2011‐09‐14

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LUNDS UNIVERSITETLUNDS UNIVERSITET

1

L8 – Warehousing consultingMTTN25 – Warehousing and Materials Handling

Henrik ÅllemarkConsultantUnitedLog2011-09-14

© UnitedLog 2009

Learning objectives

Insight in the work as a consultant

One possible career path for an LTH-graduate

Case experiences from reality

© UnitedLog 2009

Content

Who is Henrik Ållemark?

Work as a Management Consultant

UnitedLog in brief

Example from reality– …

‘If you don’t ask questions, you never get any answers’

Management Consultant- a possible career path

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From student to career

© UnitedLog 2009

Supply Chain Management Consultant

Project work– Interviews and observations– Analysis– Compilations and reports– Presentations

Tools and methods– Excel, Access, Qlikview, PowerPoint, QPR etc.– Company specific analysis tools and methods

Freedom but also responsibility– Challenges– Problem solving– Early involvement in sales process

In brief

© UnitedLog 2009

Why use Consultants?

Total amount spent on consulting services has grown from 0,1 to 0,6% of Europe GNP the last 15 years.

Why do companies use consultants, isn’t it a waste of money?

– Specialist competence– Management assistance– Simplifying decision making, political issues– External and objective analysis and view of situations– Resource need, lack of own time

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© UnitedLog 2009

Short about UnitedLog

Founded in 20059 offices on 3 continentsOwned by 6th AP Fund and AB Arvid Svensson InvestNon-Asset based partner150 employees

www.unitedlog.com

© UnitedLog 2009

UnitedLog

Supply Chain Management & Finance Consulting

Supply ChainSoftware

Supply ChainServices

Customer

SustainableProfitable

End CustomerValue

Performance Management

SCM Strategy Development

Change Management

Working Capital

Management

Control Tower Software

Outsourcing Services

Finance

Production

Distribution

Sourcing

UnitedLog – Our service offerings

© UnitedLog 2009

SOURCING PRODUCTION DISTRIBUTION

END CUSTOMERSUPPLIER

FLOW OF CAPITAL

FLOW OF INFORMATION

FLOW OFGOODS

Reduce your working capital

• Working Capital Management• Financial Solutions

Reduce your costs and increase your service

levels

• SCM Strategy• Change Management

Visibility and cost control

on your inbound and outbound flow of goods

• Control Tower Software• Performance Management

Flexibility

• Outsourcing Services

UnitedLog – How we improve your supply chain and profitability

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© UnitedLog 2009

Overview work method and different distribution projects

Presentsituation

Alternatives

Evaluation

In depthanalysis

Physicaldesign

Organization

Consequenceanalysis

Step 3Implementation

Assortment analysis and strategies

Warehouse Management

Outsourcing logistics operations

Distribution structure

Transport Management

Organization development, KPI’s etc.

Project management

Business concept

Define and determine conditions

Appoint functional requirements

Design of functions

Design of warehouse building

Implementation

Operation and follow-up

FunctionalwarehouseInput Output

Servicegoals andassortment

Toolbox-equipment-methods

WarehouseManagement& analysis

Follow-up-service goals-historical account

Layout

Solutions

Specification ofrequirements

Uppstart

Förbered underlag

Administreraförfrågan

UtvärderaService

Utvärderaofferter

Support vidförhandling

Nuläges-kartläggning

Nuläges-redovisning

Utskick av upphandlings-underlag

Kvalitets-kontroll av offerter

Analys av service-erbjudande

Analys och rekommen-dation

Projekt-avslut

Customers

AssortmentKey Develop

Develop

Review

A

B

C

Maintenance

A B C

A

B

C

80%

Profitability

Profitability

20%

2 0 %

8 0 %

Step 1

Step 2

Case from reality– Continue with the 3PL warehouse or build and operate an own

warehouse? What is most cost-effective?

© UnitedLog 2009

Project background

Company situation– Food company that produces cereal

based products– Relatively young and is still in heavy

growth focused on new products, new markets

– An expansion of the production plant is planned. In conjunction to this there is a possibility of building an own warehouse

– 3PL-based warehousing

Project issue– Investigate if it is more cost effective to

manage warehousing in-house?– How should an inhouse warehouse

solution be designed?– How big investment is needed and

whats the operational cost for the warehouse?

