McKesson Corporation (MCK) Earnings Call Transcript & Summary

Good morning, and good afternoon. Welcome, everyone. Thank you very much for joining us today for Reuters Events webinar in partnership with Locus Robotics entitled How Automation Can Hold the Key to Increased Efficiency for Health Care Fulfillment. I'm Paddy Le Count, the Product Director here at Reuters Events. And today, I'm joined by Todd Kleinow, the Vice President of Strategic Distribution and Operations at McKesson; Jim Adkins, the Vice President of Engineering Services at AmerisourceBergen; and Jett Chitanand, the Director of Health Care and Medical Device Segments at Locus Robotics. Gentlemen, thanks very much for joining us here today. I think for the audience's benefit, if we could quickly go around the room and just do a fast intro on yourselves and your companies. Todd, we'll start with yourself.

Thanks. Todd Kleinow. I'm the VP of Strategic Distribution with McKesson Corporation. I've been with this company for 33 years. My current responsibilities, or a portion of the responsibilities, are looking at a long-term view of our pharmaceutical distribution network and 10 to 15 years out, what do we need to do today to be prepared for the future. That includes robotics, material handling, automation, large capital expenditures, things like that.

Great. And Jim, yourself.

Thanks, Paddy, and thanks for the invite to participate in the panel discussion. And hello to everyone that was able to join the live webinar today and those that might be listening to the recorded session. I'm Jim Adkins, and I'm the Vice President of Engineering Services for AmerisourceBergen. The Engineering Services team at AmerisourceBergen consists of a few different verticals. I'm not going to spend a lot of time on any one particular one. But facility and distribution engineering, those are the folks that really kind of assess capacity and throughput and new technology for the company. Warehouse automation is some software and controls engineers that help support that equipment. Asset management, reliability engineering, formerly known as maintenance, and there's a reason that we recently rebranded that team and a lot of it kind of ties into what we're going to be talking about today. And then facility services and network optimization. I've been with the company for 18 years, and prior to that, I was a consultant with Sedlak Supply Chain Consultants. All told, I've been in the supply chain automation industry for about 28 years. And for those that don't know, AmerisourceBergen is one of the largest pharmaceutical wholesalers, and it's really the core of our business. And what that means is that we partner with pharmaceutical manufacturers. We buy products, take that into inventory and then sell and deliver those products safely and securely to customers such as large health systems, physician practices and pharmacies.

Fantastic. And last but not least, Jett, yourself.

Good morning, everyone. I'm Jett Chitanand, Director of Health Care and Medical Device Segments at Locus Robotics. We are an autonomous mobile robot solution provider that help increase productivity and reduce warehouse operating costs using autonomous mobile robots within the 4 walls of a warehouse. I specifically work with medical and pharma distribution companies, health systems as well as medical device and medical supply companies and really help them to solve inefficiency problems in their warehouses using robotics automation. I've been in the industry for around 15 years, and I'm happy to be on this panel and looking forward to the discussion.

Fantastic. Well, as I said, thanks very much for sharing your time with us today. And well, let's get into it. Just a few bits of housekeeping for the audience. We want this to be as interactive as possible. So please send your questions into the panel via the [ response ] function here in this software, and we'll look to get to those throughout the hour as well as some polls that we'll be running. I'll be sending one of those off in the next minute or so, and we'll look to review that before the first half hour and then we'll do another one in the second half. So make sure you get your answers into those, and we'll see what the panelists think of the responses. Well, without further ado, let's get into the discussion.

Maybe if we start with quite a broad -- it's a reasonably broad topic, this one. We want to get into some of the specifics on it. So we start there, and we can then go small. Jett, let's come to yourself first. What are the key benefits that you see and obviously that you're looking into, to discuss with people the key benefits to operational efficiency and flexibility that can be provided by autonomous robotic systems that obviously are the subject of today's discussion?

Yes. Absolutely. So finding and retaining labor, specifically associates in the warehouse, has been a challenge over the past few years and continues to be so, especially with the rapid boom in e-comm and just in general also over the last year. So robotics automation systems enable increase in operational efficiencies by having a small number of workers fulfill a higher volume of packages and make sure that they're shipped out on time. But it also changes the daily activities and routines of workers, shifting human resources to more productive tasks. So this, in turn, sort of boosts the overall operator productivity significantly. The second part is that there are flexible automation solutions like, typically, autonomous mobile robots that can grow as the business grows or shrink if the anticipated growth is not as much as what was anticipated. So all in all, to give you an example, was working with a customer and they were projecting around 150% increase over the next 18 months. And they really were looking for something that was really flexible and that could grow based on their growth. So to kind of top it all also, not only do robotic solutions provide flexibility and benefits through operational efficiency, the data-driven analytics give you the ability and the visibility on how the business is performing in a whole -- as a whole and what needs to be done to make sure it performs even better moving forward.

