An Introduction to Warehousing

1
An Introduction to Warehousing
2
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

3
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

4
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

5
The role of consolidation in contemporary
distribution networks
Retailers
Manufacturers
Manufacturers
Retailers
Consolidator
6
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.

7
A schematic representation of the warehouse
material flow
Replenishment
Replenishment
Reserve Storage and Pallet Picking
Case Picking
Broken Case Picking
Accumulation, Sortation Packing
Direct putaway to reserve
Direct putaway to primary
Receiving
Shipping
Cross-docking
8
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

9
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)

10
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 carriers responsibility).
• Others Handling returns, and performing the
  additional value-added-processing supported by
  contemporary warehouses, as discussed in a
  previous slide.

11
Operational Cost Breakdown
10
20
15
55
12
Some facility design problems particular to
Warehousing facilities

• Allocation of a storage medium to various SKUs
• Design of the forward area Given a certain
  storage size, which SKUs to include in it and at
  what quantities?
• Design of a cross-docking facility

13
SKU Storage Policies and Location Assignment
14
Storage Policies

• Main Issue Decide how to allocate the various
  storage locations of a uniform storage medium to
  a number of SKUs.

15
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 SKUs are grouped into
  classes. Each class is assigned a dedicated
  storage area, but SKUs within a class are stored
  according to randomized storage logic.

16
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 ltgt reducing the travel distance
• How? By allocating the most active units to the
  most convenient locations...

17
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))

18
Active SKUs

• SKUs 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

19
A fast solution algorithm

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

20
Example
A 20/102
B 15/5 3
C 10/2 5
D 20/5 4
A
A
A
A
A
B
B
A
D
D
D
A
B
A
B
A
C
C
D
D
A
B
21
Location Assignment under class-based storage

• Consider that classes are established in such a
  way that SKUs with comparable ratios of TH_i/N_i
  belong to the same class.
• Furthermore, with every class c associate two
  quantities
• N_c aS_i N_i where a ? (0,1)
• TH_c S_i TH_i
• Then, the logic developed for the location
  assignment under dedicated storage applies
  immediately when replacing the set of SKUs i by
  the set of classes c.

22
Design of the fast-pick area
23
The fast-pick or forward-pick or
primary-pick area
Primary picking
Restocking
Shipping
Receiving
Forward pick Area
Reserves picking
Reserves Area

24
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 SKUs 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.

25
Selecting the SKUs 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,
  i1,,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
(/year)
sp_i - c_r(f_i / u_i) if u_i gt 0
26
Plotting the net benefit function
c_i(u_i)
(c_rf_i) / (sp_i) minimum volume to be
stored, if any
u_i
27
Problem Formulation

• max ?_i c_i(u_i)
• s.t.
• ?_i u_i ? V
• u_i ?? 0, ? i
• A near-optimality condition
• The SKUs 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

28
Algorithm for computing a near-optimal solution

• Sort all SKUs from most viscous to least (p_i /
  ? f_i)
• For k 0 to n (total number of SKUs)
• Compute the optimal allocation of the fast-pick
  storage if it accommodates only the first k SKUs
  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.

29
Crossdocking
30
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, 334, pg. 419-428, November, 1999.
• An interesting site
• http//web.nps.navy.mil/krgue/Crossdocking/crossd
  ocking.html

31
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.
• gt Just-In-Time for distribution

32
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.

33
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

34
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
distinct destination.

• 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)

35
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

36
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.

37
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.

38
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
• gt The alternating heuristic produces solutions
  that are typically 10 better than the solutions
  produced by the block heuristic.

39
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.