An introduction to Warehousing

and the underlying facility design

issues
 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,
bureaucracy, etc.
• variations in production times due to unreliable operations, unreliable
suppliers
– Typical economies of scale involved
• Price breaks in bulk purchasing
 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
 The role of consolidation in
contemporary distribution networks
Manufacturers Retailers

Manufacturers Consolidator Retailers

 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.
 A schematic representation of the
warehouse material flow
Replenishment Replenishment

Broken
Case
Reserve Storage Case
Picking
and Picking
Pallet Picking

Accumulation, Sortation & Packing

Direct Direct
putaway putaway
to reserve to primary
Receiving Shipping
Cross-docking
 Typical Stock Keeping Units
(borrowed from Bartholdi & Hackman)
Receiving / Shipping Area
Selective Rack-based Storage
Floor stacking-based Storage
Automated Storage / Retrieval Systems
(ASRS)
Flow rack-based picking
 Readings on Storage and Material
Handling Equipment employed in
Modern Production and Warehousing
Facilities
• Bartholdi & Hackman, Chapter 5 (see the Reading
Assignment at the end of this presentation for the URL for
accessing this book)
• 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
 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
 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)
 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 carrier’s
responsibility).

– Others: Handling returns, and performing the additional value-

added-processing supported by contemporary warehouses, as
discussed in a previous slide.
Operational Cost Breakdown

10%
20%
15% Receiving
Putaway
Order Picking
Others
55%
Some facility design problems particular
to Warehousing facilities

• Allocation of a storage medium to various SKU’s

• Design of the forward area: Given a certain storage size,
which SKU’s to include in it and at what quantities?
• Design of a cross-docking facility
SKU Storage Policies and
Location Assignment
 Storage Policies
• Main Issue: Decide how to allocate the various storage
locations of a uniform storage medium to a number of
SKU’s.

I/O
 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: SKU’s are grouped into classes. Each
class is assigned a dedicated storage area, but SKU’s
within a class are stored according to randomized storage
logic.
 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 <=> reducing the
travel distance
• How? By allocating the most “active” units to the most
“convenient” locations...
 “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)|)
 “Active” SKU’s
• SKU’s 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
 A fast solution algorithm
• Rank all the available storage locations in increasing
distance from the I/O point, d_j.
• Rank all SKU’s 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.
 Example
A: 20/10=2 9 8 7 6 5 5 5 6 7 8 9

8 7 6 5 4 4 4 5 6 7 8
B: 15/5 = 3
5 4 3 3 3 4 6 7
7 6 5
C: 10/2 = 5
6 5 4 3 2 2 2 3 4 5 6
D: 20/5 = 4 5 4 3 2 1 0 1 2 3 4 5

I/O

A A A
A B B A A
A B D D D A
A B B C C D D A

I/O
 Location Assignment under
class-based storage
• Consider that classes are established in such a way that
SKU’s with comparable ratios of TH_i/N_i belong to the
same class.
• Furthermore, with every class c associate two quantities
– N_c = a*S_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 SKU’s i by the set of classes c.
Design of the fast-pick area
 The “fast-pick” or “forward-pick” or
“primary-pick” area

Primary
Restocking picking

Shipping
Receiving
Forward pick
Area

Reserves
picking

Reserves
Area
 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 SKU’s 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.
 Selecting the SKU’s 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, i=1,…,n (cubic ft)
Then, the net annual benefit of allocating fast-pick storage u_i to SKU i, is:

c_i(u_i) = { s*p_i
0
- c_r*(f_i / u_i)
if u_i = 0
if u_i > 0 ($/year)
 Plotting the “net benefit” function
c_i(u_i)

(c_r*f_i) / (s*p_i) : minimum volume to be stored, if any

u_i
 Problem Formulation
max S_i c_i(u_i)
s.t.
S_i u_i  V
u_i  0,  i

A near-optimality condition:
• The SKU’s 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 / S_j  f_j) * V
Algorithm for computing a near-optimal
solution
• Sort all SKU’s from most viscous to least (p_i /  f_i)
• For k = 0 to n (total number of SKU’s):
– Compute the optimal allocation of the fast-pick storage if it
accommodates only the first k SKU’s 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.
Example for Fast-Pick Area design

Developed in class – c.f. your class notes!

Crossdocking
 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.
• => Just-In-Time for distribution
 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.
 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
 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)
A cart dragline example
 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
 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.
 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.
 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
– => The alternating heuristic produces solutions that are typically 10%
better than the solutions produced by the block heuristic.
 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.
 Reading Assignment
• Bartholdi & Hackman,
http://www.isye.gatech.edu/people/faculty/John_Bartholdi/wh/book/wh-
sci.pdf
– Chpts 1-3
– Chpt 6, Sections 6.1-6.2
– Chpt 9, Sections 9.1-9.5, 9.7
– Chpt 13
– More generally, I would suggest that you read the rest of this book at your free
time, since it strikes a very nice balance between theoretical insights and
practice.

• An interesting site:
– http://web.nps.navy.mil/~krgue/Crossdocking/crossdocking.html