And Jim, obviously, a slightly different angle that you're approaching the software from. But what are your key areas and where do you see the benefits?

Yes. I think that there's so many automation options out there today that companies really need to focus on what is their business case for automation. A company that's doing 1,000 lines a day with 10 people is going to have a much different solution than a company that's doing 500,000 lines a day with 300 people. So I think part of what needs to be done is that each company needs to really focus on what's the driver for the automation. And honestly, if companies don't have the capability in-house, it might be worthwhile to get an independent consultant to help with that because there are a lot of options out there. There's autonomous robots. There's AS/RS systems. There's automated picking. There's robotic arms. There's plenty of toys to choose from, right? It's just really determining which one is right for your business. I mean some of the obvious business cases are ROI. How can I reduce headcount? How can I get more efficient, get higher throughput out of my facility, higher order accuracy? And a lot of these systems are really good at doing that. They bring the product that needs to be closer to the pickers, closer to the pickers that eliminate steps, which means that people are more efficient. Some of the other drivers could be space utilization. There are systems out there that stack tubs of product in a cube and make really great use of space. And then there's maybe some that are maybe not so obvious. Security. A lot of these systems, these AS/RS-type systems maintain security of the product. It's only brought out when someone's picking it, and you could monitor where that's being picked. And another big buzzword now in the industry, and it's not really a buzzword, is environmental and social governance, right? Companies, investors, customers really want to know what companies are doing to keep people safe. A lot of these systems prevent people from having to do the stretching and the lifting of heavy products. And then sustainability is another one. Are you investing in a system that's going to help reduce your carbon footprint? So there's a lot of different options to justify a system. I think it's really important that companies understand what their goal is and then how they could layer in automation to help them achieve that goal.

And Todd, you want to share thoughts?

Yes. Some great answers there. You guys touched on the high points. I'll tell you, I'll focus in on one and it really is around people. It's -- I think with COVID, it might have accelerated some things. But in our space, it's very difficult these days to find a qualified warehouse worker that really wants to show up on a Sunday night and work until the work is done and whatever time that might be in the morning. And what I typically do is I'll ask folks, those of you with kids out there, put your hand up if you want your kids to be working in a warehouse at McKesson Corporation. Not too many hands will typically go in the air and totally understandable. It's a monotonous job. It, in some cases, leads to wear and tear in your body. It's -- as I mentioned, it's night shifts. It's walking on concrete floors. And we look at automation and other ways to do work as a way to alleviate a lot of that, increase productivity, increase quality, remove some of the monotonous labor that just goes into it, maybe use a person more for the brain than the brawn. And we've had great success with that. And as Jim pointed out, we don't -- we deploy it where it makes the most sense. Our range of distribution centers, maybe what I'd call a manual distribution center with some level of conveyor and things like this, some level of sortation to what I consider to be a highly automated facility, depending on volume and the markets we're in. So not -- there's not one size that fits all when you're looking at solutions to help you in those areas.

That brings us, actually quite nicely, to my next question, which focuses on where these increases in robotics or automation, as it may be, can have to be -- to maintain and increase the productivity of your workforce and ultimately, as you mentioned there, Todd, to deliver value-added services to brain, not to brawn. And specifically to Jim and Todd, but Jett, jump in, there are kind of key specific areas, to develop on from what you said there, Todd, that you look at as key areas that you need to be developing with that in mind.

For us, specifically where we're looking -- we're definitely, in the highest volume distribution centers we have, we -- our order window -- I've been in the company, like I said, about 33 years, and the order fulfillment window that we have is about the same over those 33 years. You come in about 8:00 at night, and you leave about 5:00 in the morning, somewhere in there. That window is still about the same. So what -- the difference is we're doing 20x the volume in that same period of time. So we have to find ways to be extremely efficient in that window, so that we get the orders out the door in the morning and delivered to the customer ultimately in typically the a.m. hours of the following day. So with that compressed window, in many cases in some of these distribution centers, it's not putting more people on it. You just physically can't. It -- has to be other ways to do it to make it more efficient. And then if you look at the value of what we ship in pharmaceutical, it's not uncommon to have 6-figure totes -- plastic totes [ of 600 ] with $0.5 million of product in them. We have to be extremely high quality to ship this product. And we have to find ways to do that also, again, at that same high level of speed whereas -- typically, speed equates to a little less quality. We can't sacrifice quality at all. Whatever we make up in speed, we'll throw out the door in quality. And then for us, too, there's some upcoming regulations around basically DSCSA regulations that require us to have a -- track each piece of product as it leaves our distribution centers and report where that's going to. And there's ways to do that manually, and we'll probably utilize some of those ways. But we're also looking to find solutions that will allow us to do that at, again, a high rate of speed using vision-type technologies to capture that information before it leaves the facility. Our hope, and fingers crossed, that technology will continue to proceed prior to 2023. We're getting there now, but we do have ways to go. That's another area that we're really focused in is what types -- different types of vision technology are out there to help with that. Data capture.

