Storage and Handling Decisions

1. Storage and Handling Decisions • One-quarter of non-inventory logistics costs • labour • space • equipment • materials • Inventory storage • Materials handling

2. Reasons for Storage • Transportation and Production Cost Reduction • economies of scale • accumulation of orders • Co-ordination of supply and demand • build inventory for seasonal demand • take advantage of fluctuating prices • Production Needs • aging process • “bonded” warehouse to save tax • Market considerations • inventory located close to customers for quick response

3. Storage Functions • Holding • Consolidation • Break-bulk • Mixing of products

4. Storage Alternatives • Owned space • less expensive, esp. if utilization high • better control of operations • can integrate space with sales, purchasing, etc. • capital investment • real estate appreciation • conversion to other uses • Rented/Leased space • no fixed investment • lower cost (especially for seasonal goods) • location flexibility • Storage in Transit • goods remain in transportation equipment • good for seasonal goods and long transportation distances

5. Storage Facility Planning and Design • Site selection • Facility sizing • Space configuration • Space layout • Dock design • Material handling system selection • Stock layout and location

6. Sizing the Facility • Length? Width? Height? • Capacity? • physical space • material handling system used • aisle and dock requirements • stock layout • product characteristics • Capacity needs • seasonal • future trends? • Financial considerations • own or rent • Net Present Value (NPV) • Internal Rate of Return(IRR) • compare with hurdle rate

7. Facility Configuration • Ceiling height • construction vs. material handling costs • Length vs. width • depends on dock locations Space Layout • number and orientation of shelves • minimize: • access costs • warehouse area (fixed) costs • warehouse perimeter (construction) costs Dock Design • length of rail dock • no. of truck dock doors

8. Material Handling Decisions • Loading/Unloading • Movement to/from storage • Order-filling • Goals: • reduce handling cost • reduce distance travelled • increase unit size handled • seek round-trips • increase space utilization Co-ordinated decision with storage system design

9. Material Handling Considerations • Warehouse design • multi-floor? Narrow aisles? • Space layout • layout for storage • wide and deep storage bays • high stacking • narrow aisles • high space utilization • difficult retrieval • layout for order-picking • modified area system • reserve area • order-picking area • specialized order picking equipment • flow racks, conveyors, scanners

10. Material Handling Considerations • Movement equipment choice • manual • flexible, low costs • Power-assisted • cranes, elevators, hoists, conveyor belts, etc. • forklift + pallets most popular • Fully mechanized • AS/RS (Automated storage and retrieval systems) • risk of mechanical failure • better control and tracking • Choice depends on storage volume & usage pattern • low utilization => manual • steady volume => automated • NPV comparisons

11. Material Handling System Design -- Considerations • Load unitization • larger loads => fewer trips => less costs • consolidation • palletization and containerization • international standards? • Supplier/customer compatibility • Storage equipment choice • racks, shelves, boxes or bins • product characteristics • bulk items? Mixed orders? • System reliability and flexibility • Equipment depreciation and operating costs • Obsolescence • “next-generation” equipment more efficient?

12. CRAFT(Computerised Relative Allocation of Facilities Technique) • Tries to place departments with large interdepartmental traffic adjacent to each other • Data requirements: • interdepartmental flow • cost per unit distance travelled • SPACECRAFT • multi-storey layout

13. CRAFT • Cost of layout = pairwise sum of (flow)(distance)(cost/unit distance) • Heuristic: • starts with an initial layout • interchange of locations of two departments if cost reduced • stop when no pairwise improvements found • Limitations: • optimality not guaranteed • distance may not be reflect true material handling costs • Assumes every department same-sized and rectangular

14. Warehouse Layout • What merchandise to put where? • Minimize material handling • maximize space utilization • meet order picking needs • Stock retrieval • out-and-back • picker routing • order-picking zones

15. Intuitive method:Main criteria • Complementarity • items often ordered together located close to each other • Compatibility • similar product characteristics • balanced workload for picker zones • Popularity • high turnover items (esp. break bulk items) close to outbound staging area • Size • smaller items near the outbound point

16. Heskett (1963): Cube-per-order index COI = avg. required cubic storage footage average number of orders Davis, Gabbard & Reinholdt (1983) compared 4 strategies by simulation • Alphanumeric placement • Fast/Other (2-level) placement • Frequency placement • Selection density placement (COI) COI lowest avg. distance per trip, lowest avg. time per trip, lowest time per item selected, least space required.

17. Two-stage Layout • Received goods first stored in reserve area • Order filling takes stock from assembly area • As stock depletes, replenish from reserve to assembly area Where to place product in the warehouse? How much to put in each area? LP/IP model

18. LP/IP Model for Two-stage Systems (see pages 479-480 of Ballou)

19. Stock Location • Fixed locator-identification • easy to remember • under utilization of space • Random locator-identification • needs effective retrieval methods, usually automated • longer travel time in order picking • Hybrid approach • zones fixed • random location within zones Stock Arrangement • On-the--square • Angular pallet placement • wasted space at corners • narrower aisles okay

20. Order Picking Operations • Order handling • product sequencing • picker zoning • order splitting • item batching • Interleaving • storage and order picking at the same time

21. Storage Facility Planning and Design-- Summary • Facility sizing, configuration and layout • Material handling system selection • Stock layout and location Decisions interlinked