warehouse operations and inventory management
DESCRIPTION
Companies that make the best use of the basic principles of planning and managing warehouse operations and inventory management have a competitive advantage. Organizations that lack warehouse strategic planning and inventory operational excellence lose profits, market share, cost advantages, and market leadership. Traditional Supply Chain and Logistics channels are indeed changing. As organizations move from mass production and mass distribution to mass customization, creative approaches are needed in the management of warehousing and inventory. The challenge is always present, because different customers may demand different levels of service. Demand often cannot be forecasted, especially if one must deliver customized products or services exactly where the customer needs them. Businesses today must understand that they are competing on the basis of time more than on any other factor. The rigors of supply chain management require that you take action to meet your customers’ demand for faster, more frequent, and more reliable deliveries. Your suppliers need to meet increasingly precise inbound schedules. Tomorrow’s customers are more likely to be in another country or continent than they are likely to be from across town, in another state, or in another province. With a proven inventory management system and an A-B-C Analysis, you can transform your inventory into a proactive force that lowers your inventory investment, reduces carrying costs, boosts confidence in physical supply and distribution service levels, and increases customer and user satisfaction. From a storage and distribution perspective, you, as overseer of the supply management process, should also know how the warehousing layout design criteria and the space and storage schemes affect your material flow, service levels, computerization, and technology options.TRANSCRIPT
Warehouse Operations and Inventory Management:
A Supply Management Interface
A Joint NAPM/APICS Presentation
12 January 2005
to
NAPM- Tulsa
by
Thomas L. Tanel, President and CEO
CATTAN Services Group, Inc.
College Station, [email protected]
979 260-7200
© 2005 CATTAN Services Group, Inc.
Process Owner Considerations
• Receiving and Dock Operations
• Order Picking and Travel Time
• Cycle Counting
• Productivity and Warehousing
• Keys to Process System Reengineering
Inside Dock Space Requirements
Buffer & Staging Area Buffer & Staging Area
DOCK
LEVELER
DOCK
LEVELER
DOCK
LEVELER
DOCK
LEVELER
DOCK MANEUVERING AREA--15-FT CLEAR AISLE to UNLOAD/LOAD
What Consumes A Picker’s Time
Cycle Count Reports
QUANTITY DOLLARSITEM
NUMBERLOCATION
ON HANDCYCLE
COUNTVARIANCE UNIT COST ON HAND VARIANCE
CLASS
1905 C-6 50 40 -10 50 2,500 -500 B
9232 M-10 100 110 +10 100 10,000 +1,000 A
488 A-4 500 450 -50 10 5,000 -500 B
4029 F-9 200 195 -5 2 400 -10 C
What should be done as a result of this cycle count?
Rate Yourself on Productivity
1. Do I understand the primary warehouse cost centers and their relationship to throughput, transaction volume, and order frequency?
2. Do the warehouse employees fully understand the company’s goals and objectives?
3. Are other allied functional areas coordinated with the warehouse on a periodic basis, and are warehouse standards of performance understood?
Rate Yourself on Productivity (continued)
4. Can we measure the efficiency and effectiveness of my warehouse’s work?
5. Are all warehouse employees capable of performing tasks assigned without constraint or limitation by other business functions?
6. Does warehouse management make effective use of warehouse assets (labor, equipment, space, and time) to get the job done?
Rate Yourself on Productivity (continued)
7. Do I encourage innovation and teamwork?
8. Do I have a plan to periodically evaluate my warehouse’s productivity and continually seek improvement?
9. Are our people well-qualified to do their assigned jobs?
10. Is material handling equipment distributed for maximum utilization?
Keys to Process System Reengineering
• Change is managed like day-to-day operations• Senior executive champions the program• Focus on real productivity and total costs• Use the “Little Plus” Method
What about the adage, “If it ain’t broke, don’t fix it”?
It is not as though you are safe where you are. Even in biology, species which do not adapt risk extinction. Though it may not be “broke” now, the last person trying to fix it is in deep trouble. …But then again, the first person adapting to change is taking risks, too!
The Warehouse’s Ultimate Objective
The ultimate objective of the warehouse is to hold the minimum operational inventory that contributes the most profits or satisfies needs
—as long as that level is consistent with your customer service or internal user
requirements and ordering and planning philosophy.
