An Introduction to Warehousing

Readings on Storage and Material Handling Equipment employed in

Modern Production and Warehousing Facilities

• Tompkins, White, Bozer, Frazelle, Tanchoco and Trevino, “Facilities Planning”, John Wiley, Chapters 6 and 9.

• The site of College-Industry council on material handling education: http://www.mhia.org/et/mhe_tax.htm

The role of warehousing in contemporary distribution networks

• Buffer: It holds inventory for downstream stages of the supply chain, in order to allow the entire production / distribution network to deal efficiently with the systematic and random variation in the network operations, or to exploit significant economies of scale.– Typical sources/examples of systematic variation

• product seasonalities (e.g., Toys R Us, CVS merchandise)• cyclical / batched production due to large set-up costs

– Typical sources of random variation• variations in transportation times due to weather, traffic congestion,

bereaucracy, etc.• variations in production times due to unreliable operations, unreliable suppliers

– Typical economies of scale involved• Price breaks in bulk purchasing

The role of warehousing in contemporary distribution networks

(cont.)• Consolidation center: It accumulates and consolidates

products from various points of manufacture within a single firm, or several firms, for combined shipment to common customers.

• Consolidation allows to control the overheads of transportation operations by:– allowing the operation of the carriers to their capacity, and

therefore, the more effective amortizing of the fixed transportation costs

– reducing the number of shipping and receiving operations

• Cross-docking: Consolidation without staging

The role of consolidation in contemporary distribution networks

Manufacturers Retailers

Manufacturers RetailersConsolidator

The role of warehousing in contemporary distribution networks

(cont.)• Value-Added-Processing (VAP): Increasingly, warehouses

are required to undertake some value-added-processing tasks like:– pricing and labeling– kitting (i.e., repackaging items to form a new item; e.g., “beauty”

products)– light final assembly (e.g., assembly of a computer unit from its

constituent components, delivered by different suppliers)– invoicing

• In general, this development is aligned to and suggested by the idea/policy of postponement of product differentiation, which allows for customized product configuration, while maintaining a small number of generic product components.

A schematic representation of the warehouse material flow

Receiving Shipping

Reserve Storageand

Pallet Picking

CasePicking

BrokenCase

Picking

Accumulation, Sortation & Packing

Cross-docking

Directputawayto reserve

Directputawayto primary

Replenishment Replenishment

The major warehouse operations

• Inbound processes

– Receiving (~10% of warehouse operating costs): the collection of activities involved in

• the orderly receipt of all materials coming into the warehouse;• providing the assurance that the quantity and quality of such materials are as

ordered;• disbursing materials to storage or to other organizational functions requiring

them.

– Put-away (~15% of warehouse operating costs): the act of placing merchandise to storage; it includes

• determining and registering the actual storage location(s)• transportation • placement

The major warehouse operations (cont.)• Outbound processes

– Processing customer orders (typically done by the computerized warehouse management system of the facility): This set of activities includes

• checking that the requested material is available to ship;• if necessary, coordinating order fulfillment with other facilities of the distribution

network;• producing the “pick” lists to guide the order picking and the necessary shipping

documentation;• scheduling the order picking and the shipping activity.

– Order-picking (~55% of warehouse operating costs): the set of physical activities involved in collecting from the storage area the materials necessary for the fulfillment of the various customer orders, typically identified as:

• traveling (~55% of the order picking time)• searching (~15% of the order picking time)• extracting (~10% of the order picking time)• documentation and other activities (~20 % of the order picking time)

The major warehouse operations (cont.)• Outbound processes (cont.)

– Checking: Checking orders for completeness (and quality of product)

– Packing: Packaging the merchandise in appropriate shipping containers, and attaching the necessary documentation / labels.

– Shipping: The activities of• preparing the shipping documents (packing list, address label, bill of lading);• accumulating orders to outbound carrier;• loading trucks (although, in many instances, this may be the carrier’s

responsibility).

– Others: Handling returns, and performing the additional value-added-processing supported by contemporary warehouses, as discussed in a previous slide.

Operational Cost Breakdown

Receiving

Putaway

Order Picking

Others

15%

10%20%

55%

Some facility design problems particular to Warehousing facilities

• Allocation of a storage medium to various SKU’s

• Design of the forward area: Given a certain storage size, which SKU’s to include in it and at what quantities?

• Design of a cross-docking facility

SKU Storage Policies and Location Assignment

Storage Policies

• Main Issue: Decide how to allocate the various storage locations of a uniform storage medium to a number of SKU’s.

I/O

Types of Storage Policies

• Dedicated storage: Every SKU i gets a number of storage locations, N_i, exclusively allocated to it. The number of storage locations allocated to it, N_i, reflects its maximum storage needs and it must be determined through inventory activity profiling.

• Randomized storage: Each unit from any SKU can by stored in any available location

• Class-based storage: SKU’s are grouped into classes. Each class is assigned a dedicated storage area, but SKU’s within a class are stored according to randomized storage logic.