Yes. And I'd piggyback a little bit on what Todd said. A lot of it does determine -- or is determined by the order window that you have. And I know for myself, I had toured some facilities in Europe, and I knew that these facilities did maybe 20,000, 30,000 lines a day. And I walk in, I'm like, whoa, you've got a lot of automation in here. Why is that? "Well, we do 7 or 8 deliveries a day, too." So the customer could literally order 6, 7, 8 times a day. So they're delivering to that same customer every hour. So they just don't have a lot of time to process those orders. And similar to us in the States, like Todd said, I mean, we normally have an 8- to 10-hour window to process orders. If we had 24 hours, I think, again, that opens up more of a range of possibilities of automation that could help us. But we have to be very fast. We have to be very efficient. And to Todd's point, the quality has to be top-notch. And inherently, with some of the automation, the quality suffers. If you have robot arms picking and dropping product, for example, you might have more damaged product. But that's something that you need to manage through and find ways to mitigate those issues.

Great points and agree with both of them. Several factors that come to play, right, not only accuracy, but the geography of where the product needs to go. I would say that, just to add on to that, tasks that definitely take the bulk of your time -- and somewhat to Todd's point and also to Jim's point as well, I think the bulk of your time in the operations should be something that a lot of companies do focus on or they'd need to focus on but they're not, because that's where you're going to find the most bang for your buck in terms of deploying automation solutions, be it a robotic solution, be it some other type of automation solution. That's where you'll see the most change and the most benefit not only in terms of qualitative benefits, but also in terms of the ROI, be it picking or put away or sortation. And then to add on to that, a lot of automation does come with a, at least, a good sense of visibility into what was picked when, at what time, by which operator. And as the regulations come into play where we have to have like serialization requirements across the board in the pharma industry and also, which is already the case in the med device industry, you have -- having that ability to be able to track, sort of the life cycle of the product from when it was manufactured to when it was picked in the distribution setting to when it goes out to the patient is critical. And innovation in that regard is being made by several organizations, and that's also key to maintaining the integrity without having the quality to suffer.

Looking at the results then of this first poll that we've run with the audience, asking sort of what's the biggest drawback to increased automation in operations. Without going through the huge specifics of it, to save everyone some time, the 2 that have popped in at the most, sitting at about 30% and then 25%, are the initial cost and process change management. Probably not a surprise to anyone listening in now on this panel, but those are the 2 areas. But yes, these are challenges that exist for a while. It's becoming more accessible and we're seeing more use cases. But how do you -- I mean, Jett, if we start with yourself, how do you sort of react to those being the 2 biggest drawbacks that people initially [ popped out ] when we obviously talk about these conversations?

Yes. No, absolutely. I can certainly touch on the cost aspect of it first and then talk about -- when we think about automation, there's different levels of automation. And to Jim's point, there's different levels of automation that are right for different types of warehouses, right, and where they are in their overall journey. So the first one would be, I would say that one of the innovative ways that we are actually working and that has been working in our favor is offering something called as a robotics as a service sort of an offering, which is, for lack of a better term, a lease. So you don't necessarily need to purchase the capital equipment outright, so it doesn't go in as a capital expense but more as an operating expense where you're -- instead of having to pay for labor, you are essentially paying sort of your robotic systems that lease month-over-month. And that really helps in not only justifying the cost, but also keeping the cost down and making it so that it's easy to enter into the foray of automation, at least the one that's applicable and relevant to what we do. And that's what we've seen to be as a very successful model, and that lends itself well. And also in companies that see -- that observe peak periods where you have more picking being done. Obviously not so much in the health care industry, but in other industries, you would have peak periods. So they can add more robots for that amount of time and then take them back. So that makes it an easier sell, and it also makes it a good entry into automation. And in terms of process improvement or change management, there's always going to be that little early learning curve as to the way you're doing things right now as opposed to if you get a new system and you have to sort of work with the system and grow with it. So that's always going to be the case. It just -- what I'd like to say is you need to crawl, walk and then run. And along that way, you're going to find issues or problems or something that you haven't really noticed or thought about. Those things are going to come up. But essentially, to mitigate those, you definitely need some -- you definitely need to focus more on training and be true to the process as you move along and stick to it as much as you can so that it makes it easier for you in the long run.

Yes. And I think to Jett's point, the autonomous robots and that robots as a service is a great entry for folks where it makes sense. I mean you generally don't see AS/RS as a service, right? That's something big. It's very difficult to expand, but that's a good fit for some folks. Now there's lease buybacks that you could do to conserve capital and move that to the expense line. But from my perspective, the process change, a lot of these systems make it so easy for people to do their jobs that, that learning curve, in a lot of cases, isn't nearly as steep as what people think. I know the first time I personally saw a goods-to-person system, it was at a cosmetics distributor up in Canada, and they just let us walk up and start picking orders. We didn't have any training. We just started picking orders. It was that easy. And one of the gentlemen I was with said, "Look, it's like playing a video game." I'm like, yes, kind of is. I mean that's the beauty of these systems. Most of them make it really easy for people to adapt. It's not like you're having to learn code on a handheld unit, an RF unit. I mean the robots, we have lights that will shine on product, pick this, put it there. So it does make it fairly easy.