Project deliverables– Material that support decisions of

warehouse strategy now and in future– Proposed solution for construction of a

new inhouse warehouse – Layout drawing– Need and costs of Equipment - for

storage and handling– Need for staff– Input into investment spreadsheet– Need for system support– Operating expenses

© UnitedLog 2009

Beehive – project plan and proposal

Discuss what activities the project will include

Estimate total man days needed

Groups of 2

5 minutes

Prepare to give an answer to:– Important main activities– Total man days

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© UnitedLog 2009

Project plan & methodolgy

1.Preparational

work

2.Mapping

Deliverables

Alternative solutions• Process es• Layout• Equipment• Budget• Actionplan• Recommendations

3.Compilationand analysis

6.Presentation &

Report

1. Input data• Reqirements• Dim data • Processes• Flows• Functions•Construction Drawing

2. Analysis

3. Alternative solutions

4. Compilation

1. Approvalmeeting• Data currentsituation• Futuredevelopement• Service-goals•Requirements

2. WorkshopDescription of Current situationWarehousing, Process flowsEtc.

3. Interviews

4. Visual study• Construction Drawing• Observations

1. StartUpmeeting• Project planning• Identify key persons

2. Input data foranalysis• Article data• Purchase-transactions• Sales-transactions• Stockdata

3. Data analysisto gainDim-figures• Typical daysales/stock

4. Construction drawing

4.Reconciliation

meeting

5.Develop

suggestions

1. Present situation• WH-processes• Other activities• Dim. data • Observations

2. Decide uponDim.data• Future growth

3. Alternative solutions- presentation- rating

1. Analysis of Selectedsolutions• Input data• Evaluation

2. Compilesolutions• Describesolutions• Processes• Layout• Calculations• Actionplan• FinalDocumentation

week25week 18 week.22

© UnitedLog 2009

Content

Circumstances that affect a potential warehouse

Dimensioning data– Warehouse– Material flows

WH method

Staffing

WH layout

Calculus

Summary and recommendations

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© UnitedLog 2009

Growth in sales

0

100 000

200 000

300 000

400 000

500 000

600 000

700 000

800 000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Turnover[tkr]

Year

Growth Scenarios WH‐influencing turnover

Real Turnover

25% growth  from 2002

15% growth  from 2002

25% growth  from 2008

15% growth  from 2008

Real turnover in relation to calculated scenarios

Future needed warehouse capacity calculated for two different scenarios, 15% and 25% yearly sales growth

© UnitedLog 2009

Historical Stock Volumes

Historically, the stock value increased by 15% per year, both due to higher sales volumes and broader product flora

0

2 000 000

4 000 000

6 000 000

8 000 000

10 000 000

12 000 000

14 000 000

16 000 000

Stock vakue SEK

Month

Stock value per month from May 2005 to March 2009

Stock Value

Linear (Stock Value)

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© UnitedLog 2009

Development in geographic customer structure

Present situation: 2/3 of the volume is going to Scandinavian market.

Future : Higher growth rates outside Scandinavia

99% of all pick lines in Scandinavia. Higher growth rates outside the scandinavian market may mean that the share of the pick is not growing as fast as the volume

Customer country # of pallets # of orderrows Whereof pick Pick share Total weight [tonnes]SE  10 396 12 225 7 779 64% 7 864FI  1 308 722 299 41% 982NO 330 84 9 11% 249DK  40 55 6 11% 31IS 11 4 1 25% 9SUM SCANDINAVIA 12 085 13 090 8 094 62% 9 134GB 2 536 200 1 1% 1 952ES 1 539 180 2 1% 1 185DE 875 210 4 2% 670FR 494 76 3 4% 378NL 205 75 2 3% 158PT 149 23 6 26% 114HR 122 32 3 9% 94IT 120 17 0 0% 92BE 70 38 2 5% 54SG 38 12 10 83% 30EE 8 8 0 0% 6LT 8 6 0 0% 6LV 6 6 0 0% 5TW 3 1 0 0% 2SUMMA EXPORT 6 174 884 33 4% 4 747