Location Assignment under dedicated storage

• Major Criterion driving the decision-making process: Enhance the throughput of your storage and retrieval operations by reducing the travel time <=> reducing the travel distance

• How? By allocating the most “active” units to the most “convenient” locations...

“Convenient” Locations

• Locations with the smallest distance d_j to the I/O point!• In case that the material transfer is performed through a

forklift truck (or a similar type of material handling equipment), a proper distance metric is the, so-called, rectilinear or Manhattan metric (or L1 norm):

d_j = |x(j)-x(I/O)| + |y(j)-y(I/O)| • For an AS/RS type of storage mode, where the S/R unit

can move simultaneously in both axes, with uniform speed, the most appropriate distance metric is the, so-called Tchebychev metric (or L norm):

d_j = max (|x(j)-x(I/O)|,|y(j)-y(I/O)|)

“Active” SKU’s

• SKU’s that cause a lot of traffic!

• In steady state, the appropriate “activity” measure for a given SKU i:

Average visits per storage location =

(number of units handled per unit of time) /

(number of allocated storage locations) =

TH_i / N_i

A fast solution algorithm

• Rank all the available storage locations in increasing distance from the I/O point, d_j.

• Rank all SKU’s in decreasing “turns”, TH_i/N_i.

• Move down the two lists, assigning to the next most highly ranked SKU i, the next N_i locations.

Example

I/O

I/O

0 11

2

2

2 2

2

3

3

3

3

4

3

3

34

4

4

4

5

4

4

4

45

5

5

5

5 5

5

5

5

5

66

6

6 6

6

6

67

7

7 7

7

7

8

8 8

8

9 9A: 20/10=2

B: 15/5 = 3

C: 10/2 = 5

D: 20/5 = 4

CC

D

D

D

D

B

D

BB

B

B

A

A

A

A

A

A

A

A A

A

Location Assignment under class-based storage

• Consider that classes are established in such a way that SKU’s with comparable ratios of TH_i/N_i belong to the same class.

• Furthermore, with every class c associate two quantities

– N_c = a*iN_i where a

– TH_c = iTH_i

• Then, the logic developed for the location assignment under dedicated storage applies immediately when replacing the set of SKU’s i by the set of classes c.

Design of the fast-pick area

The “fast-pick” or “forward-pick” or “primary-pick” area

ReservesArea

Forward pickArea

Receiving

RestockingPrimary picking

Reservespicking

Shipping

The major trade-offs behind the establishment of a “forward pick” area

• A forward pick area increases the pick density by concentrating a large number of SKU’s within a small physical space.

• On the other hand, it introduces the activity of restocking.

• Also, in general, a forward pick area concerns the picking of smaller quantities and involves more sophisticated equipment than the picking activity taking place in the reserves area. So, its deployment requires some capital investment in equipment and (extra) space.

Selecting the SKU’s to be accommodated in the fast-pick area and

the corresponding volumes• We need to quantify the “net benefit” of having the SKU in the fast-

pick area vs. doing all the picking from the reserve.• This is done as follows: Let

– V: Volume of entire forward-pick storage area (e.g., in cubic ft)– f_i: Flow of SKU i, (e.g., in cubic ft / year)– c_r: cost of each restock trip ($/trip)– s: the saving realized when a pick is done from the forward area

rather than the reserve ($/pick)– p_i: the expected annual picks for SKU i (picks/year)– u_i: storage volume to be allocated to SKU i, i=1,…,n (cubic ft)

Then, the net annual benefit of allocating fast-pick storage u_i to SKU i, is:

c_i(u_i) = { 0 if u_i = 0

s*p_i - c_r*(f_i / u_i) if u_i > 0 ($/year)

Plotting the “net benefit” function

u_i

c_i(u_i)

(c_r*f_i) / (s*p_i) : minimum volume to be stored, if any

Problem Formulation

max _i c_i(u_i)

s.t.

_i u_i V

u_i 0, i

A near-optimality condition:• The SKU’s that have the strongest claim to the fast-pick area are

those with the greatest viscocities, p_i / f_i. • The optimal allocation of the total volume V to any given SKU set {1,

…k,} to enter the fast-pick area, is according to the following formula

i{1,…k}, u_i = ( f_i / _j f_j) * V

Algorithm for computing a near-optimal solution

• Sort all SKU’s from most viscous to least (p_i / f_i)

• For k = 0 to n (total number of SKU’s):– Compute the optimal allocation of the fast-pick storage if it

accommodates only the first k SKU’s of the ordering obtained in Step 1.

– Evaluate the corresponding total net benefit.

• Pick the value of k that provides the largest total net benefit.

Crossdocking

Literature and interesting Web sites

• Lecture material– Bartholdi & Hackman, Chpt. 11– Kevin Gue, “Crossdocking: Just-In-Time for Distribution”, Tech. Report,

Graduate School of Business & Public Policy, Naval Postgraduate School, Monterey, CA, May 2001

– J. Bartholdi and K. Gue, “The Best Shape for a Crossdock”, working paper

– K. Gue, “The Effects of Trailer Scheduling on the Layout of Freight Terminals”, Transportation Science, 33:4, pg. 419-428, November, 1999.

