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WAREHOUSE MANAGEMENT

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					                   WAREHOUSE MANAGEMENT SYSTEM

Chapter-1 Introduction to Warehouse Management System

          A. Warehouse Management System or WMS

          B. Benefits

          C. Warehouse Management

          D. Internal Pick/Put-Away

Chapter- 2 Evolution of Warehouse Management

          A. Introduction

          B. Do We Really Need Warehouse Management System?

          C. Set up

          D. Location Sequence

          E. Lot Sequence

Chapter- 3 Other Functionality/Considerations of Warehouse Management

          A. Wave Picking/Batch Picking/Zone Picking

          B. Automated Data Collection (ADC)

          C. Advanced Shipment Notifications (ASN)

          D. Implementation Tips

Chapter- 4 Receiving and Shipping Operations

          A. Problems occurring in planning

          B. Cross-docking

          C. World Class Warehousing
  Chapter- 5 Order Picking Operations

          A. Piece-picking methods

          B. Case Picking methods

          C. Pallet picking methods

Chapter- 6 Order Picking Operations in Warehouse Systems

          A. Order picking operations in warehouse systems

          B. Key Factors In Warehouse Design

          C. Order Picking Operations

          D. Picking method and Wave-Picking method


Chapter – 7 Inventory and Warehouse Management

          A. Warehousing and Storage

          B. Storage and Stock Management

          C. Quality Management Integration

          D. Physical Inventory

          E. Dependent Vs. Independent Demand Inventory

          F. Types of Inventory

          G. Uses of Inventory

          H. Objectives of Inventory Management
                                               Chapter-1

                             Warehouse Management System

Definition

       Warehouse management deals with receipt, storage and movement of goods, normally
finished goods, to intermediate storage locations or to final customer. In the multi-echelon model for
distribution, there are levels of warehouses, starting with the Central Warehouse(s), regional
warehouses services by the central warehouses and retail warehouses at the third level services by
the regional warehouses and so on. The objective of warehousing management is to help in optimal
cost of timely order fulfillment by managing the resources economically. Warehouse management =
"Management of storage of products and services rendered on the products within the four wall of a
warehouse"

       Warehouse Management can help you manage goods and space more effectively, reduce
costs and waste, and gain control over warehouse operations. With access to real-time, accurate
inventory data, your warehouse professionals save time locating items or performing physical
inventories, sales representatives can keep tabs on stock availability, and buyers can maintain
optimum stock levels while minimizing carrying costs. Directed pick/put-away processes, support for
Automated Data Collection Systems (ADCS) and a variety of item tracking options—including first
expired/first out handling—can take your warehouse management to a new level of efficiency. By
tracing items by lot or serial numbers, your people can quickly identify where items were purchased,
how they were consumed in your production processes, and where they were sold.




Warehouse Management System or WMS

       It is a key part of the supply chain and primarily aims to control the movement and storage of
materials within a warehouse and process the associated transactions, including shipping, receiving,
put away and picking. The systems also direct and optimize stock put away based on real-time
information about the status of bin utilization.

       Warehouse management systems often utilize Auto ID Data Capture (AIDC) technology, such
as barcode scanners, mobile computers, wireless LANs and potentially Radio-frequency identification
(RFID) to efficiently monitor the flow of products. Once data has been collected, there is either batch
synchronization with, or a real-time wireless transmission to a central database. The database can
then provide useful reports about the status of goods in the warehouse.

       The objective of a warehouse management system is to provide a set of computerized
procedures to handle the receipt of stock and returns into a warehouse facility, model and manage
the logical representation of the physical storage facilities (e.g. racking etc), manage the stock within
the facility and enable a seamless link to order processing and logistics management in order to pick,
pack and ship product out of the facility.

       Warehouse management systems can be stand alone systems or modules of an ERP system
or supply chain execution suite.

       The primary purpose of a WMS is to control the movement and storage of materials within a
warehouse – you might even describe it as the legs at the end-of-the line which automates the store,
traffic and shipping management.

       In its simplest form, the WMS can data track products during the production process and act
as an interpreter and message buffer between existing ERP and WMS systems. Warehouse
Management is not just managing within the boundaries of a warehouse today, it is much wider and
goes beyond the physical boundaries. Inventory management, inventory planning, cost management,
IT applications & communication technology to be used are all related to warehouse management.
The container storage, loading and unloading are also covered by warehouse management today.
Warehouse management today is part of SCM and demand management. Even production
management is to a great extent dependent on warehouse management. Efficient warehouse
management gives a cutting edge to a retail chain distribution company. Warehouse management
does not just start with receipt of material but it actually starts with actual initial planning when
container design is made for a product. Warehouse design is also part of warehouse management.
Warehouse management is part of Logistics and SCM.

       Warehouse Management monitors the progress of products through the warehouse. It involves
the physical warehouse infrastructure, tracking systems, and communication between product
stations.

       Warehouse management deals with receipt, storage and movement of goods, normally
finished goods, to intermediate storage locations or to final customer. In the multi-echelon model for
distribution, there are levels of warehouses, starting with the Central Warehouse(s), regional
warehouses services by the central warehouses and retail warehouses at the third level services by
the regional warehouses and so on. The objective of warehousing management is to help in optimal
cost of timely order fulfillment by managing the resources economically. Warehouse management =
"Management of storage of products and services rendered on the products within the four wall of a
warehouse."


       Warehouse Management continues to be the most important factor in the supply chain
execution strategy of any wholesale distributor. It can also be a source of significant competitive
advantage to any distributor as it encompasses several processes like goods receipt, cross docking,
yard management, bar coding , physical inventory management and outbound processes.
Distributors should have greater visibility into advanced shipping notices ( ASN ) , planned receipts
and dispatches to identify cross docking opportunities or optimize labor management to increase
warehouse throughput and reduce investment in storage space. A distributor’s warehouse
management system should have the ability to leverage this receiving information to determine put
away processes that optimize the product flow from dock to stock . The high number of Stock keeping
units ( SKU ) , vendor/ regulatory compliance ( like mandatory UPC coding) and an increasing
number of claims for perishable products force a distributor’s warehouse management system to
capture product and transaction information that will act as inputs to financial reporting or claims
management processes.


      A distributor’s warehouse should also be supported by an efficient yard management system to
schedule trailer movement, remove bottlenecks, provide upstream and downstream visibility. Efficient
yard management can improve a distributor’s customer satisfaction metrics by facilitating on time
delivery or proactive delay notifications. The advent of new technologies like RFID have the potential
to redefine the way distributors manage their high volume warehouses. However the unprecedented
wave of consolidation in the distribution industry, changing business models , proliferation of legacy
systems are preventing distributors from realizing proper return on their technology investments in the
Warehouse management space.
Benefits
       It is found that there are overlaps in the functionality of the warehouse management and the
enterprise resource planning, distribution requirements planning, transportation management
systems, supply chain planning and scheduling. If all these are to have separate software the
company that is using the software will get confused with the software solution provided separately.
Hence there is a need for an integrated system that will have warehouse management and other
related operations of the company.


       There are many software vendors who provide warehouse management software. Although
there are many vendors the basic functionality of the warehouse management system is not changed.
The primary purpose is to control the movement and storage of the materials. A good warehouse
management system would have a flexible location system, get user defined parameters to direct
warehouse tasks and uses live documents for execution of the tasks. Some form of integration with
other devices is possible so that the warehouse management system gets live data from other
devices connected to it.


