Warehouse design There are many activities that occur as part of the process of getting materials into and

out of the warehouse. Numerous product transformations take place. For example, incoming products on pallets are stored in a pallet rack. Individual cases, i.e. boxes filled with products, are removed from a pallet and stored in another area of the warehouse. Individual products (items) are removed from the cases in response to customer orders. A warehouse generally consists of several areas. We describe some of the most common areas and some product flows from area to area. This description is given to relate an impression of warehousing activities and by no means exhaustive of all situations possible. Processes at warehouses A warehouse consists of various areas in which different kinds of logistics activities are performed. The products are transported between these areas in the warehouse by internal transport systems. The following figure illustrates the various processes and related areas at a warehouse. Receiving and control area In the receiving and control area arriving trucks are emptied and arrived products are checked on amount and quality. Products can be transported directly to the shipping area (crossdocking) or they can be stored in the storage area. Storage area Products can be stored on, for example, pallets. These pallets are stored on the ground, on top of each other, or in racks. Racks are placed in rows with aisles in between. The storage area is divided in a number of blocks with sub aisles. Cross aisles are positioned at the front and back of the storage area and between blocks. They are used to change aisles. The following figure represents an example of a storage area consisting of one block. Each square indicates a storage location. Aisles can be changed at the front and back of the storage area. After a certain period of time products are retrieved from storage such that they can be transported to customers. This process is called order picking. Complete pallets, cases or just individual items are collected. Order pickers walk through aisles to collect the items from the order. To pick pallets storage and retrieval machines can be used, which travel through aisles to collect orders. Commonly, a number of individual items (which locations are indicated by black squares in the figure are retrieved by an order picker in a route starting and ending at the depot. The time required to pick an order consisting of a number of items consists of several parts, namely walking or driving between indicated locations, collecting products, collecting information about locations and returning the full vehicle to the location agreed upon. Pallets are usually retrieved by a unit load system. In this case a storage request is in practice usually combined with a retrieval request in one trip of the system. The pallet is stored at its location. Thereafter, the storage and retrieval machine travels to the location a pallet need to be retrieved. The trip ends the moment the pallet is delivered to its destination

Accumulation and sorting area It might occur that the collection of products have to be regrouped or split after the orderpicking process such that they match with the orders. This is done in a so-called accumulation and sorting area. Shipping area In the shipping area, the orders are loaded into trucks, such that they can be delivered to customers. Cross-docking By introducing cross-docking the two most expensive processes in warehouses, storage and orderpicking of goods, can be eliminated. Cross-docking is defined as follows: transporting goods from the receiving area to the shipping area with as little time as possible inbetween, and without storage. When an incoming truck arrives at a cross-docking centre, it is assigned to an open door or it is sent to a queue. Workers unload the truck and deliver the incoming products to the stack door designated to receive these specific loads. The unloading continues until the truck is empty. The truck is driven away and a new truck arrives to be unloaded. At the doors designated for leaving trucks, outgoing products are stored temporarily or loaded directly into the truck. Temporary storage occurs if the centre is too busy or if the specific truck is not there. The following figure gives an illustration of a possible layout of a cross-docking centre. Design of warehouses Facility design planning concerns the decision making needed to establish a facility for efficient handling of incoming and outgoing products. The first decision to take is whether a warehouse is needed at all. In some cases, it may be possible to ship products directly from the producer to the customer. However, as noted in the beginning of this chapter, many reasons exist why a warehouse may be useful in the logistics network. If a warehouse is needed, then a choice has to be made between contract warehousing (i.e. a third party takes care of the warehousing) or warehousing by the company itself. Next, the number and location(s) of the warehouses have to be determined. The decisions noted here could be made sequentially, but can also be treated as joint decisions. After deciding that a warehouse is to be built at a certain location, its size, shape and contents need to be established. Regarding practical implementations it is often the case that various aspects of the design are executed in a fixed sequence. Typically, one may first decide on the storage requirements and layout, then determine the storage systems and handling equipment and finally give thought to the operating policies and information flows. However, for a good design it is necessary to consider all aspects of the design in relation to each other. This reasoning is important because, for example, the equipment choice influences the floor space needed. When determining a layout without considering the operating policies, one may at some point find out that it is impossible to achieve the proposed performance with any existing operating policy, because the layout is inadequate. It may not be necessary to specify operating policies in full detail at an early point in time, but they have to be accounted for. Without passing over the interaction between the various components of design, we discuss the aspects of sizing, system selection and layout separately.