Yes. You always got -- thinking through the safety aspect. I mean some of the work we do, I wouldn't necessarily call pharmaceutical distribution super heavy wear and tear. It's typically lighter product, but it's the amount of walking, the travel time, all those things like that come into play. And it does break down a body over years. And if you can find ways to eliminate some of that travel time, a little -- as Jim was pointing out, they get a little more easy on the person. That's where it's going to pay dividends. So for us, one of our key tenets is around safety also and how we can help improve that going forward. And I've had people walk up to a goods-to-person station and never picked an order in their life. And within minutes, they're picking at basically a decent productivity rate. That would never happen in a fully manual environment. So those things, I think, just got to take into account the full ROI when you do the math. And maybe some of these automation companies out there can get creative with how they lease your units in this and that, putting on expense line versus coming up with a $20 million capital expenditure, which that's tough on probably most companies out there.

Definitely. Just to kind of add to that, yes, that sort of feedback we're also getting in terms of how easy it is to pick. And one of the other feedback that we also usually get is towards the end of the shift, operators who are either pushing or pulling carts, their productivity, just in general, tends to decline because of the wear and tear, to your point, where you mentioned. And people tend to get -- you get sore arms and feet. And you're walking for 7 to 12 miles in this distribution center, there has to be some dip in productivity and also in terms of the overall health and well-being of the employees. So a lot of these automation systems, including ours, help in alleviating that pain to a very significant degree.

I want to touch on something that you've all just mentioned initially by yourself, Todd, and echoed by the others. Higher volume, same time frame to deliver it. We've seen quite a lot of disruption, [ as you said, ] at least in the last 15 months, let alone the last 15 years. But if we look maybe going forward, with increasing speed, increasing potential fluctuations in demand of products, what do you -- what does the panel here kind of envisage as where that might go in the coming sort of 12, 24, 18 months -- 36, rather, I mean, bad math? Sort of what might change that? Is there a way that, that is going to be different? As you said, we're doing more in the same amount of time. What factors are going to generate the need for more speed, for more efficiency, specifically -- obviously in the health care space?

Yes. I could start a little bit and tee it up. I think in our world, the next 18 to 36 months isn't going to be much different. I think it's going to be about the same as we're doing today. But as we look forward 10 to 15 years, I think the graying of the population, the aging population in the United States is going to continue to grow the need for pharmaceuticals. I think pharmaceuticals are maybe going in a little bit different direction towards like the biotech space and things like that, specialty type drugs. So yes, we're doing things in those spaces now, too, that we see that ramping up. The vaccine -- COVID vaccine was a classic, how can we race to get that delivered and put out to the United States as quick as possible. I think that may be something that's a bigger play going forward, too. But we look at our business as -- we feel that, as I mentioned earlier, it's going to be more difficult to find people to do this type of work going forward. We believe that our volume 10 years to 15 years from now will be more than it is today. We believe that the idea of we always want to be more productive, we always want to be -- put more profit to the bottom line, we want to always going to have high quality. We see our business changing but not just flipping it on its head. So the investments we're making today are -- they're strategic investments. We're putting it in places where -- this population growth. We're not necessarily going to put the same size -- same type of distribution across the country. It's going to be in those places where we think the future is going to need that type of investment. So I think being -- I think for us anyway, looking out that 10- to 15-year mark is about right of what we want to do and make the investments today to keep us viable for that period of time.

Yes. And I would agree. I mean I see growth in the market but not necessarily major changes that are going to drive the way we do business. Probably the biggest thing is going to be regulatory. Todd mentioned DSCSA. I mean that has a huge impact for pharmaceutical wholesalers, and who knows what it's going to be in the next 5 or 10 years that can impact how we do business. I think from my standpoint and from my point of view, I think one of the things that is a little different now than when I started in the industry is SKU proliferation. We're seeing -- we used to be very flat on SKUs. If we got rid of 10 SKUs, we'd add 10 SKUs. Now I see where customers are wanting more, right? They're wanting us to provide more OTC-type products, and we're having to find the way to accommodate those. And when you have more SKUs from a fluctuating demand standpoint in a manual DC, if you want to be efficient, you have to consistently re-slot, right? And that's very manually and time intensive to re-slot product, take your cough and cold that was in the back of your pick aisle and bring it up to the front because it's cough and cold season and then take it back. A lot of these systems help with that because they're able to kind of re-slot the product for you. Again, they're using data-driven solutions. They'll do it for you in a lot of cases and help drive some of the efficiencies there. But yes, I think to Todd's point, a lot of what we look at is just how we continue to get more efficient in the world that we live in today until the next curveball comes our way.