       Not every warehouse will need a warehouse management system. If the operation of the
warehouse is continuous and very frequent with a lot of transactions per day then a warehouse
management system would justify the cost involved in setting it up. A lot of initial setup is to be done
to keep the data warehouse management systems to run and to keep the current operation on the
run. There must be a smooth transition from the current system to the warehouse management
system. Often a separate department is setup to monitor the operations of the warehouse and to use
the information system related to that of the warehouse management system.


       Automated data collection in the warehouse management system would reduce the cost in the
labor and increases the accuracy of the data. It increases the effectiveness of the service provided to
the customer by reducing the cycle time. Inventory reduction and increased storage capacity are less
likely. The level of safety stock can be reduced while increasing the efficiency of the system.
Customer services like first-in-first-out, cross docking, order tracking and automated material handling
are some of the area that finds an increase in the efficiency.


       The setting up of a warehouse management system is an extensive task. Similar items and
locations are categorized. More details of the items are maintained such as exact dimensions, weight,
rack in which it is stored, hazard classifications, whether it is a finished goods or a raw material,
whether it is a fast mover or a slow mover etc. these data about an item have to be stored in a
database. The given parameters are only tentative and it will vary from industry to industry. For
example if you are distributor of washing machines, you may be required to have details like top
loading or front loading, the weight of the dry clothes that it can take, the make of the machine, the
features provided for a particular model, the weight of the machine, etc. it is not that you will be
storing only a particular type of product in the warehouse. Different types of product mix are possible
in a warehouse and accordingly the warehouse management system has to be configured. Since
warehouse management system is all about directed movement, the location from which the product
has to be picked up and where to be delivered are also to be keyed in to the system. Hence
warehouse management systems are gaining importance in logistics now-a-days.



Optimize warehouse space

       Set up criteria to guide the most efficient pick patterns, bin quantities, and put-away locations.
Pick items per order or to stage, consolidate packing, and save effort by taking advantage of cross-
dock opportunities.

Streamline operations and increase productivity

       Help reduce multiple handling and bottlenecks with directed pick and put-away. Input material
handling information directly from the warehouse to help increase efficiency and reduce redundant
data handling.

Improve order fulfillment

       Automatically update pick and process or pack status to help ensure timely, accurate order
fulfillment and faster responses to status inquiries.

Gain flexibility for growth

       Choose the level of sophistication you need now with confidence that your solution can scale
with your business growth and easily adapt to new processes, products, volumes, or technologies.
Warehouse Management

       Warehouse Management (WM) is a powerful and comprehensive automated Warehouse and
Distribution Solution seamlessly integrated into SAP Business One. It is designed to provide optimum
flexibility, customization and visibility across your warehouse environment. Designed to reduce
overhead costs and reduce inefficiencies, the solution can effectively manage and track the
movement of inventory from receiving to shipping.

       At the heart of Warehouse Management is a robust client/server architecture based on the
Windows Operating System. The use of client/server technology provides a gateway for growth
unsurpassed by traditional legacy systems. As your warehouse needs change, Warehouse
Management can easily adapt to those changes, and provide a solid migration path.




       Its robust and powerful features is also designed to help lower warehouse costs by eliminating
paper work and costly shipping errors at the same time improving staff productivity, and providing
accurate inventory levels to all inter-company departments in real-time.

       Tightly integrate order processing, manufacturing, and warehouse functionality to help optimize
layout and space utilization, manage replenishment, and handle multiple orders at once. Incorporate
a variety of pick prioritization methods, including first in/first out (FIFO), first expired/first out (FEFO),
or last in/last out (LILO), into directed pick, movement, and put-away decisions.




Internal Pick/Put-Away

       Pick or put away items and debit or credit inventory records independently of purchase
receipts, sales, or source documents so you can maintain accurate inventory records even when
accessing items for testing, display purposes, or other internal or operational needs.

Automated Data Collection System (ADCS) Support

       Improve visibility into inventory, and help increase the accuracy and efficiency of your
warehouse management—picking and putting away of items, physical inventory counts, and moving
items from bin to bin—with ADCS.
Item Tracking

      Trace lot or serial numbers to quickly determine where items were purchased, processed, or
sold. Help reduce waste and limit carrying expired inventory with support for FEFO handling.

Item Costing

      Understand item costs throughout the production process, including inventory, work-in-process
(WIP), and cost of goods sold (COGS). Break down costs according to categories such as materials,
capacity, subcontracting, and overhead. Tighten control of closing processes, improve batch job
costing, and streamline reconciliation with the general ledger.

Shipping Agent Management

      Control your distribution by relating shipping agents to the services they offer.

Returns Management

      Process returned inventory and account for additional costs. Automatically organize credit
memos, replacement goods, returns to vendors, and partial or combined return of shipments or
receipts. Exact cost reversal helps increase inventory accuracy.

Cycle counting

      Determine the counting frequency per item or stock keeping unit to help increase inventory
accuracy and meet shipping deadlines.
                                            Chapter-2

                        Evolution of Warehouse Management


Introduction

      The evolution of warehouse management systems (WMS) is very similar to that of many other
software solutions.   Initially a system to control movement and storage of materials within a
warehouse, the role of WMS is expanding to including light manufacturing, transportation
management, order management, and complete accounting systems. To use the grandfather of
operations-related software, MRP, as a comparison, material requirements planning (MRP) started as
a system for planning raw material requirements in a manufacturing environment.           Soon MRP
evolved into manufacturing resource planning (MRPII), which took the basic MRP system and added
scheduling and capacity planning logic. Eventually MRPII evolved into enterprise resource planning
(ERP), incorporating all the MRPII functionality with full financials and customer and vendor
management functionality. Now, whether WMS evolving into a warehouse-focused ERP system is a
good thing or not is up to debate. What is clear is that the expansion of the overlap in functionality
between    Warehouse     Management      Systems,    Enterprise   Resource    Planning,   Distribution
Requirements Planning, Transportation Management Systems, Supply Chain Planning, Advanced
Planning and Scheduling, and Manufacturing Execution Systems will only increase the level of
confusion among companies looking for software solutions for their operations.

      Even though WMS continues to gain added functionality, the initial core functionality of a WMS
has not really changed. The primary purpose of a WMS is to control the movement and storage of
materials within an operation and process the associated transactions. Directed picking, directed
replenishment, and directed put away are the key to WMS. The detailed setup and processing within
a WMS can vary significantly from one software vendor to another; however the basic logic will use a
combination of item, location, quantity, unit of measure, and order information to determine where to
stock, where to pick, and in what sequence to perform these operations.

Do We Really Need Warehouse Management System?

      Not every warehouse needs a WMS. Certainly any warehouse could benefit from some of the
functionality but is the benefit great enough to justify the initial and ongoing costs associated with
WMS? Warehouse Management Systems are big, complex, data intensive, and applications. They
tend to require a lot of initial setup, a lot of system resources to run, and a lot of ongoing data
management to continue to run. That’s right; you need to "manage" your warehouse "management"
system. An often time, large operations will end up creating a new IS department with the sole
responsibility of managing the WMS.