Sizing One important part of designing a warehouse is the determination of its size. The size can usually not be chosen freely. Height and total floor space may be restricted due to government regulations or nearby constructions. When determining warehouse size it is not only important to consider current needs, but also to take into account seasonal influences and estimates of future trends. Additionally, the type of operation that will be performed inside the building is very important. A picking operation where order pickers walk through the facility needs more floor space than an automated storage / retrieval system that can store pallets at heights of 20 meters. Space is, for example, required for: storage dock doors picking operations packing returns aisles offices restrooms Layout of warehouses We can distinguish two types of layout decisions. Firstly, the decision on where to place the various departments (receiving, order picking, sorting, etc.) and secondly to determine the layout within the various departments. Positioning of various departments The layout of a warehouse should be as efficient as possible. Efficiency includes, for example, traveling as little as possible with products. Therefore, the objective of layout optimizations is generally to find a layout that results in the lowest material handling costs. These material handling costs are often interpreted as transportation costs, which in turn are often treated as a function of travel distance. Before positioning departments, you need to locate fixed aspects of the layout (those that cannot be changed in the future). Examples are: Columns for roof support Dock doors Exit doors There are a wide variety of methods to determine layouts. We present one of these methods in more detail: The transportation costs are often approximations. For example, it is common to assume that all flows go from the center of one block along a straight line to the center of another block. We define the weighted distance between departments as the distance from the middle of one area to the middle of another area multiplied with the amount of products that have to be transported between these areas. The objective is to position the departments such that these weighted distances between the departments are minimal. The more products need to be transported between two departments, the more we prefer that they should be located close to each other.

An U-layout is appropriate for regular warehousing activities and for warehouses with a high productivity. The various departments can be positioned as follows in a U-layout: An I-layout is appropriate for high volume cross-docking. There is an easy access to transport, by locating the arriving dock doors and leaving dock doors at opposite sides of the building. The various departments can be positioned as follows in an I-layout: Except for minimising travel distances several other considerations need to be taken into account in determining a layout for a warehouse. Security aspects need to be taken into account. In this context, one of the objectives of the management might be to reduce theft of products from the warehouse. Furthermore, regulations need to be taken into account. Examples of these regulations are: Governmental regulations Demands fire department Personnel requirements Daylight Demands insurance company Floors Conditioning Layout of various areas The second layout decision is concerned with the contents of the blocks. For example, we have to determine the number of aisles in the order picking area. If we wanted to design an order picking area with a certain fixed storage capacity, then we could choose to have a few long aisles or to have many short aisles. The goal is to determine a layout that is good, for example with respect to travel times. System selection Material handling systems consist of the material handling equipments, the personnel, information, materials and the related planning and control systems. Several factors play a role in the material handling system selection. For example, the physical properties of the products (e.g. size, weight, required temperature and flammability), are important to know before deciding on storage and handling equipment. Also transaction data such as order data are important since a warehouse that receives only a few orders per day may need a different structure from a warehouse that gets thousands of orders a day. Economic constraints, such as budget and project life, and environmental constraints, such as safety requirements, each have their effect on design. Furthermore, an analysis of system requirements (throughput, inventory) and system alternatives (hardware, operators) gives insight into capabilities and requirements for the system. Finally, the performance of the systems as influenced by the operating policies must be analyzed. We distinguish two types of handling equipment, namely: Picker-to-part: The order picker moves to the requested products and puts them onto his vehicle. Part-to-picker: The products move to the order picker and the order picker retrieves the products from the system

Operating policies Operating policies are decision rules that can be used to control various processes in a warehouse. For example, the assignment of orders to order pickers needs to be determined frequently. Another decision that has to be made is the determination of storage locations for incoming loads. The effectiveness of operating policies depends, apart from the efficiency of the policy itself, also on factors such as layout, truck schedules that have to be met and order data. For example, if the warehouse receives many small orders, then it may be advantageous to let the order pickers pick several orders at the same time. However, if orders are large they may have to be split to make the order fit in the picking vehicle. For any existing warehouse, it may be advantageous to re-evaluate the operating policies occasionally. For example, an important trend in warehousing is that the number of orders increases, with a simultaneous decrease in the size of each individual order. If this is the case, the company may need to shift to a different means of retrieving orders from storage. We divide the operating policies into four types: storage policies, order picking policies, sorting policies and other policies.