Optimize Inventory Performance
• Fine tune forecasting to reflect changes in information to:– Alter ordering and delivery frequency
– Smooth out flow of materials and information
• Use an A-B-C Inventory Stratification Analysis to:– Look at demand patterns
– Determine stocking policy
– Set customer service levels
• Forecasting estimates future events by casting forward past data:
Past data is combined in a system to estimate the future
Prediction estimates future events based on subjective material
These criteria need not be combined systematically
Forecasting is a judicious combination of: Statistical analysis of historical data Marketing/Service plans and strategies Analysis of market competition Current market or internal customer needs Selected economic and industry trends
Remember to forecast in units, not dollars. We don’t ship or issue dollars, we ship or issue units (pieces, weight, pallets, gallons etc)
Forecasting versus Prediction
Demand Chain—Pull Vs Push
SUPPLY
DEMAND
Forecasted
Demand
Actual
Demand
PULLPULL
PUSHPUSH
INVENTORY
PHYSICAL
TOBOOK
REPLENISHMENT
VS
Inventory: The $upply Management Dilemma
CO$TTradeoffs
Purchasing
& Supply
Inv Control
& Operations
Traffic &
Distribution
Purchasing
& Supply
Procurement
Versus
Quantity
Inventory
Versus
Procurement
Inbound Freight
Versus
Procurement
Inv Control
& Operations
Procurement
Versus
Inventory
Inventory
Versus
Operations
Storage Space
Versus
Inventory
Traffic &
Distribution
Procurement
Versus
Inbound Frt.
Inventory
Versus
Storage Space
Shipping
Versus
Customer Svc
Supplier
Purchased Parts & Material
Work in Process
Factory Finished
Goods
WarehouseWarehouse Warehouse
Customer Demand
Customer Demand
Customer Demand
Inventory Movement and Supply Chain Flow
BB
CC
Volume (Percent)
Number of Items (Percent)
5020 100
100
80
15
5
0
AA
ABC Classification and Pareto’s Law--Volume versus Number of Items
% of Items% of
Activity
% of Inventory Volume
Class Cum Cum
A 20 20 80 50 50
B 50 30 15 83 33
C 80 30 4 95 12
D 100 30 1 100 5
Applied Pareto’s Law--ABCD
Microsoft Business Solutions—ABC Layout by Location
Source: Microsoft Business Solutions—Winning Strategies for Distribution
Warehouse Layout and Inventory Profile
Satisfaction Guaranteed — What Is the Cost?
• It is 5 times more expensive to gain a new customer than it is to satisfy an existing one.
• 7 out of 10 customers who switch from one supplier to a competitor cite poor service as the reason.
• A 1% increase in customer service can increase sales by the same amount.
• Dissatisfied customers tell twice as many people about poor service than satisfied customers do about good service.
Source: Customer Care Institute
SAFETYSTOCK
CYCLESTOCK
ALLOCATEDSTOCK
“CLOAKED”STOCK
IMPAIREDSTOCK
RISK/INSURANCESTOCK
Inventory Stocking Types
Inventory Cycle Time
Order Quantity
Average Lot Size of Inventory
Average Inventory $ Investment
Carrying Costs in $
Number of Orders per
Year
Order Cost in $
Total $ Cost
1000 500 80 20 10 180 200
2000 1000 160 40 5 90 130
3000 1500 240 60 3.3 60 120
5000 2500 400 100 2 36 136
Cost of Carrying Inventory—Order Quantity Least Cost Example
Let us assume an annual demand of 10,000 units with four order quantity options. Each unit costs $.16/unit with an order placement processing cost of $18 per order and an inventory carrying cost of 25%. What Order Quantity is Least Cost?