The Claims

     i.       Warehouse Management System will reduce inventory!

     ii.      Warehouse Management System will reduce labor costs!

    iii.      Warehouse Management System will increase storage capacity!

    iv.       Warehouse Management System will increase customer service!

     v.       Warehouse Management System will increase inventory accuracy!

The Reality

           The implementation of a WMS along with automated data collection will likely give you
increases in accuracy, reduction in labor costs (provided the labor required to maintain the system is
less than the labor saved on the warehouse floor), and a greater ability to service the customer by
reducing cycle times. Expectations of inventory reduction and increased storage capacity are less
likely. While increased accuracy and efficiencies in the receiving process may reduce the level of
safety stock required, the impact of this reduction will likely be negligible in comparison to overall
inventory levels. The predominant factors that control inventory levels are lot sizing, lead times, and
demand variability. It is unlikely that a WMS will have a significant impact on any of these factors.
And while a WMS certainly provides the tools for more organized storage which may result in
increased storage capacity, this improvement will be relative to just how sloppy your pre-WMS
processes were.

           Beyond labor efficiencies, the determining factors in deciding to implement a WMS tend to be
more often associated with the need to do something to service your customers that your current
system does not support (or does not support well) such as first-in-first-out, cross-docking, automated
pick replenishment, wave picking, lot tracking, yard management, automated data collection,
automated material handling equipment, etc.
Setup

       The setup requirements of WMS can be extensive. The characteristics of each item and
location must be maintained either at the detail level or by grouping similar items and locations into
categories. An example of item characteristics at the detail level would include exact dimensions and
weight of each item in each unit of measure the item is stocked (reaches, cases, pallets, etc) as well
as information such as whether it can be mixed with other items in a location, whether it is rack able,
max stack height, max quantity per location, hazard classifications, finished goods or raw material,
fast versus slow mover, etc. Although some operations will need to set up each item this way, most
operations will benefit by creating groups of similar products. For example, if you are a distributor of
music CDs you would create groups for single CDs, and double CDs, maintaining the detailed
dimension and weight information at the group level and only needing to attach the group code to
each item. You would likely need to maintain detailed information on special items such as boxed
sets or CDs in special packaging. You would also create groups for the different types of locations
within your warehouse. An example would be to create three different groups (P1, P2, P3) for the
three different sized forward picking locations you use for your CD picking. You then set up the
quantity of single CDs that will fit in a P1, P2, and P3 location, quantity of double CDs that fit in a P1,
P2, P3 location etc. You would likely also be setting up case quantities, and pallet quantities of each
CD group and quantities of cases and pallets per each reserve storage location group.

       If this sounds simple, it is…well… sort of. In reality most operations have a much more diverse
product mix and will require much more system setup. And setting up the physical characteristics of
the product and locations is only part of the picture. You have set up enough so that the system
knows where a product can fit and how many will fit in that location. You now need to set up the
information needed to let the system decide exactly which location to pick from, replenish from/to, and
put away to, and in what sequence these events should occur (remember WMS is all about ―directed‖
movement).     You   do   this   by   assigning   specific   logic   to   the   various   combinations   of
item/order/quantity/location information that will occur. Below is the list of some of the logic used in
determining actual locations and sequences.

Location sequence

       This is the simplest logic; you simply define a flow through your warehouse and assign a
sequence number to each location. In order picking this is used to sequence your picks to flow
through the warehouse, in put away the logic would look for the first location in the sequence in which
the product would fit.

Zone Logic

       By breaking down your storage locations into zones you can direct picking, put away, or
replenishment to or from specific areas of your warehouse. Since zone logic only designates an
area, you will need to combine this with some other type of logic to determine exact location within
the zone.

Fixed Location

       Logic uses predetermined fixed locations per item in picking, put away, and replenishment.
Fixed locations are most often used as the primary picking location in piece pick and case-pick
operations; however, they can also be used for secondary storage.

Random Location

       Since computers cannot be truly random (nor would you want them to be) the term random
location is a little misleading. Random locations generally refer to areas where products are not
stored in designated fixed locations. Like zone logic, you will need some additional logic to determine
exact locations.

First-in-first-out (FIFO)

       FIFO Directs picking from the oldest inventory first.

Last-in-first-out (LIFO)

       Opposite of FIFO, I didn't think there were any real applications for this logic until a visitor to
my site sent an email describing their operation that distributes perishable goods domestically and
overseas. They use LIFO for their overseas customers (because of longer in-transit times) and FIFO
for their domestic customers.

Quantity or Unit-of-measure

       Allows you to direct picking from different locations of the same item based upon the quantity
or unit-of-measured ordered. For example, pick quantities less than 25 units would pick directly from
the primary picking location while quantities greater than 25 would pick from reserve storage
locations.

Fewest Locations:

       This logic is used primarily for productivity. Pick-from-fewest logic will use quantity information
to determine least number of locations needed to pick the entire pick quantity. Put-to-fewest logic will
attempt to direct put away to the fewest number of locations needed to stock the entire quantity.
While this logic sounds great from a productivity standpoint, it generally results in very poor space
utilization. The pick-from-fewest logic will leave small quantities of an item scattered all over your
warehouse, and the put-to-fewest logic will ignore small and partially used locations.

Pick-to-clear

       Logic directs picking to the locations with the smallest quantities on hand. This logic is great
for space utilization.

Reserved Locations

       This is used when you want to predetermine specific locations to put away to or pick from. An
application for reserved locations would be cross-docking, where you may specify certain quantities
of an inbound shipment be moved to specific outbound staging locations or directly to an awaiting
outbound trailer.

Nearest Location

       Also called proximity picking/put away, this logic looks to the closest available location to that
of the previous put away or pick. You need to look at the setup and test this type of logic to verify that
it is picking the shortest route and not the actual nearest location.       Since the shortest distance
between two points is a straight line, this logic may pick a location 30 feet away (thinking it’s closest)
that requires the worker to travel 200 feet up and down aisles to get to it while there was another
available location 50 feet away in the same aisle (50 is longer than 30).

Maximize Cube

        Cube logic is found in most WMS systems however it is seldom used. Cube logic basically
uses unit dimensions to calculate cube (cubic inches per unit) and then compares this to the cube
capacity of the location to determine how much will fit. Now if the units are capable of being stacked
into the location in a manner that fills every cubic inch of space in the location, cube logic will work.
Since this rarely happens in the real world, cube logic tends to be impractical.

Consolidate

       Looks to see if there is already a location with the same product stored in it with available
capacity. May also create additional moves to consolidate like product stored in multiple locations.




Lot Sequence

       Used for picking or replenishment, this will use the lot number or lot date to determine
locations to pick from or replenish from.

       It’s very common to combine multiple logic methods to determine the best location.            For
example you may chose to use pick-to-clear logic within first-in-first-out logic when there are multiple
locations with the same receipt date. You also may change the logic based upon current workload.
During busy periods you may chose logic that optimizes productivity while during slower periods you
switch to logic that optimizes space utilization.
                              CHAPTER-3
     Other Functionality/Considerations of Warehouse Management



Wave Picking/Batch Picking/Zone Picking

      Support for various picking methods varies from one system to another.            In high-volume
fulfillment operations, picking logic can be a critical factor in WMS selection. See my article on Order
Picking for more info on these methods.

