Warehouse and Distribution Science

CHAPTERS 1 3 WAREHOUSE OPERATIONS

Definition of a Warehouse
Warehouses are points in the supply chain where

product pauses and is touched. Consumes both space and time (person-hours).

Why have a warehouse?

To better match supply with customer demand

To consolidate product, reduce shipping cost

Types of Warehouses
Retail Distribution Center (DC)

Service Parts DC
Catalog fulfillment or E-commerce DC 3PL Warehouse

Perishables Warehouse

Warehouse Systems Determined by

Inventory characteristics Number of products, size, and turn rates Throughput and service requirements Number of lines picked and orders shipped per day Footprint of building & cost of equipment Cost of labor

Material Flow

Fluid Flow Model of Product Flow

Insights from Fluid Dynamics: fluid flows faster in

narrower segments of pipe than wider segments Implies on average, an item will move more slowly through the region with large inventory than it will through a region with little inventory.

Figure 2.1

General Warehouse Guidelines from Fluid Model

Keep the product moving Avoid starts and stops which require extra handling and additional space Avoid layouts that impeded smooth flow Identify and resolve bottlenecks to flow

A product is generally handled in smaller units as it moves down the supply chain. A stock keeping unit, or sku, is the smallest physical unit of product that is tracked by the organization.

Upstream in the SC, flow is in larger units, like pallets.

Product is successively broken down into smaller units as it moves downstream.

Figure 2.2

Popularity vs Volume (flow)

Popularity (number of times requested or picks) is NOT highly correlated with physical volume (flow) of a sku.
Makes warehouse design difficult because it is hard to design processed that work well with skus that me be any combination of popular/unpopular nad low-volume/highvolume.

Figure 2.3

The most popular 20% of SKUs

This plot is the same skus ranked from most popular to least.
This is a typical plot that shows that a small fraction of the skus account for most of the activity. (80%/20% rule) It is easy to design processes for popular skus because they are fairly predictable.

Figure 2.4

The remaining 80% of the SKUs

Conisder the skus in the long-tail of the curve, the 80% that are requested infrequently.
Impossible to know which of those skus will be requested tomorrow. They occupy most of the space of the warehouse. Have high safety stock.

Figure 2.4

Two Warehouses in One

Essentially you have 2 warehouses:

The first warehouse Organized around a small set of predictably popular skus Easy to plan for Challenge is to manage flow efficiently Labor intensive
The second warehouse Predictable in aggregate only Harder to plan for Space intensive Challenge to hedge space and labor tradeoff

Dedicated Storage
Each location is reserved for an assigned product

Simple to implement
Store more popular items in more convenient

locations Workers learn the layout making picking more efficient Does not use space efficiently on average half full

Inventory Level
Idealized representation of how inventory level at a location changes over time
Average inventory level over time 50%

Figure 2.5

Shared Storage
Assign a product to more than 1 location, when a location

is empty it is available for reassignment More locations, less product in each location, so space is recycled sooner Better utilization of space than dedicated storage Need Warehouse Management System (WMS) to direct workers More time consuming to put away Requires worker discipline to pick where directed not where most convenient May have more discrepancies between book and physical inventory

Theorem 2.1
When a sku is stored in k locations of equal size the

average space utilization is k/(k + 1). Moving from 1 location to 2 locations, improves utilization from 50% to 66% Increasing the number of locations increases utilization, but the improvement diminishes as k increases. Increasing the number of locations also increases the management required.

Storage In Practice
Typically the actual space utilization for shared

storage is slightly less than the value from Theorem 2.1 Shared storage is more often used for bulk storage areas (i.e. pallets) Dedicated storage for the most active pick area, where the area is smaller and labor benefits matter most.

Illustration of Shared & Dedicated Storage

Example of a Hybrid System

Warehouse as a Queuing System

A queuing system is

where customers arrive and join a queue to await service by any of several servers. After receiving service, the customers depart the system. Fundamental result of queuing theory is Littles Law.

Theorem 2.2 (Littles Law) For a queuing system in steady state that average length L of the queue equals the average arrival rate times the average waiting time W. =

Littles Law Example

Warehouse with 10,000 pallets that turn an average of about 4 times per year. L = 10,000 W = year
10,000 pallets = 1 4 year
40,000

What labor rate is necessary to support this? Assuming one 8-hour shift per day and about 250 working days per year, there are about 2,000 working hours/year.
40,000 2,000

20 pallets/hour

Super Club Music

Super Club distributes recorded music to retail stores. Such physical distribution of music is, of course, a dying enterprise, as it is being replaced by distribution via the web. Super Club stores are divided in to routes and each route is visited by a delivery truck once a week on a regular day. Each day they pick for about 8 routes, which total about 100 stores. On average each store orders about 50 sku's and about 3 of each sku, for a total of about 15,000 pieces per day. The warehouse knows these orders a day in advance of picking and so can plan its work in advance.

Unique challenges
A very, very few sku's will be very, very popular and most sku's will scarcely sell at all. In fact, it is not unusual for 20 percent of the sku's to sell one or fewer copies over a year. Popularity is very fleeting; what is a popular product now may be dead in two weeks. A large number of returns in the music business

More information http://www.warehousescience.com/?b6a9d0d0

Super Club Music

Pallet rack Static shelving with overstock on top

Super Club Music

Typical shelf 48 bays of flow rack

Super Club Music

Packing orders into cartons
Pick face of flow rack

Warehouse Operations
Most of the expense in a typical warehouse is LABOR.
Most of the labor cost is ORDER-PICKING.

Receive

10 % of operating cost 15% of operating cost

Put-away

Store

Non-value added
55% of operating cost 20% of operating cost

Most of the time in order-picking is in TRAVEL.

Pick

Pack, Ship