades Union. “There’s a big debate about automation which suggests these sorts of premises are going to grow in number.’’

Automated warehouses aren’t new. Amazon uses more than 100,000 robots in its distribution centres worldwide. But Ocado has advanced the concept, and it sees itself as more of a tech company than a grocer. It has created its own infrastructure, technology and software, including robotic arms that can pick delicate items such as fruit and vegetables. The tie-up with M&S will allow it to focus even more on technology.

(FILES) In this file photo taken on February 10, 2019 a delivery driver returns empty crates to his Ocado delivery van after supplying a residential address near Liverpool in north west England. UK retailer Marks and Spencer on Wednesday announced a deal with online supermarket Ocado to deliver M&S food direct to homes, as customers increasingly move to internet shopping. / AFP / Paul ELLIS

Fire damage at online retailers’ sites can be costly. Asos halted distribution for more than a month in 2005 after an oil depot explosion set one of its facilities alight in southern England. Another blaze in 2014 stopped orders from a different UK site, costing it as much as £30m in lost sales. Police considered the cause of the second fire to be arson.

A fire at an Asos facility near Berlin in 2017 ruined inventory worth about £6m, though none of the technology or structure was affected. A spokesman declined to comment on these fires.

Machines are increasingly creeping into retail as consumers demand convenience, cheap prices and quick delivery. Swedish apparel chain Hennes & Mauritz automated a logistics centre in Poland last year to increase capacity and speed up deliveries across Europe. Inditex’s Zara has even used robotics to place garments straight into shoppers’ hands in its flagship London store.

Robots may eventually become so advanced that they can douse flames themselves, according to Mr Lawrie at Forrester.

“If they are sufficiently smart to be able to pick the produce, I’m sure they are quite smart enough to fight a fire,” he said.