Task Interleaving

      Task interleaving describes functionality that mixes dissimilar tasks such as picking and put
away to obtain maximum productivity. Used primarily in full-pallet-load operations, task interleaving
will direct a lift truck operator to put away a pallet on his/her way to the next pick.        In large
warehouses this can greatly reduce travel time, not only increasing productivity, but also reducing
wear on the lift trucks and saving on energy costs by reducing lift truck fuel consumption. Task
interleaving is also used with cycle counting programs to coordinate a cycle count with a picking or
put away task.

Automated Data Collection (ADC)

      It is generally assumed when you implement WMS that you will also be implementing
automatic data collection, usually in the form of radio-frequency (RF) portable terminals with bar code
scanners. I recommend incorporating your ADC hardware selection and your software selection into
a single process. This is especially true if you are planning on incorporating alternate technologies
such as voice systems, RFID, or light-directed systems. You may find that a higher priced WMS
package will actually be less expensive in the end since it has a greater level of support for the types
of ADC hardware you will be using. In researching WMS packages you may see references like
―supports‖, ―easily integrates with‖, ―works with‖, ―seamlessly interfaces with‖ in describing the
software’s functionality related to ADC. Since these statements can mean just about anything, you’ll
find it important to ask specific questions related to exactly how the WMS system has been
programmed to accommodate ADC equipment. Some WMS products have created specific versions
of programs designed to interface with specific ADC devices from specific manufacturers. If this
WMS/ADC device combination works for your operation you can save yourself some
programming/setup time. If the WMS system does not have this specific functionality, it does not
mean that you should not buy the system; it just means that you will have to do some programming
either on the WMS system or on the ADC devices. Since programming costs can easily put you over
budget you’ll want to have an estimate of these costs up front. As long as you are working closely
with the WMS vendor and the ADC hardware supplier at an early stage in the process you should be
able to avoid any major surprises here. Read my article on ADC.

Integration with Automated Material Handling Equipment

       If you are planning on using automated material handling equipment such as carousels, ASRS
units, AGVs, pick-to-light systems, or sortation systems, you’ll want to consider this during the
software selection process. Since these types of automation are very expensive and are usually a
core component of your warehouse, you may find that the equipment will drive the selection of the
WMS.     As with automated data collection, you should be working closely with the equipment
manufacturers during the software selection process.

Advanced Shipment Notifications (ASN)

       If your vendors are capable of sending advanced shipment notifications (preferably
electronically) and attaching compliance labels to the shipments you will want to make sure that the
WMS can use this to automate your receiving process. In addition, if you have requirements to
provide ASNs for customers, you will also want to verify this functionality.

Cross Docking

       In its purest form cross-docking is the action of unloading materials from an incoming trailer or
rail car and immediately loading these materials in outbound trailers or rail cars thus eliminating the
need for warehousing (storage). In reality pure cross-docking is less common; most "cross-docking"
operations require large staging areas where inbound materials are sorted, consolidated, and stored
until the outbound shipment is complete and ready to ship. If cross docking is part of your operation
you will need to verify the logic the WMS uses to facilitate this.

Pick-to-Carton

       For parcel shippers pick-to-carton logic uses item dimensions/weights to select the shipping
carton prior to the order picking process. Items are then picked directly into the shipping carton.
When picking is complete, Dunn age is added and the carton sealed eliminating a formal packing
operation.    This logic works best when picking/packing products with similar size/weight
characteristics. In operations with a very diverse product mix it's much more difficult to get this type
of logic to work effectively.

Slotting

        Slotting describes the activities associated with optimizing product placement in pick locations
in a warehouse. There is software packages designed just for slotting, and many WMS packages will
also have slotting functionality. Slotting software will generally use item velocity (times picked), cube
usage, and minimum pick face dimensions to determine best location.

Yard Management

       Yard management describes the function of managing the contents (inventory) of trailers
parked outside the warehouse, or the empty trailers themselves. Yard management is generally
associated with cross docking operations and may include the management of both inbound and
outbound trailers.

Labor Tracking/Capacity Planning

       Some WMS systems provide functionality related to labor reporting and capacity planning.
Anyone that has worked in manufacturing should be familiar with this type of logic. Basically, you set
up standard labor hours and machine (usually lift trucks) hours per task and set the available labor
and machine hours per shift. The WMS system will use this info to determine capacity and load.
Manufacturing has been using capacity planning for decades with mixed results. The need to factor
in efficiency and utilization to determine rated capacity is an example of the shortcomings of this
process.     Not that I’m necessarily against capacity planning in warehousing, I just think most
operations don’t really need it and can avoid the disappointment of trying to make it work. I am,
however, a big advocate of labor tracking for individual productivity measurement.             Most WMS
maintain enough data to create productivity reporting. Since productivity is measured differently from
one operation to another you can assume you will have to do some minor modifications here (usually
in the form of custom reporting).

Activity-based costing/billing

        This functionality is primarily designed for third-party logistics operators. Activity-based billing
allows them to calculate billable fees based upon specific activities. For example, a 3PL can assign
transaction fees for each receipt, and shipment transaction, as well as fees for storage and other
value-added activities.




Integration with Existing Accounting/Erp Systems

       Unless the WMS vendor has already created a specific interface with your accounting/ERP
system (such as those provided by an approved business partner) you can expect to spend some
significant programming dollars here. While we are all hoping that integration issues will be magically
resolved someday by a standardized interface, we ain’t there yet. Ideally you’ll want an integrator
that has already integrated the WMS you chose with the business software you are using. Since this
is not always possible you at least want an integrator that is very familiar with one of the systems.




Implementation Tips

Outside of the standard ―don’t underestimate‖, ―thoroughly test‖, ―train, train, train‖ implementation
tips that apply to any business software installation, it’s important to emphasize that WMSs are very
data dependent and restrictive by design. That is, you need to have all of the various data elements
in place for the system to function properly. And, when they are in place, you must operate within the
set parameters.


Example #1


Customer Service Person:        Why didn't part XYZ ship to customer 123 yesterday?
Warehouse Person:              The warehouse management system couldn't find it so it didn't produce
                                an instruction to ship it.
Customer Service Person:        Well my screen shows that we have 500 available in locaion 1A. Are
                                you telling me that we don't have them.
Warehouse Person:               No, they're there all right.
Customer Service Person:        If I can see them on my screen, why can't the WMS find them.
Warehouse Person:             I don't know. I think if you don't have everything set up right , it won't
                               let you ship it.
Example #2


Warehouse Supervisor:        I thought I told you to stock those pallets in location F12.
Lift truck operator:        I tried but the warehouse management system wouldn't let me.
Warehouse Supervisor:       Why wouldn't it let you?
Lift truck operator:              It told me that they didn't fit.
Warehouse Supervisor:       Well do they fit?
Lift truck operator:        Yes
Warehouse Supervisor: Then why does the WMS think that they don't.
Lift truck operator:        I think it's because they sometimes come in a different size box.