Completely agree with both of you. If there's one thing -- especially over the past year, if there's one thing that the pandemic has sort of taught us is to be ready for change and be more resilient. So to kind of give you an example of one of our customers, so they have several segments. And essentially, the disease or the conditions that they were treating could be treated by a medical device, also by a pharmaceutical. So they saw a lot of shift in that -- in one of those segments where people tend -- last year, especially as COVID hit, they tended to use more of the pharmaceutical to treat the similar condition that a medical device would be doing. On another hand, they also have another segment that would treat acute respiratory symptoms using a medical device. So you can imagine the demand for those types of devices went through the roof. So they had this real challenge where they had to pivot in terms of which segment to focus on in their business. And really, what they found is having automation really helped them be flexible in terms of re-slotting the product, moving some of the robots to another area or a combination of all of these. But more and more, what we're seeing is as companies move along, a lot of them are having automation as part of their strategy moving forward, looking into 10, 15, 20 years and how they can leverage newer technology to make sure that they are on top of any type of situation they come across. And that's usually, to both of your points, what I've seen as well.

And I think one of the next questions I'd like to move on to is focused at maybe what the last 15 months has exposed. As you've said, be ready for change, anticipate the future in line with metrics that you can tangibly -- [ intangibly ] follow. But from a distributed viewpoint and also, Jett, your insights, too, what are the biggest vulnerabilities to health care supply chains that have been exposed within the health care supply chain operations over the -- because of the pandemic's impact specifically, where we see -- they don't necessarily have to relate straight back to automation, but where have you seen those vulnerabilities being heavily emphasized recently? Jim, why don't we start with yourself?

Yes. I think many of the vulnerabilities were pretty public, right? Lack of inventory probably being the biggest. PPE equipment was no different than toilet paper when the pandemic hit and it was considered a global pandemic. People started ordering in larger quantities than they ever had before. We normally distribute between 4 million and 5 million items a day. And we went from distributing I think it was 4.3 million items on March 12, the day the coronavirus was declared a national pandemic, to nearly 6.5 million on the 15th. I mean that's nearly a 50% increase. I don't think anybody is really prepared for that. The automation certainly helped us in that regard. But in some regards, it hurt as well. A lot of automation solutions are limited by the equipment that you have. So whether it's autonomous robots or it's a goods-to-person, pick station, you're mechanically limited. There are some solutions to get around that. But I think that was probably one of the biggest things that we've learned is just to be ready for anything. I think, by and large, I think the pandemic exposed how resilient and strong the supply chain is. I mentioned the 50% increase. I mean we had some late trucks, unfortunately, but the product got out ultimately. And we really -- we could tout the automation. But at the end of the day, that was our people, that was our front-line workers being there, working 12, 14, 16 hours a day to get that product out. So I think, by and large, I think it's really exposed how resilient and strong the supply chain is.

Yes. I agree. Hats off to our front-line folks. They came through in a big way. I'd also say McKesson's done a real nice job, probably like a lot of companies did. We got on this early and did a lot of preemptive things to keep our distribution centers as safe as possible: temperature taken on their way in the door, masks, air exchange, airflow, all the things that basically help to do this. And we also found, too, with automation that, that social distancing aspect, when you're not pushing 30 people down a pick line and you can spread them out with automation and where you might have a person that goes to the first station then another 10, 15 feet away is another person, that helps the situation. And I think across the board for us, with COVID, we recognized right away that our volume is similar. Our February, March last year was -- usually, the end of the year is a pretty big year -- pretty big finish for us, and it was a mega finish. It was a significant uptick in volume, and we're able to handle it. But typically, the pharmaceutical space in the United States kind of grows about like this: it's just steady-eddie, and every year, it goes up a little bit. We shot up in a big way, and I'd say our automation actually helped us kind of fill -- get those peaks filled. Going forward, we found now that in the United States, it is very difficult to find distribution space right now. It seems like most companies went immediately to like some type of e-commerce solution. And you're competing against a lot of people for an individual building or looking for space like that, especially when it comes to temperature-controlled space, too, which is kind of suitable for a pharmaceutical distribution. Very difficult. So those are some of the things that we've been fighting. And I don't know when that's going to maybe slow down a bit, but it's still very difficult right now, even the contractors and things like this, to get lined up to -- for a building. You better be a year ahead looking for those folks right now to get into their schedule because it's that busy right now with so many companies looking at e-commerce type solutions.

Jett, from your side from where you're seeing customers, any additional thoughts that [ you've ] probably covered quite a few of the areas there.

I mean Jim and Todd covered pretty much all of them. One of the feedback that we did get was similar to what Todd mentioned in terms of social distancing, right? I mean we didn't design this having in mind that we're going to be hit by a pandemic. Like if we had that, all of us would be millionaires, right? But the solution lent itself well to social distancing and just helped -- held guidelines in terms of keeping a system running and having that business continuity while at the same time, operating in a safe environment. And that was really key and really helpful for a lot of the customers.