TOTAL 18 259 13 974 8 127 58% 13 881

© UnitedLog 2009

Content

Circumstances that affect a potential warehouse

Dimensioning data– Warehouse– Material flows

WH method

Staffing

WH layout

Calculus

Summary and recommendations

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© UnitedLog 2009

WH – Need of capacity

Alt 1. Inventory Management according to current used method

Stock balance per SKU will in avergage cover four weeks of consumtion

Alt 2. Improved Inventory Management

Improvements in production planning and inventory management

Design day 2010 – 25% growth

Inbound– Average 130 pallets per day

Outbound converted to full pallets– Average based on 5 days 110 pallets – maximum 138 pallets/day

Pick – average 244 rows/week

Design day 2014 – 25% growthInbound

– Average 315 pallets per day

Outbound converted to full pallets– Average based on 5 days 268 pallets – maximum 335 pallets/day

© UnitedLog 2009

WH – Need of capacity 3(3)

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

2009** 2010 2011 2012 2013 2014

# Pallets

Year

WH need different scenarios

TOTAL WH need 15% growth, unchanged inventory mgmnt

TOTAL WH need 25 % growth, unchanged inventory mgmnt

TOTAL WH need 15 % growth,  improved inventory mgmnt

TOTAL WH need 25 % growth,  improved inventory management

Maximal WH capacity due to contruction tecnical limit

At 25% growth and no change in inventory management the capacity for the new warehouse will be insufficient already 2014

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© UnitedLog 2009

Circumstances that affect a potential warehouse

Dimensioning data– Warehouse– Material flows

WH method

Staffing

WH layout

Calculus

Summary and recommendations

Content

25 © UnitedLog 2009

WH-structure Refrigerated, pallets per Batch-ID

A few unique SKUs, many pallets per SKU– 2/3 of all batch IDs contains fewer than 20 pallets

0,0

20,0

40,0

60,0

80,0

100,0

120,0

#Pallets 

SKU and expiration date

Article structure in WHRefrigerated assortement (per  SKU and expiration date)

Releasedt

Quarantine

© UnitedLog 2009

Beehive – Warehouse Method

Discuss which warehouse methods (pallet racking systems) that will fit or not fit the company according to the information givenWhich methods are attractive when you see an article structure as this? A few uniquetSKU's with relatively many pallets per SKU– What influence may the "best before date“ have on this?

Groups of 2

5 minutes

Prepare to give an answer to:– Appropriate warehouse methods– Inappropriate warehouse methods – Grounds for the above

© UnitedLog 2009

Warehouse methodAlternative solutions

– Traditional pallet racks– Individual accessibility, theoretical fill rate of 100%– Efficient use of space, on six levels approximately 1.5 pallet per square meter storage area – Cost approximately 200 SEK/palletplace

– Deep stack racks– No individual accessibility – Theoretic fill rate for company X SKU structure apprx 65%– Efficient use of space. on six levels around 2.4 pallets per square meter storage area - which gives

approximately 1.6 pallets per sqauremeter based on that fill rate– Cost approximately 350 SEK/pallet place which corresponds to 530 SEK per pallet – Other conditions

– Relatively high cost of damage on racks– Longer driving time for the forklifts– Solution with mobile pallet carriers in the deep stack racks will in this case lead to significantly reduced

handling efficiency

– Mobile racks– Individual accessibility, theoretical fill rate of 100%– Efficient use of space, on six levels approximately 3,5 allet per square meter storage area – Cost approximately 800 SEK/palletplace and pallet

Analysis – We recommend mobile racks– Substantially more efficient use of space than other solutions– Important to watch out for bottlenecks related to the number of open forklift corridors – ...but the flow of pallets isn´t that big that there would be a risk of bottlenecks

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© UnitedLog 2009

Circumstances that affect a potential warehouse

Dimensioning data– Warehouse– Material flows

WH method

Staffing

WH layout

Calculus

Summary and recommendations

Content

29 © UnitedLog 2009

Staffing – Need of staff

Pallet handling– Design for pallet handling in/out of mobile racks

– 24 pallets/hour – based on 28pallets/hour with 80% efficiency

– Staffing– 2010

– 80 hours per week spread over 2 shifts– 2014 with 25% growth

– 160 hours per week spread over 5 days, 2-shifts with 2 persons per shift

Pick– Our experience says that the pick capacity for handling with this conditions is between