      These are some very real examples of what you can expect when working with systems like
WMSs. As you run into instances such as these, you must remember that these are not flaws with
the WMS. In fact, you want your WMS to be restrictive, that’s what gives you control over your
operations. You should to be aware, however, that the cultural change required to work within the
operational constraints provided by the WMS is often the most difficult part of a WMS implementation.
When implementing a WMS, you are adding an additional layer of technology onto your system. And
with each layer of technology there are additional overhead and additional sources of potential
problems. Now don’t take this as a condemnation of Warehouse Management Systems. Coming
from a warehousing background I definitely appreciate the functionality WMSs have to offer, and, in
many warehouses, this functionality is essential to their ability to serve their customers and remain
competitive. It’s just important to note that every solution has its downsides and having a good
understanding of the potential implications will allow managers to make better decisions related to the
levels of technology that best suits their unique environment.
                                                 Chapter-4

                              Receiving and Shipping Operations

Problems occurring in planning

           Problems can occur in planning receiving and shipping facilities if the operations that interface
with receiving and shipping activities are not properly considered.



The facility requirements to receive and ship goods

     i.       Sufficient area to stage and spot carriers

     ii.      Dock-boards to facility carrier unloading

    iii.      Sufficient area to palletize or containerize goods

    iv.       An office to house information on purchase orders and allow for report generation.



The facility requirements to ship goods:

     i.       Sufficient area to stage orders

     ii.      An office to house information on shipping releases and customer orders

    iii.      Sufficient area to stage and spot carriers

    iv.       Dock board to facilitate carrier loading

Perceiving

     i.       A reason to be concerned with perceiving, peak loads at receiving can be reduced.

     ii.      Another reason for being concerned with perceiving activities is the opportunity to influence
              the unit load configurations of inbound material.

    iii.      A third reason, for trying to influence between the vendor and receiver’s information
              systems.
Post-shipping

      i.   Just as the receiver wishes to influence the vendor, the customer wishes to influence the
           shipper.

     ii.   Hence, post-shipping activities must be considered. Post-shipping activities include:
           returnable containers, returned goods, returning carriers, and shipping schedules

    iii.   Space required for the receiving and shipping activities can be positively affected by pre-
           receiving and post-shipping considerations

Some desirable attributes of receiving and shipping facilities plans include

      i.   Directed flow paths among carriers, buffer, or staging areas and storage areas

     ii.   A continuous flow without excessive congestion or idleness

    iii.   A concentrated area of operation that minimizes material handling and increases the
           effectiveness of supervision

    iv.    Efficient material handling

     v.    Safe operation

    vi.    Minimizing damage

    vii.   Good housekeeping



Receiving Principles

      i.   Don’t receive

     ii.   Perceive

    iii.   Cross-dock ―cross-dock able‖ material

    iv.    Put away directly to primary or reserve locations

     v.    Stage in storage locations
    vi.          Complete all necessary steps for efficient load decomposition and movement at receiving

    vii.         Prepackage in issue increments

   viii.         Apply necessary labeling and tags

    ix.          Cube and weigh for storage and transport planning

     x.          Receiving and Shipping Principles

Shipping Principles

         i.      Select cost and space effective handling units

         ii.     Minimize product damage

                        a. Unitize and secure loose items in cartons or totes

                        b. Unitize and secure loose cases on pallets

                        c. Unitize and secure loose pallets in outbound trailers

  iii.         Eliminate shipping staging, and direct-load outbound trailers

  iv.          Use storage racks to minimize floor space requirements for shipping staging

Receiving and Shipping Space Planning

         i.      Determine what is to be received and shipped

         ii.     Determine the number and type of docks

Determine the space requirements for the receiving and shipping area within the facility

                 a. Personnel convenience

                 b. Offices

                 c. Material handling equipment maintenance

                 d. Trash disposal

                 e. Pallet and packaging material storage
          f. Trucker's lounge (150 ft2 up to 6 docks; 25 ft2 each additional dock)

          g. Buffer or staging area (typically sufficient space for one full carrier for each dock)

          h. Material handling equipment maneuvering




Cross-docking

      It is found that there are overlaps in the functionality of the warehouse management and the
enterprise resource planning, distribution requirements planning, transportation management
systems, supply chain planning and scheduling. If all these are to have separate software the
company that is using the software will get confused with the software solution provided separately.
Hence there is a need for an integrated system that will have warehouse management and other
related operations of the company.

      There are many software vendors who provide warehouse management software. Although
there are many vendors the basic functionality of the warehouse management system is not changed.
The primary purpose is to control the movement and storage of the materials. A good warehouse
management system would have a flexible location system, get user defined parameters to direct
warehouse tasks and uses live documents for execution of the tasks. Some form of integration with
other devices is possible so that the warehouse management system gets live data from other
devices connected to it.

      Not every warehouse will need a warehouse management system. If the operation of the
warehouse is continuous and very frequent with a lot of transactions per day then a warehouse
management system would justify the cost involved in setting it up. A lot of initial setup is to be done
to keep the data warehouse management systems to run and to keep the current operation on the
run. There must be a smooth transition from the current system to the warehouse management
system. Often a separate department is setup to monitor the operations of the warehouse and to use
the information system related to that of the warehouse management system.




      Automated data collection in the warehouse management system would reduce the cost in the
labor and increases the accuracy of the data. It increases the effectiveness of the service provided to
the customer by reducing the cycle time. Inventory reduction and increased storage capacity are less
likely. The level of safety stock can be reduced while increasing the efficiency of the system.
Customer services like first-in-first-out, cross docking, order tracking and automated material handling
are some of the area that finds an increase in the efficiency.

       The setting up of a warehouse management system is an extensive task. Similar items and
locations are categorized. More details of the items are maintained such as exact dimensions, weight,
rack in which it is stored, hazard classifications, whether it is a finished goods or a raw material,
whether it is a fast mover or a slow mover etc. these data about an item have to be stored in a
database. The given parameters are only tentative and it will vary from industry to industry. For
example if you are distributor of washing machines, you may be required to have details like top
loading or front loading, the weight of the dry clothes that it can take, the make of the machine, the
features provided for a particular model, the weight of the machine, etc. it is not that you will be
storing only a particular type of product in the warehouse. Different types of product mix are possible
in a warehouse and accordingly the warehouse management system has to be configured. Since
warehouse management system is all about directed movement, the location from which the product
has to be picked up and where to be delivered are also to be keyed in to the system. Hence
warehouse management systems are gaining importance in logistics now-a-days.




Factors influencing the use of cross-docks

      Customer and supplier geography -- particularly when a single corporate customer has many
       multiple branches or using point

      Freight costs for the commodities being transported

      Cost of inventory in transit

      Complexity of loads

      Handling methods

      Logistics software integration between supplier(s), vendor, and shipper

      Tracking of inventory in transit




World-Class Warehousing
           Timeless Insights for Planning and Managing 21st-Century Warehouse Operations. Despite
today's just-in-time production mentality, with its efforts to eliminate warehouses and their inventory
carrying costs, effective warehousing continues to play a critical bottom-line role for companies
worldwide. World-Class Warehousing and Material Handling covers today's state-of-the-art tools,
metrics, and methodologies for dramatically increasing the effectiveness, accuracy, and overall
productivity of warehousing operations.