400
300
200
100
Cost of Safety Stock
9085 95 100
Customer Service Level
Relationship between Service Level and Cost of Safety Stock
Service Level-Safety Stock Cost Index
Service Level % “K” Factor Needed
50 —
84 1
93 1.5
97 2
98 2.5
99.9 3
99.999 4
Service Level and MAD
Service Level and Costs-a 24% Inv Carrying Cost Assumption
ServiceLevel
Stock outFrequency %
Extra InventoryInvestment %
50 50 —
84 16 14
93 7 21
97 3 28
99.9 0.1 43
99.999 0.001 57
Service Level Impact on Safety Stock and Inventory Carrying Costs
This assumes a value of $1.00/unit and a 24% Inventory Carrying Cost
Optimize Inventory Performance
• Establish inventory target performance levels• Delay inventory commitments as long as possible
to:– Commit in stages (Available-to-Promise postponement)
– Result in more accurate forecasting
– Lower levels of safety stock
• Optimize inventory performance rather than minimize inventory
Optiant’s Supply Chain Design—View of Inventory Impact
Inventory as a % of Total Investment
Potential Reduction in Inventory Levels
10% 20% 30% 40% 50%
10% 3% 5% 8% 11% 14%
20% 5% 11% 17% 23% 29%
30% 8% 17% 26% 36% 47%
40% 11% 23% 36% 51% 67%
50% 14% 29% 47% 67% 89%
60% 17% 36% 59% 84% 114%
Inventory Bottom Line—Improvement of ROA
Warehouse Mechanization and Automation
• Tendency to automate whatever used to be manual or simple
• Involve your people in redesign of:– Storage equipment layouts– Material flow paths
• Demands fundamental changes in behavior
• People make them succeed or fail
Product data:•activity level•requested quantities•product properties•supplier types
Order data:•number of line items•number of items•cubic volume•shipping priorities•product correlation
Managerial requirements /company strategy
• Definition of major functional areas / departments• Definition of departmental sub-systems• Storage and material handling modes• Operational policies
• storage policies• replenishment policies• order picking policies
• batching• sorting• zoning• routing
• receiving & shipping policies
Warehouse Layout Design Data
Work Simplification—6 Basic Questions
Block Layout and Conceptual Flow
Block Layout—U-Shape Material Flow
Receiving Shipping
Reserve Storageand
Pallet Picking
CasePicking
BrokenCase
Picking
Accumulation, Sortation & Packing
Cross-docking
Directputawayto reserve
Directputawayto primary
Replenishment Replenishment
SHIPMENT STAGING
RECEIVING CHECK-IN
RECEIVING
SHIPPING
TEMPORARYHOLDINGAREA
SORTING ANDASSEMBLYAREA
Block Layout--Straight Line Material Flow
Warehouse Layout—L-Shape Flow Configuration
Hanging Merchandise
Active StorageBOXED
MERCHANDISE
ACTIVE
STORAGE
RECEIVING & SORTATION
S
H
I
P
P
I
N
GR E C E I V I N G & S T A G I N G
CONVEYOR
CASE
Packing
FLAT MERCHANDISE
ACTIVE
STORAGE
CONVEYOR
Space and Storage Schemes
Space requirements are directly related to:
• Volume of material to be stored
• Use of space characteristics– Honeycombing allowance– Aisle allowance
• Cube and thinking “vertical”
Bulk Storage from Floor
Steel Structural Shapes—Floor Storage
Steel Wire—Floor Storage
Warehousing Equipment Diversity
Standard Racking Double Deep Narrow Aisle
Mobile Racking Drive in Rack Live / FlowSource: ATLET
AS/RS Cutout View
Storage Equipment/Methodology
Space Type
Picking Unit Size
Material Handling Option 1
Material Handling Option 2
Material Handling Option 3
Bulk Storage Low Bay PalletStandard Fork
TrucksClamp Truck Pallet Jack
Selective Pallet Rack Low Bay Pallet All Fork Trucks Walkie-Stacker AGV
Bulk Storage from Floor Low Bay Case Pallet JackMost Fork
TrucksPick to
Conveyor
Selective Pallet Rack-System
High Bay CaseOrder Picker
TrucksAll Fork Trucks
Mezzanine Pick-to-Belt
Double Deep Rack High Bay Pallet Reach TruckPushback
RackN/A
Drive-in/Drive Thru Rack High Bay PalletNarrow Pallet
Truck
Standard Fork, Wide Slave