To sort of go back a little bit to -- we obviously talked about some of the key drawbacks when we're looking to approach in automation. It's obviously described as, by all of you and further afield, as a journey to continuous evolution of a process of digitalization and digital transformation. But what else have you seen as the key challenges that need to be overcome to sort of maximize the potential of the investment you make, how -- whether that's capital or ongoing? When increasing automation across operations, we talked about the specific [ obstacle ] courses and what you look to bring in. But are there other key challenges in terms of sort of infrastructure that need to be addressed? And which teams need to be best involved with those transformation processes? So anyone who wants to go first with that?

I'll jump in. And again, it all depends on the level of automation that you're looking at. But I think strategy is one, right? What is your short-term versus your long-term goal? Do you want something that you can easily expand? Or do you have a more stable business and you want to put the most efficient solution in that you can? That's one. The other that I'd say is, is maintenance. And I mentioned earlier, in our team we rebranded to asset management and reliability engineering. Not with all of these solutions, but with some of these solutions, you better have a good maintenance staff on site. And by maintenance, I don't mean fix it when it's broke. A lot of why we rebranded was because that team does a lot of work to make sure it doesn't break using predictive analytics and things of that nature, obviously, preventative maintenance schedules and things like that. But they're always looking for ways to improve the design. If something breaks in one DC, they figure out why. They roll that out to the other DCs. Hey, if you do this, it's less likely to happen. So I think that's really key. Maybe less so with some of the autonomous robots. So that's definitely an advantage if one goes down, you push it aside and you bring another one in. But with some of the larger automated systems, you really need a team that can support that. Or a lot of the vendors, the automation vendors, will provide resident maintenance support where you basically hire some of their people to be on-site and act as that service. And then the only other thing I'd say is on the data front. It's almost information overload at this point. And I think folks really need to understand how to use data effectively, data that they're getting out of their system. For example, reporting. Boy, we've got more reports than I could look at in a year. I think people really need to understand how to best utilize the data that's coming out of the system, using simulation or predictive analytics or maybe more importantly, visualization. I tell people all the time, I don't want to look at a spreadsheet of numbers, but I'll look at some charts and graphs, right, just to give me an idea of how things look in real-time or next day. There's companies out there that package -- [ faux ] packages, that take your operating data in conjunction with machine learning to help automate decision-making. When should you release orders to keep balance across your pick lines? Where should your labor be positioned on any given day? So there's a lot of options out there for data. Data is kind of the oil and gold what used to be 20, 30 years ago. I mean data is incredibly valuable right now, and I think how folks use it is going to be vitally important into -- and feed into the success of their project.

Yes. I'd add one piece, too, is the horsepower you need on the IT, like software side of the fence, has to be very high. I think -- if you think about the hardware that kind of powers these -- many of these automated systems, a lot of it's off-the-shelf type stuff. There might be some proprietary things in there, but it's off the shelf in many cases where you could build -- we've built some of these things. And there's a lot of competitors out there. But what we found is the most successful companies are the ones that have the IT, the software side behind it, to power that automation, to make it as smart as possible. That's where we've really seen a big difference, that people promote their kind of hardware, if you will, but the software just isn't as strong. And you got to make sure -- you got to find the right partner out there that can do those things for you. And that's what's really going to make your system hum.

Completely agree with that statement. That's -- we are -- in terms of what Locus is, we are -- we do make robots. But essentially, it's the software that sort of drives whether a lot needs to go and helps with picking and put away activities, and that is a key component. And again, going back to Jim's point in terms of having a more automated solution than what maybe Locus has at this point, lends itself into some challenges where -- I mean, I used to work for a company in my prior life where we sold completely automated systems and we had -- it wasn't uncommon for us at the time to have full-time resident maintenance managers assigned to a specific site. And if you can imagine, there's 30, 40 sites, and you have 30, 40 full-time employees. And that goes more on the service side of the service contracts and all that kind of stuff, which is not the case with -- at least with autonomous mobile robot solutions provider like ourselves or some of our competitors. But the other point that I also find really fascinating is regarding data as well. Absolutely right, Jim. Data is meaningless if you can't look at the patterns and understand which is going to -- what pattern is going to move the needle. And really understanding and really having that as part of what you're measuring day-over-day, month-over-month, year-over-year is going to lend -- is going to help the company make better decisions and also understand the shortcomings that are part of the system. So all valid points.

Something that's popped up from the audience, but also aligned to that theme that maybe comes up a fair bit when we talk about health care supply chains is potential complexity or an abundance of complexity throughout processes. What does the panel think that we can look to reduce complexity? Or where -- or maybe that -- I don't know if we can solve it today, but what sort of areas can we look at to reduce complexity in operations and across the networks to ultimately reduce costs without sacrificing, and going back to what you said on the beginning, Todd, sacrificing anything on the patient outcome or the care obviously of the consumers in this instance? Where does that complexity issue sit with you guys in your roles at the moment?