Written by one of today's recognized logistics thought leaders, this comprehensive resource provides
authoritative answers on such topics as

      i.      The seven principles of world-class warehousing

     ii.      Warehouse activity profiling

    iii.      Warehouse performance measures

    iv.       Warehouse automation and computerization

     v.       Receiving and put away

    vi.       Storage and retrieval operations

    vii.      Picking and packing

   viii.      Humanizing warehouse operations

           World-Class Warehousing and Material Handling describes the processes and systems
required for meeting the changing demands of warehousing. Filled with practices from proven to
innovative, it will help all logistics professionals improve the productivity, quality, and cycle time of
their existing warehouse operations.

           Not too long ago, effective warehousing was a relatively straightforward progression of
receiving, storing, and shipping. But in today's age of e-commerce, supply chain integration,
globalization, and just-in-time methodology, warehousing has become more complex than at any time
in the pastnot to mention more costly.

           World-Class Warehousing and Material Handling breaks through the confusing array of
warehouse technology, buzzwords, and third-party providers to describe the principles of
warehousing required for the implementation of world-class warehousing operations. Holding up
efficiency and accuracy as the keys to success in warehousing, it is the first widely published
methodology for warehouse problem solving across all areas of the supply chain, providing an
organized set of principles that can be used to streamline all types of warehousing operations.

       Case studies from Avon, Ford, Xerox, True Value Hardware, and others detail how today's
most innovative logistics and supply chain managers are arriving at proven solutions to a wide variety
of warehousing challenges. Topics discussed include:

Warehouse activity profiling

    For identifying causes of information and material flow problems and pinpointing opportunities for
improvement

Warehouse performance measures

    For monitoring, reporting, and benchmarking warehouse performance

Storage and retrieval system selection

    For improving storage density, handling productivity, and trade-offs in required capital investment
Order picking strategies for improving the productivity and accuracy of order fulfillment

Computerizing warehousing operations

For profiling activity, monitoring performance, and simplifying operations

       World-Class Warehousing and Material Handling integrates global and e-commerce issues as
it addresses customization, information technology, performance analysis, expansion and contraction
planning, and the overall role of the warehouse in logistics management and the supply chain. Filled
with proven operational solutions, it will guide managers as they develop a warehouse master plan,
one designed to minimize the effects of supply chain inefficiencies as it improves logistics accuracy
and inventory management and reduces overall warehousing expense.
                                       CHAPTER 5
                                 Order Picking Operations

Methods and Equipment for Piece Pick, Case Pick, and Pallet Pick Operations

       Of all warehouse processes, order picking tends to get the most attention. It’s just the nature
of distribution and fulfillment that you generally have more outbound transactions than inbound
transactions, and the labor associated with the outbound transactions is likely a big piece of the total
warehouse labor budget. Another reason for the high level of importance placed on order picking
operations is its direct connection to customer satisfaction. The ability to quickly and accurately
process customer orders has become an essential part of doing business.

       The methods for order picking vary greatly and the level of difficulty in choosing the best
method for your operation will depend on the type of operation you have. The characteristics of the
product being handled, total number of transactions, total number of orders, picks per order, quantity
per pick, picks per SKU, total number of SKUs, value-added processing such as private labeling, and
whether you are handling piece pick, case pick, or full-pallet loads are all factors that will affect your
decision on a method for order picking. Many times a combination of picking methods is needed to
handle diverse product and order characteristics.

       Key objectives in designing an order picking operation include increases in productivity,
reduction of cycle time, and increases in accuracy. Often times these objectives may conflict with
one another in that a method that focuses on productivity may not provide a short enough cycle time,
or a method that focuses on accuracy may sacrifice productivity.

Productivity

       Productivity in order picking is measured by the pick rate.       Piece pick operations usually
measure the pick rate in line items picked per hour while case pick operations may measure cases
per hour and line items per hour. In pallet pick operations the best measure is actual pallets picked
per hour. Since the actual amount of time it takes to physically remove the product from the location
tends to be fixed regardless of the picking method used, productivity gains are usually in the form of
reducing the travel time.
Cycle Time

       Cycle time is the amount of time it takes to get an order from order entry to the shipping dock.
In recent years, customer’s expectations of companies to provide same day shipment has put greater
emphasis on reducing cycle times from days to hours or minutes. Immediate release of orders to the
warehouse for picking and methods that provide concurrent picking of items within large orders are
ways to reduce cycle times.

Accuracy

      Regardless of the type of operation you are running, accuracy will be a key objective. Virtually
every decision you make in setting up a warehouse will have some impact on accuracy, from the
product numbering scheme, to the design of product labels, product packaging, the design of picking
documents, location numbering scheme, storage equipment, lighting conditions, and picking method
used. Technologies that aide in picking accuracy include pick-to-light systems, counting scales, and
bar code scanners. Beyond the design aspects of an order picking operation, employee training,
accuracy tracking, and accountability are essential to achieving high levels of accuracy.




Piece-picking methods

       Piece picking, also known as broken case picking or pick/pack operations, describes systems
where individual items are picked.     Piece pick operations usually have a large sku base in the
thousands or tens of thousands of items, small quantities per pick, and short cycle times. Mail order
catalog companies and repair parts distributors are good examples of piece pick operations.

Basic Order Picking

       In the most basic order-picking method, product is stored in fixed locations on static shelving
or pallet rack. An order picker picks one order at a time following a route up and down each aisle
until the entire order is picked. The order picker will usually use some type of picking cart. The
design of the picking flow should be such that the order picker ends up fairly close to the original
starting point. The picking document should have the picks sorted in the same sequence as the
picking flow. Fast moving product should be stored close to the main cross aisle and additional cross
aisles put in to allow short cuts. Larger bulkier items would be stored towards the end of the pick
flow. This basic order picking method can work well in operations with a small total number of orders
and a high number of picks per order. Operations with low picks per order will find the travel time
excessive in this type of picking and operations with large numbers of orders will find that the
congestion from many pickers working in the same areas slows down the processing.

Batch Picking / Multi-Order Picking

       In batch picking, multiple orders are grouped into small batches. An order picker will pick all
orders within the batch in one pass using a consolidated pick list. Usually the picker will use a multi-
tiered picking cart maintaining a separate tote or carton on the cart for each order. Batch sizes
usually run from 4 to 12 orders per batch depending on the average picks per order in that specific
operation. Batch picking systems may use extensive logic programmed to consolidate orders with
the same items. In operations with low picks per order, batch picking can greatly reduce travel time
by allowing the picker to make additional picks while in the same area. Since you are picking multiple
orders at the same time, systems and procedures will be required to prevent mixing of orders. In very
busy operations, batch picking is often used in conjunction with zone picking and automated material
handling equipment. In order to get maximum productivity in batch pick operations, orders must be
accumulated in the system until there are enough similar picks to create the batches. This delay in
processing may not be acceptable in same day shipping operations.

Zone Picking

      Zone picking is the order picking version of the assembly line.      In zone picking, the picking
area is broken up into individual pick zones. Order pickers are assigned a specific zone, and only pick
items within that zone. Orders are moved from one zone to the next as the picking from the previous
zone is completed (also known as "pick-and-pass"). Usually, conveyor systems are used to move
orders from zone to zone. In zone picking it’s important to balance the number of picks from zone to
zone to maintain a consistent flow. Zones are usually sized to accommodate enough picks for one or
two order pickers. Creating fast pick areas close to the conveyor is essential in achieving high
productivity in zone picking. Zone picking is most effective in large operations with high total numbers
of stocks, high total numbers of orders, and low to moderate picks per order. Separate zones also
provide for specialization of picking techniques such as having automated material handling systems
in one zone and manual handling in the next.
Wave picking

       A variation on zone picking and batch picking where rather than orders moving from one zone
to the next for picking, all zones are picked at the same time and the items are later sorted and
consolidated into individual orders/shipments. Wave picking is the quickest method (shortest cycle
time) for picking multi item orders however the sorting and consolidation process can be tricky.
Operations with high total number of SKUs and moderate to high picks per order may benefit from
wave picking. Wave picking may be used to isolate orders by specific carriers, routes, or zones.