PalletsN/A
Pallet Flow Rack High Bay CasePick Module to
Conveyor
Floor Level Picks to Pallet
Only
Most Standard Fork Trucks
Case Flow Rack Low Bay CaseManual to Conveyor
Robotic Extractor
Auto Release to Conveyor
AS/RS High Bay Pallet AS/RS Shuttle N/A N/A
Storage and Equipment Correlation
Warehouse Layout-Combo Storage Methods
Honeycombing Allowance and Warehouse Location
Stock Location Methodology Comparison
FIXED
LOCATION
INVENTORY
ITEM #LOCATION
COMMODITY
LOCATION
RANDOM
LOCATION
COMBINATION
LOCATION
SPACE UTILIZATION POOR POOR FAIR EXCELLENT EXCELLENT
TRAINING TIME EXCELLENT GOOD EXCELLENT GOOD FAIR
CUSTOMER SERVICE FAIR FAIR GOOD GOOD GOOD
FLEXIBILITY FAIR POOR FAIR EXCELLENT EXCELLENT
EXPANSION FAIR POOR FAIR EXCELLENT EXCELLENT
Common Storage Utilization Allowances
TYPE OF STORAGE DEPTH HEIGHT
NORMAL STORAGE
UTILIZATION
ALLOWANCE
SLOTS TO BE
PROVIDED PE
PALLET STORED
FLOOR OR DRIVE-IN RACKS More than 3 More than 3 30—40% 1.3—1.4
FLOOR OR DRIVE-IN RACKS Up to 3 Up to 3 25—30% 1.25—1.3
DOUBLE DEEP RACKS 2 Any 20—25% 1.2—1.25
SELECTIVE RACK 1 Any 10—15% 1.1—1.15
Source: Warehousing Education and Research Council
Warehouse Configuration--Double Deep RackStorage Module and Aisle Allowance
Warehouse Layout-3D “Cube”—Thinking VerticalMultiple Storage Methods
Real Time Information
• Use automatic data collection (ADC) techniques• Insure flow of information is both:
– Seamless and at the source– Parallel to the flow of material
• Seek opportunities to utilize EDI, E-Com, RF, and ASNs
• Must support warehouse floor process—not dictate it
• Provide flexibility to meet change in marketplace and customer requirements
Information and Material Flow
Process Mapping
Process Flowchart– Order Fill Example
WMS Integration
The WMS must integrate with other warehousing components, namely:
• Radio Frequency Systems• Bar Code Scanners and Printers• ADC, RFID & Voice Recognition Technologies• Data Exchange with ERP Systems• Database Supply Chain Event-Driven or Time-Driven• Synchronization Rules for Application Programs
Cadence Warehouse Centric Fulfillment—Example from Cadre Technologies
Available-to-Promise Functionality
• WMS ability to drill down for detailed information on specific orders
• WMS ability to facilitate an answer to the question, “Where is the product?”
• WMS ability to do any of the following:– Determine availability in storage
– Cross-dock to reach a customer quickly
– Place allocation against inbound material
– Determine when goods will arrive at facility
Crossdocking and Warehousing
No stock!
Customer Order
Receipt Ship
Storage!
Cross-Docking
• Cross Docking helps to achieve the key logistics objectives of:• Stock reduction• Fixed resource reduction• More responsive operating systems
No stock!
Customer Order
Receipt Ship
Storage!
Cross-Docking
Warehouse Layout--Crossdocking
Total Cost of Ownership
• You need to study, learn, and evaluate known solutions.
• Then compare and explain the costs and benefits of each.
• If you reduce your internal cost profile, you can provide the same or better service at a lower cost to your internal and/or external customer.
Building Cube Comparison Money Chart
Rack Cost/Pallet $29.00 $32.00 $40.00
Build @ Cost/SF $14.72 $17.99 $26.11
Clear Height 22 ft 31 ft 51 ft
Tiers 4 6 10
Aisle Width (feet) Cost/Pallet
5.00 $128.25 $113.00 $110.50
8.00 $150.29 $130.95 $126.16
12.00 $179.73 $154.87 $147.05
Building Cube Comparison Space Chart
Clear Height 22 ft 31 ft 51 ft
Tiers 4 6 10
Aisle Width (feet) Area/Pallet (square feet)*
5.00 6.74 4.50 2.70
8.00 8.24 5.50 3.30
12.00 10.24 6.83 4.10
* NOTE: Area/Pallet = The footprint divided by the number of pallets in a stack.
THANK YOU FOR COMINGTHANK YOU FOR COMING
CATTAN Services Group, Inc.CATTAN Services Group, Inc.
© 2005 CATTAN Services Group, Inc.