Warehouse location Organisations in a supply chain can be considered as nodes in a network. Between these nodes logistics activities, like transport of products occur. Within nodes, logistics activities are also performed. An example of a node in a supply chain is a warehouse. Types of warehouses In supply chains warehouses are used to store inventories of raw materials, semi-finished products and finished products. Three types of warehouses can be distinguished, namely distribution centres, production warehouses and public warehouses. In distribution centres, products from several suppliers are stored before delivery to customers. Products and materials in a production environment are stored in production warehouses. Inventories are held to respond quickly to fluctuations in demand and production and to ensure same day delivery. Public warehouses are warehouses of third party logistics providers. Companies can decide to outsource the storage of their products to third party logistics providers. As a result these products will commonly be stored at a public warehouse. Functions of warehouses Except for the storage of materials, products from several producers can be combined for delivery to joint customers. The finishing touch to products is also performed in warehouses. Products are made customer specific by adding labels and so on. Summarising, we can distinguish the following functions of warehouses: to facilitate the coordination between production and customer demand by buffering (storing) products for a certain period of time, to accumulate and consolidate products from various producers for combined shipment to common customers, to transship products from one mode of transportation to another

to split large quantities, to provide same-day delivery to important customers, to support product customization activities (value added logistics), such as packaging, labeling, marking, pricing or even final assembly.

Location of warehouses One of the logistics decisions in a supply chain that needs to be made concerns the choice of the location(s) at which the warehouse(s) will be built. Two questions arise, namely how many warehouses need to be built and at which locations will the warehouses be built. To answer these questions it is important to analyse at least the following: Type of materials Geographical location of suppliers Geographical location of customers Modes of transportation used for the transport of incoming and outgoing goods Minimum and maximum amount of goods to be handled Costs for transport, handling and storage Who is executing distribution function (supplier, factory or third party logistics provider) Taking into account the answers to these questions, the number of warehouses and their locations can be determined by applying analytical and heuristic methods. Number of warehouses To calculate the optimal number of warehouses from a minimal costs perspective, we need to consider the following costs: transportation costs warehousing costs inventory costs Thereafter, we need to minimise the sum of the transportation costs, warehousing costs and inventory costs. The number of warehouses has been found if this sum is minimal. Location models We will consider three models which can be used to decide on the location of a warehouse. Namely, the factor rating method, the cost volume analysis and the center of gravity method. Factor rating method Both qualitative and quantitative factors influence the choice for a certain location. To use the factor rating method possible locations for the warehouse need to be known. The following steps need to be performed by logistics managers in the factor rating method. First, one needs to decide which relevant factors influence the choice for a location. Examples of these factors are labour availability and level of education. Thereafter, weights (on a scale from 0 to 1) need to be assigned to each factor to express the importance of each factor. The higher the weight, the higher the importance of a factor in the decision. The sum of all weights should be equal to 1. For example, the weight assigned to the factor labour availability equals 0.30.

Examine the value of each factor at each location. Score each location for each factor on a predefined scale (for example from 0 to 100). For example, the availability of labour at location A is higher than at location B. The management decides to give location A a score of 70 and location B a score of 50 on the factor labour availability. Multiple for a location the score of each factor by its weight. Sum all these results and you have obtained a total score for a location. By doing this for all locations, you can compare the various locations. The location with the highest score might be the best location to locate your warehouse Keep in mind that no exact results can be obtained due to the subjectivity of the weights. Better results might be obtained by varying the weights and by examining if the final results vary and in which way. Cost volume analysis Except for a subjective factor analysis, managers can also decide to make an economic comparison between known locations. This economic comparison is based on an analysis of the fixed and variable costs of each location. Fixed costs are, for example, costs for the building and trucks. Variable costs are costs per product or costs per kilometer. The following steps need to be performed by logistics managers in the cost volume analysis. First, the fixed and variable costs for each location need to be determined. Plot the costs for each location in a diagram. On the horizontal axis we present the number of products kept in inventory (for example on an annual base). On the vertical axis, the costs are presented. Depending on the number of products sold, one location will be more preferable than another. The lines for the various locations probably cross at some points. At this crossing-points (i.e. break-even points), the preferability for a certain location will change. To express the relation between the number of products kept in inventory and the best location, you need to determine the crossing-points of the various lines. We present the fixed and variable costs for a location in a mathematical way in the following way: equation location A : fixed costs of A + (variable costs of A)*x where x equals the number of products sold. Break-even points can be determined by equalising the equations of the related locations. Center of gravity method The factor rating method and the cost volume analysis can be used if alternatives locations are known. In the case that you are free in choosing a location you can use the center of gravity method. This is a mathematical technique for finding an optimal location for a single warehouse. The objective of this method is to minimise the costs for the distribution of products (i.e. transportation costs). To use this method information on the following items should be available:

 location of customers (e.g. retailers and wholesalers) volume of goods to be shipped to those customers costs to ship goods to those customers We assume that the transportation costs are directly proportional to the distance to be travelled and to the volume to be transshipped. First, we place the locations of customers on a coordinate system. The origin and scale can be chosen arbitrarily. However, relative distances between customers should be represented correctly. For each customer we define a x-coordinate and a y-coordinate. To reduce costs it might be better to transship large volumes of goods over small distances. In that case the warehouse should be located near the stores with high demand. The distance and the number of products shipped influences the total costs. The center of gravity method weights the distance by the number of products transshipped in the following way: x-coordinate of location i * quantity (=Q) of goods of location i y-coordinate of location i * quantity (=Q) of goods of location i. Thus, the more products to be shipped, the more important the customer and the more value is given to the distance to be travelled. The ideal location of the warehouse minimises the weighted distance between the warehouse and its customers. Thus, we calculate the x and ycoordinate of the ideal location by summing all the weighted distances of each of the locations and thereafter, dividing this sum by the total amount of products to be shipped. Mathematically, the coordinates of the ideal location are: Transportation Transportation refers to the movement of raw materials, semi-finished products, finished products or people from one node (e.g. suppliers) to another node (e.g. factory) in the supply chain. We distinguish between the following modes of transportation (modalities): railroads (trains) air (planes) roads (trucks) water (ships) pipelines In choosing a certain mode of transportation we can consider several criteria for selection. Some of these criteria are: Availability: Does a transportation network already exist and can it be used? Accessibility: Is it possible to reach the final destination directly by using a certain mode of transportation Speed: With which speed can products be delivered to customers? Costs: Against which costs (e.g. per kilometer, per hour) can a product be delivered to a customer? Frequency: How often can a transportation network be used? Are there restrictions on usage? Limitations: Are there any volume and or weight limitations on the transportation mode? Rules: Are there any (governmental) shipping rules which restrict the transport of certain products by a certain transportation mode? Risks: Will there exist any security or safety problems during the transport of products? Delays: Are traffic jams or delays in unloading times to be expected?

Planning of routes After choosing a certain mode of transportation, we need to plan the routes from the origin to the various destinations. Thus, in which order (sequence) will the customers be visited and which amounts of products are transported from which origins to which the customers to meet their demands. Examples of thee objectives in the planning of routes are: Minimise total transportation distance Minimise transportation costs Minimise travel times Maximise number of customers which are visited on time Examples of related constraints are: Capacity and maximum speed <= allowed values Demand of each customer is fulfilled Travel time <= travel time which is allowed Delivery time <= time agreed on A related mathematical formulation in this area is the Transportation Problem. Problems in this class have two characteristics, namely: products need to be transported from several origins (sources) to several destinations (sinks) at each source a fixed number of products is available to meet the fixed demand of each of the sinks. Quantitative models to solve transportation problems will be explained and can be practiced at the item "Transportation Model" in the menu. Trends Several trends can be examined in the transportation of products and people between the various nodes of a supply chain. We discuss two of these trends. Trends: bundling of transport Currently, most partners in supply chain arrange their own transport. Furthermore, it is not common to combine transportation requests of several partners in a supply chain in one truck. As a result, transportation costs are high and sometimes trucks travel half empty to their destinations. Transportation costs will decrease if partners in a supply chain communicate on their plans to transport products and combine their requests in one transport. Even better would be to bundle transportation requests over various supply chains. For example, the bundling of the transport of cars of Ford, Mercedes, Volvo on one single train. The bundling of transport might results in smaller transportation costs, less road kilometers and positive environmental effects.

Trends: tracking and tracing To improve the performance of the transportation process, communication is of great importance. In a tracking and tracing system partners in the supply chain communicate on the status of orders. Furthermore, companies communicate with their customers on the status of their orders. To establish a fast and reliable communication network, Internet can be used. Online information can be shared between the various partners and their customers in the supply chain. Information on, for example, the following items will be provided: arrival time proof of delivery at airport proof of delivery at central distribution centre delivery data