Piece-picking

       As with the picking methods, the picking equipment used will also depend on a variety of
factors.

Static shelving

       The most common equipment for storage in piece pick operations, static shelving is designed
with depths from 12‖ to 24‖. Product is either placed directly on the shelving or in corrugated, plastic,
or steel parts bins. Static shelving is economical and is the best method where there are few picks
per SKU or where parts are very small.

Carton flow rack

       Carton flow rack is similar to static shelving with the exception that rather than shelves, there
are small sections of gravity conveyor mounted at a slight angle. Product is stocked from the rear of
the flow rack and picking is done from the face. Product can be stocked in cartons or small totes or
bins. As a carton or tote is emptied, it is removed from the rack and another one will roll into place.
Carton flow rack is most useful where there is a very high number of picks per SKU.

Carousels, Horizontal Carousels

       Are versions of the same equipment used by dry cleaners to store and retrieve clothing, They
have racks hanging from them that can be configured to accommodate various size storage bins.
Generally an operator will run 2 to 4 carousels at a time avoiding the need for the operator to wait
while one unit is turning. Picking is usually performed in batches with orders downloaded from the
host system to the carousel software. Horizontal carousels are most common in picking operations
with very high number of orders, low to moderate picks per order, and low to moderate picks per sku.
Horizontal carousels provide very high pick rates as well as high storage density.          Pick-to-light
systems are often integrated into carousels. Vertical Carousels are frequently used in laboratories
and specialty manufacturing operations and are rarely used in regular order picking operations.

Automatic storage and retrieval systems (ASRS)

       An ASRS is a system of rows of rack, each row having a dedicated retrieval unit that moves
vertically and horizontally along the rack, picking and putting away loads. ASRS systems are
available in mini-load types that store and transfer product on some type of tray or in bins, and unit-
load types that transfer and store pallet loads or other large unitized loads. In addition to the
automation features, ASRS units can provide extremely high storage density with capabilities to work
in racking up to 100 feet high. Unfortunately the high costs of ASRS equipment and the length of the
retrieval times make it difficult to incorporate into a piece picking operation.

Automatic picking machines

       Fully automated picking machines (such as A-frames) are still pretty rare and are used only
where very high volumes of similar products are picked such as music CDs, or, where high volume in
combination with high accuracy requirements exist such as pharmaceutical fulfillment.

Pick-to-light

       Pick-to light systems consist of lights and LED displays for each pick location. The system
uses software to light the next pick and display the quantity to pick. Pick-to-light systems have the
advantage of not only increasing accuracy, but also increasing productivity.          Since hardware is
required for each pick location, pick-to-light systems are easier to cost justify where very high picks
per SKU occur. Carton flow rack and horizontal carousels are good applications for pick to light. In
batch picking, put-to-light is also incorporated into the cart or rack that holds the cartons or totes that
you are picking in to. The light will designate which order you should be placing the picked items in.

Bar-Code Scanners

       Though very useful in increasing accuracy levels, bar-code scanners in a fast-paced piece-pick
operation tend to become cumbersome and can significantly reduce your pick rates. With proper
training, tracking, and accountability, you can get very high accuracy rates in order picking without
scanners.     I find they are better suited to case pick, pallet load, put away, and order checking
operations.

Voice-directed picking
        Voice technology has come of age in recent years and is now a very viable solution for piece
pick, case pick, or pallet pick operations.

Automated Conveyor and Sortation Systems

        Automated conveyor systems and sortation systems will be integral to any large-scale piece
pick operation. The variety of equipment and system designs is enormous.

Case Picking Methods

       Case picking operations tend to have less diversity in product characteristics than piece
picking operations, with fewer SKUs and higher picks per SKU.

Basic Case-Picking Method

       This is the most common method for case-picking operations. Rather than product stored on
static shelving, case-pick operations will have the product stored in pallet rack or in bulk in floor
locations. The simplest picking method is to use a hand pallet jack (or motorized pallet truck) and
pick cases out of bulk floor locations however many operations will find that going to very narrow aisle
(VNA) pallet racking and using man-up order selectors or turret trucks will provide high storage
density and high pick rates.

Batch picking

       Batch picking is rarely used in case pick operations primarily because of the physical size of
the picks. You are unlikely to have enough room on a pallet to pick multiple orders.

Zone Picking

       Zone picking can be used in case-picking operations, however, like batch picking, the size of
the picks and the size of the orders in most case-pick operations do not lend themselves well to zone
picking. If you do have a case pick operation where you have a large number of SKUs, and orders
with small quantities per SKU, or where you have enough cases per order per zone to fill a pallet, you
may find zone picking applicable.

Wave picking

        Wave picking can be applied to case picking operations where you have very large orders
with many picks per order and are looking for ways to reduce cycle time.
Case-Picking Equipment

Pallet rack: Pallet rack is the most common storage system for case pick operations.

Flow rack: Although carton flow rack rarely applies to case pick operations, pallet flow rack or push
back rack can be useful.

Carousels: Although you can incorporate unit-load carousels into a case pick operation, it tends to
be an unlikely match-up. If doing batch picking where you have many picks per SKU and few pieces
per pick you can pick from an ASRS unit onto a unit-load carousel.

Automated Storage and Retrieval Systems (ASRS): Unit-load ASRS systems can be useful in
case-pick operations, especially if you can provide storage heights of 40 to 100 feet.

Pick-to-light: Pick-to-light can be used in case-pick operations, however, its application is
significantly less than in piece pick operations.

Bar-code scanners: Bar-code scanners are frequently used in case-pick operations. Since the time
to physically pick the product is higher in case-pick operations, the time spent scanning tends to have
little impact on productivity and therefore the accuracy benefits will usually outweigh any reduction in
productivity.

Voice-directed picking: Voice technology has come of age in recent years and is now a very viable
solution for piece pick, case pick, or pallet pick operations.

Automated Conveyor and Sortation Systems: If using zone or wave picking, automated conveyor
and sortation systems will likely be a part of your system. In case picking, you may use standard
conveyors to transport individual cases or unit-load conveyors to transport pallets.

Lift Trucks: As previously mentioned, motorized pallet trucks, man-up order selectors, and man-up
turret trucks are the vehicles of choice for case-pick operations.

Pallet Picking Methods

       Full-pallet picking is also known as unit-load picking. The systematic methods for full-pallet
picking are much simpler that either piece pick or case pick, however, the choices in storage
equipment, storage configurations, and types of lift trucks used are many.
Basic pallet picking: This is the most common method for full-pallet picking. Orders are picked one
at a time. The order picker will use some type of lift truck, retrieve the pallet load and stage it in a
shipping area in a staging lane designated for that order, or just pick and load directly into an
outbound trailer or container.