20-60 picking rows per hour– Data for 2008 says

– In average156 pick rows per week– =>maximum 8 hours of picking per week

– Future– More deliveries outside Scandinavianot that much pickrows– => maximum 16 hours of picking per week

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© UnitedLog 2009

Circumstances that affect a potential warehouse

Dimensioning data– Warehouse– Material flows

WH method

Staffing

WH layout

Calculus

Summary and recommendations

Content

31 © UnitedLog 2009

Warehouse layout – Draft of construction

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Kyl

mas

kine

rTr

uckl

addn

ing

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© UnitedLog 2009

Warehouse layout – Draft of construction

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Kyl

mas

kine

rTr

uckl

addn

ing

Non Refrigerated9,5 meter ceiling height

6 levels of palletsmax 2898 pallets

Refrigerated9,5 meter ceiling height

6 levels of palletsmax 2880 pallets

Low ceiling part

apprx 500 pallets/level

Term

inal

M

ax 3

40pa

llets

© UnitedLog 2009

Circumstances that affect a potential warehouse

Dimensioning data– Warehouse– Material flows

WH method

Staffing

WH layout

Calculus

Summary and recommendations

Content

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© UnitedLog 2009

Calculus – Additional comments

Building– Cold-storage is more advanced which is resulting in higher costs and greater

uncertainty

Refrigeration– The calculation has been charged with the fact that all area has been cooled, but

this can be installed and connected in stages

Mobile pallet racking– Initially, it is possible to wait to construct parts of the equipment for the storage of

pallets

Sprinkler equipment– The fire protection plan definies that there is a requirement for sprinklers– The cost should be compared to insurance costs and to ensure supplies in the

event of fire

Contributions to the evaluation of the cost calculation– External storage of packing materials - could in the next few years be stored in

the not yet fully exploited stocks inhouse

35 © UnitedLog 2009

Calculus Total Warehouse solutionTotal WH‐solution

Investment CostAck. 

Investment Costk SEK Allocation k SEK /year k SEK Allocation k SEK /year

WH‐building sqm kvmBuilding 3051 18 306 10% 1 831 3051 18 306 10% 1 831

ClimateCooling Unit 3 051 10% 305 3 051 10% 305Operation‐Cooling & Ventilation  381 381

Sprinkler 2 250 10% 225 2 250 10% 225

Unpredictable WH construction costs  2 361 10% 236 2 361 10% 236

WH‐Equipment pallet places pallet placesStorage 6 278 4 280 697 6 278 4 280 697

Conveyor 800 150 1 200 225WH‐handling equipment 0 81 60 163Plastic wrapping machine 0 0 11 11IT, fork lift terminals etc 300 100 400 133

WH Staff‐In/Outgoing goods hours/week hours/weekProduction hours 80 800 160 1 600

Sum WH solution 31 347 4 806 31 919 5 807

2014 ‐ 25% gowth2010

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© UnitedLog 2009

Circumstances that affect a potential warehouse

Dimensioning data– Warehouse– Material flows

WH method

Staffing

WH layout

Calculus

Summary and recommendations

Content

37 © UnitedLog 2009

Summary and Recommendations

The fill rate in the new warehouse will initially be low – but the capacity is needed to meet the company´s plans

– The size of the proposed warehouse solution is based on the fact that the company´s growth will be according to plan

– Initially, the warehouse will only be half full - therefore it also possible to gather external storage of packing materials in the new warehouse

– At 25% yearly growth and unchanged inventory control the warehouse are exercised in 2013

The cost of storage will be lower with the proposed solution compared to the actual externally used WH

– Current costs – External WH 2008: Storage+transports between production and WH 6,0 MSEK +

Packaging mtrl 0,35 MSEK– Forecast 2009: minimum 7,4 MSEK

– Reported draft warehouse solution will already at the low fill rate in the start up phase generate significantly reduced inventory costs

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© UnitedLog 2009

What have you learned today?

Did we manage to fulfill the learning objectives?

Anyone interested in working as a consultant after this lecture?