I think our next big level of complexity is around that vision technology I spoke about earlier. We've got to find a way to capture data at a very high rate of speed because -- I kind of look at it this way. If we can't capture it at a high rate of speed, why pick it at a high rate of speed? Or why replenish it at a high speed? Bcause you're only as good as your weakest member of your team, right? So finding a vision solution that is able to process data at a very or extreme high rate of speed, collect it, do what it needs to be done with it and then allow us to still get the product out the door in a timely fashion. To me, that's the next biggest hurdle we've got from an automation standpoint. I feel very comfortable with what we've done with the systems we have today. I think we're just going to continue to grow upon those systems and kind of proliferate that throughout the network in some cases. But for me, vision is all over it. And it's that proverbial [ saying ], where you lose sleep at night, it's really around that. When you're shipping 1 billion pieces of product a year, I think every one of them has to be scanned prior to leaving the distribution center. That's a big ask right there.

I was on mute. And yes, Todd, I'm with you. That's probably what keeps me up more than anything. And for the audience, for those that maybe are not familiar with DSCSA, I mean, that's essentially government mandate that says that all the pharmaceutical -- well, and actually throughout the whole supply chain, manufacturers through end users, need to be able to scan and track and trace each individual bottle of pharmaceuticals or each individual salable unit of pharmaceuticals. So each have a unique 2D bar code applied to them. And you can imagine with the automation or even manual picking, I mean, the way it is today, folks will go up. They'll scan the item once, UPC code, and will type in, "I picked 4 of them." Easy, right? Tomorrow, or in 2023, they're going to have to scan each 1 of those 4 units. So with the automation that I know Todd has in his sites and we have in ours, there's automated picking technology that picks product at a very high rate of speed. So to Todd's point, I couldn't agree more on that front. In terms of some of the other complexity that is out there that would help, I guess, streamline the supply chain. Customer delivery times. We all have SLAs, and customers tell us when they want their product. And sometimes, that makes the transportation network a little less efficient. So that's something -- I put that down as a wish. And the other wish that I'd have would be some sort of under-managed inventory program. We talked before that we essentially have this, whatever, 8 to 10 hours to pick these orders. Well, if we knew ahead of time what the customers are going to order, if we knew what their min/maxes were and we knew that they went under a min on Monday, we could plan to pick a Tuesday. But guess what? We could pick it during the day, right? That gives us more flexibility in terms of how to manage those orders instead of trying to cram it into a much smaller window. That might open up opportunities for some of the automation that we've talked about. And some of these things are competing priorities, too. The other thing that I had was a reduced SKU base. I talked earlier that we're adding SKUs, right? If we could reduce SKUs, it would make life a little easier and streamline the supply chain. But I think one of the things that the industry could do a better job on is just collaborating holistically from manufacturers and even their suppliers, all the way through end users because I think -- and it's inherent, right? I mean people tend to look at their own yard and say what can I do to be most efficient versus what can a supply chain do to be more efficient and everybody kind of share in those savings. So that's another one of my wishes that, hopefully, someday we continue to work down that path. And it's not like none of that work has been done, but there's so much opportunity, I think, if teams were able to collaborate a little more closely.

Completely agree. Especially with the use of technology, you can expect to get, at least in the future -- or that would be the hope, right, to get more visibility into your system and also have systems in place that will comply with the DSCSA mandate, right, to make sure that products are shipped on time and the SLAs are met, and they are shipped on time accurately. From a personal experience, I would say that for us, it kind of helped in having different verticals or different segments that we operate in for us to understand those unique challenges that are faced by the health care segment as opposed to somebody else. And thankfully, we were able to get ahead of the curve and add some of that into our existing codes so that we are able to read bar codes and so that we will be ready well before time in terms of having all of the capabilities that are required. So that's probably some good vision and good fortune, I would say, on our end. But definitely, something that needs to be done overall in the industry if we are to have more automation that complies with the mandates and make sure that it's successful.

We've run the second poll with the audience. Ascertaining the [ where ] individual companies' attitudes to automation, how that's changed over the last 12 months, thinking certainly [ we need to come in ] backwards, it's increased greatly with 17% saying that we're already fully committed, 27% saying it's increased but no immediate plans to get involved. So it seems the journey is going both in the mind and then also in the action as well. As we sort of get to the end of this session now, in the panelists' kind of viewpoint, what's the core messaging you would take, maybe factoring in a lot of what we talked about today, knowing that the appetite for increased automation of whatever type it may be is increasing? And in line with what we've just mentioned there about complexities, are there other ways that people can look to tie their strategy together? Because it's not an easy thing to implement this organizational change. What would be the kind of the key top 3 if you've got them, but maybe the key focuses that you would give to companies who are looking to start on this journey or accelerate this journey given the context of what's happened, but also the expectation of the future? Quite a big question, sorry about that.