• An interesting site:– http://web.nps.navy.mil/~krgue/Crossdocking/crossdocking.html

The driving idea behind crossdocking

• Crossdocking seeks to eliminate the expensive functions of inventory holding and order picking from modern distribution centers by taking advantage of the information system infrastructure in modern supply chains.

• Hence, at a crossdock, incoming material is already assigned to a destination, and therefore, the only required functions are consolidation and shipping.

• In this way, material is staged at the facility for less than 24 hours.

• => Just-In-Time for distribution

Major requirements for justifying and effectively deploying

a crossdock operation

• Significant and steady product flow

• easy to handle material / unit-loads

• Good and reliable information flow across the entire supply chain

– pre-distribution crossdocking: the customer is assigned before the shipment leaves the vendor, so it arrives to the crossdock bagged and tagged for transfer.

– post-distribution crossdocking: the crossdock itself allocates material to its stores.

Examples• Home Depot operates a pre-distribution crossdock in Philadelphia

serving more than 100 stores in the Northeast area.• Wal-Mart uses

– traditional warehousing for staple stock - i.e., items that customers are expected to find in the same place in every Wal-Mart (e.g., toothpaste, shampoo, etc.)

– crossdocking for direct ship - i.e., items that Wal-Mart buyers have gotten a great deal on and are pushing out to the stores

• Costco uses pallet-based post-distribution crossdocking• Computer firms like Dell consolidate the major computer

components in “merge in transit” centers.• JIT manufacturers consolidate inbound supplies in a nearby

warehouse• LTL and package carriers (UPS, FedEx) crossdock to consolidate

freight

Crossdock Operations

Strip doors: doors where full trailers are parked and unloaded.Any incoming trailer can be unloaded to any strip door.

Stack doors: doors where empty trailers are put to collect freight for specific destinations. Each stack door is permanently assigned to a distinctdestination. Typical material handling modes: • manual carts for smaller items• pallet jacks and forklifts for pallet loads• cart draglines (reduce walking time but impede forklift travel)

Optimizing the crossdock performance

• The major operational cost for crossdock is the labor cost.• Hence, the system performance is optimized by seeking to

maximize the throughput of the crossdock operations by establishing an efficient freight flow.

• Factors affecting the freight flow:– Long term decisions:

• Number of doors and shape of the building• Employed material handling systems• parking facilities

– Medium term decisions:• Crossdock layout, i.e., the characterization of the various doors as strip or

stack doors, and the assignment of specific destinations to the stack doors

– Short term decisions• Inbound Trailer Scheduling

The number of doors and the parking lot size

• Number of stack doors: determined by the volume of freight moved to each customer, and any potential delivery schedules

• Number of strip doors: since trailer unloading is a faster job than trailer loading, a common rule of thumb is to have twice as many stack doors as strip doors, so that you balance the incoming with the outgoing flow.

• In general the larger the number of doors in the crossdock, the larger the distances that must be traveled.

• The parking lot should provide parking space for two trailers per door, so any flow surges can be accommodated without considerable problems.

The shape of the crossdock building• Corners are bad! Specifically:

• Internal corners take away door locations (about 8 doors per corner)• External corners take away storage space in front of the door (w/2 doors’ worth of floor space)

• On the other hand, a building shape that minimizes its corners increases • the travel distances• the traffic congestion in front of the most centrally located (and therefore, the best) doors

• Some characterizations of the crossdock building shapes:• diameter: max door-to-door distance• centrality: the rate of growth of the diameter for a symmetric expansion of the building by one door at each “end” of it.

• Suggested building shapes:• I for small crossdocks (up to 150 doors)• T for medium size crossdocks (between 150-250 doors)• H for the largest crossdocks (above 250 doors)

• Frequently, the building shape is determined by other constraints, e.g.,• available land, an existing building, etc.

Crossdock layout• In general, centrally located doors should be reserved for the uloading

activity and for destination with large outgoing flows.• On the other hand, if the freight on each inbound trailer is destined to a

small and stable set of customers, then the facility can be decongested by establishing distinct hubs serving clusters of destinations that tend to have their freight on the same incoming trailers.

• Two extensively used heuristics are:– the block heuristic: Assign first the unloading activity to the best doors (i.e. the doors

having the smallest average distances to all other doors). Subsequently, assign the remaining doors to outbound destinations, prioritizing them in decreasing order of their flow intensities

– the alternating heuristic: The door assignment alternates between a strip door and a stack door to the destination with the next highest flow

– => The alternating heuristic produces solutions that are typically 10% better than the solutions produced by the block heuristic.

Trailer Scheduling

• How should we pick the next inbound trailer to be processed at a free strip door?

• If the freight mix tends to be uniform across all inbound trailers, then a simple rule like FIFO will perform well.

• Otherwise, the selected trailer should be the one that will have the smallest processing time w.r.t. the considered strip door, among those currently waiting in the parking lot.