Yes. I'll start. I mentioned at the beginning, it's not one-size-fits-all. It's not the shiniest car out there. You really need to look at your business and understand at what scale you want to put automation into your business. And in some cases, like I mentioned, a simple conveyor that moves a tote or a box from point A to point B might be the appropriate level of automation. And even being a very significant pharmaceutical distribution center, we do a lot of that. But in other cases, that's just not good enough, and you have to invest because it could be a volume thing. It could be -- the struggles in a select market to try to find people to do that type of work. It could be a variety of things. So I think you just got to be careful what -- when you're going to spend, really do the math on the ROI. While leasing equipment is maybe better for your business based on coming up with the amount of capital you need at times, your ROI might not be as great with leasing. But at least you're going down that path, and you're making that investment and seeing some of the upside of it. If you don't have a problem with capital, which I'm not sure how many companies out there don't have a problem with capital, but if you don't have a problem with capital -- and I've been in some of these places where you look in and they pretty much put automation on top of an automation, and to me, it's like a shiny car. It's great, but not needed. So I'd just be critical of the money you spend, make sure the ROI is there, find the right company with the right IT background. If you're going to go full automation, you better have a very good facilities team that can support you. The idea of a handy person, that's out the window when you go full automated. You better have people that speak the language and understand those complex systems really well and be prepared to put some money there because those folks aren't inexpensive. While you might enjoy the savings on one side, you got to give it back on the other side, with the facilities side because that's really what drives your system going forward. What you'll find is that you move from an environment where maybe in the old days, people kind of drove the productivity of the distribution center. And when people didn't show up, your productivity dropped and you had issues. Fast forward to an automated system or a highly automated system, it's hardly people anymore. It becomes a system, and you better treat that system very well, keep it [ pm-ed ] and it will hum for you. And that's one of the big differences we've seen is the facilities side, it really drives the productivity of the business going forward.

Agreed. Sorry, go ahead. Well, I agree with everything that Todd said. I think it goes back to what I think led off with earlier on is just what's the business case? Because a lot of times historically, it was ROI. We need a 2- or 3-year ROI. But guess what? If you can't get people in your building and you're losing business because of it, maybe your ROI measuring stick tends to go up a little bit and you're a little more forgiving and lenient on that. The other thing that I would say is just who are you going to partner with? It's going to be vitally important. Again, I don't want to say there's hundreds, but there are many, many different types of automation options. And to Todd's point, maybe you're picking on a cart with paper right now. Maybe you're just getting a WMS and doing RF or something autonomous robots, something small that you could step your way into is going to make a huge difference. Labor management. That's not really automation, but that's technology based, right? Is that something that you could look at? Augmented reality glasses. Like there's so many different options out there. And I think it's really situational, even to Todd's point, within our company. We have a wide array of automation that we have on our sites. We have some that are very manual, and we have some that are highly automated. It's situational. And I think companies need to focus on that and understand what's the business objective. And it shouldn't really be, "Hey, there's a cool piece of technology. Let's try it out." You really need to vet it out and understand what you're getting and what you expect to gain out of it.

Agreed. For sure. Especially, I would say that the top thing for companies who are considering automation where the point is, just consider it, just get more information about it, just learn more about it. See what's in it for you in terms of where you are in your journey of automation or looking at your overall strategy, right? So kind of dip your toes into it and learn more about it is what my advice would be, and then make a well-rounded decision on which way you want to move forward. Historically, not the health care distribution companies, but the other health care -- health system companies and sort of some of the other health care companies, they are historically very much focused on core versus context, which -- as they should be, where the core of the business was to make innovation in terms of advancements, in terms of devices -- medical devices or pharmaceuticals. But then what tends to lag behind is sort the distribution piece of it, right? And that's -- the last year, if anything has taught us about is that, that is the critical aspect that you need to focus on. So the other thing that I'll also mention for companies is one of the comments I've made maybe 20 minutes ago was crawl, walk and run, right? So going in from a facility where you have people who are dragging carts around or walking around with carts, from that going into a totally, completely automated system is going to be a shock to the system. And to get used to that and getting benefit out of that might be difficult. So you need to -- might want to make sure that you're focused on the right level of automation to begin with and as you continue along your journey. So that's -- those are the 2 things that I would say that companies consider.

Great. That feels like quite a natural point, obviously, as we get to the end of the hour for us to draw a conclusion there. Gentlemen, thanks very much for your time. I really appreciate you engaging with the questions, obviously, that we've had here and from the audience as well, and for sharing your insights on a topic that I think is only going to grow and accelerate more. So again, thank you all very much. And to the audience as well, thanks for joining us. Thanks for asking your questions, taking part of the polls. It's always wonderful to bring everyone together, and we'll hopefully see you very soon on the next one. But until then, stay safe and catch you soon.

Thanks, all.

Thanks, everyone.