Batch picking: Since the nature of pallet picking is a single pick per trip, batch picking has no
application in pallet-picking operations.

Zone and wave picking: Although the normal definition of zone picking where an order is moved
from zone to zone as picks are accumulated doesn’t apply to pallet picking, pick zones are used in
wave picking in pallet-picking operations. The storage area is broken into zones to eliminate multiple
lift-truck operators from picking in the same aisle. The lift truck operator may pick the pallet and
deliver it directly to the designated staging lane or place it on a unit-load conveyor that will deliver it to
the sorting/staging area.

Task Interleaving: Task interleaving is a method of combining picking and put away. Warehouse
Management Systems (WMS) use logic to direct a lift truck operator to put away a pallet en route to
the next pick.




Pallet-picking equipment

Pallet rack: There are numerous pallet rack configurations used in full pallet operations,
from standard back-to-back single pallet depth configurations to double-deep rack, push-back rack,
drive-in/drive-thru rack, and flow rack. The best racking configuration for your operation will be based
on the total number of pallets per sku, pallets per pick, and the length of time the product is in the
rack prior to shipment. There are a lot of tradeoffs in choosing a racking configuration including
storage density, picking productivity, equipment costs, and the ability to maintain first-in first-out.

ASRS: Unit-load ASRS units when combined with unit-load conveyors and sortation systems can
provide fully automatic pallet picking operations. And again, the ability to store product in racking up
to 100 feet high gives excellent storage density.

Automated conveyor and sortation systems: Automated conveyor and sortation systems can be
combined with ASRS units or used in conjunction with manual picking with lift trucks in zone/wave
picking systems. Either the ASRS or the lift truck operator delivers the pallet load to the conveyor.
The conveyor system then delivers the pallet to the shipping area where it is either manually sorted
by lift trucks into the designated staging lane, or a sortation system automatically sorts into a staging
lane. Staging lanes can be equipped with automated or gravity fed unit-load conveyor.

Bar-code scanners: Bar-code scanners are very commonly used in pallet-pick operations.

Voice-directed picking: Voice technology has come of age in recent years and is now a very viable
solution for piece pick, case pick, or pallet pick operations.

Lift trucks: The lift trucks used for pallet picking will depend upon the storage configuration.
Standard lift trucks are used in bulk floor storage and wide-aisle pallet rack storage in singe-depth,
push-back, drive-in/drive-thru, and flow rack. Reach trucks are used in narrow-aisle storage in single-
depth, double-deep, push-back, drive-in/drive-thru, and flow rack. Swing mast and turret trucks are
used in very narrow aisle storage in single depth pallet rack.

       Regardless of the product handled, or the picking method and equipment used, locating
product by the frequency of picks should be incorporated into the system design. The fastest moving
product should be stocked as close to the pick point as possible and at the levels that are easiest to
pick from. Even if you are using an ASRS unit, the retrieval time will be less the closer the location is
to the pick point, and in a horizontal carousel, the picking time will be less if the order picker does not
need to bend down or reach up to pick.

       In fixed location picking, you designate a specific picking location for each SKU. Fixed picking
locations are most commonly used in piece-pick operations; however, they may also be used in case
picking and pallet picking where rack flow is incorporated. Slotting in fixed picking locations needs to
be reviewed on a regular base to ensure high levels of productivity. The frequency of review will
depend upon product life cycles and seasonality. In random storage operations, a WMS system can
direct fast movers to the closest open location to the pick point.

       Operations using fixed picking locations will generally also have a reserve or overflow storage
area. The overflow storage area will usually use a system of random storage. A replenishment
system will need to be put in place to move product to the fixed picking locations as inventory levels
drop to predetermined levels.

       Outbound shipments should always have some type of a check in place. The type of check will
vary from operation to operation. In a high-volume low-value shipping operation, a simple "looking
over" the shipment may be all that's feasible, while in a lower-volume high-value shipping operation,
I've had as many as three people performing redundant checks of each shipment prior to loading.

      Extensive data analysis is necessary in determining the best methods for order picking.
Historical data on picks per SKU, quantity per pick, picks per order, total picks, total orders, orders
received by time of day, etc. will be important in not only the initial plan, but also in the ongoing
operation of the system.

      It will also be very important to project growth, especially in automated systems. While you
can throw more people into a manual system when transactions increase, automated systems such
as carousels and ASRS units will have capacity limits.

      Order-picking systems can be very simple systems in small operations or become very
complex systems using a little bit of everything. In a large operation you may have totes start as
batch pick in a carousel picking area for your medium moving piece-pick items, and then move
individually to a manual picking area for slow moving small-parts piece picking out of static shelving
(possibly in a mezzanine). Then move to a carton-flow rack area for your fastest moving items, and
finally to a shipping staging/consolidation area where it is matched up with cases and bulkier items
from a case-pick ASRS unit and full pallets from a racked warehouse.
                                           CHAPTER- 6

                    Order Picking Operations in Warehouse Systems



Order picking operations in warehouse systems

       Designing a warehouse and defining the type of appropriate warehouse equipment is a
complex decision process, being a long-term strategic decision. Between the other functions like
receiving and checking, storage, packing and shipping the orders, an important function in designing
a warehouse is represented by the picking process. Developing an effective order picking operation
and enhancing this in pick accuracy and speed, need to integrate new technologies combined with
the adequate methods for picking the products.

       The classical warehouse becomes more and more a sophisticated place, determined by, the
large number of problems, types and demands of customer services. An important function in
designing a warehouse is represented by the picking process, between the other functions like
receiving and checking, storage, packing and shipping the orders.




Key Factors In Warehouse Design

       Designing a warehouse and defining the type of appropriate warehouse equipment is a
Complex decision process, being a long-term strategic decision. In this process, collecting Operation
data is often the first step, database development being the most important part of any warehouse
sizing and design process. Warehouse activity profiling is the analysis of historical sales transaction
data for the purposes of projecting warehouse activity and determining storage mode, physical layout,
work flow processes, and labor and equipment requirements. Using this data, the company can
examine the volume of receipts and shipments, the characteristics of those shipments, projecting
inventory levels, plan the number of SKU along with the associated cube, velocity, seasonality, and
inventory handling characteristics that are all critical to the design, inbound shipment characteristics,
number of orders per day, lines per order, and pieces per line. When designing a warehouse, the key
factors need to be considered in determining the best solution between a manual or automated
solution, are:
          i.   The characteristics, size and weight of products;

         ii.   The product activity, the cubic velocity of a product;

        iii.   For storage systems, the choice is determined by the type of load units, range           of
               products, quantity of loads for each SKU, movement rates of load units;

        iv.    In the case of picking methods it is necessary to take in consideration the total number
               of orders, total number of transactions, the characteristics of product being    handled,
               picks per order, quantity per pick, picks per SKU, the number of SKUs, the value
               added processes and the type of pick;

         v.    For selecting the material equipment, directly related to the layout and selected Storage
               system, it has to consider factors such as product weight and volume, product fragility,
               productivity rates of different type of equipments and health and safety legislation;

        vi.    Outlines the key principles including optimization of space, flow of materials and
               equipment, types of storage i.e. bulk vs. small parts etc. and appropriate combinations
               of Storage and handling equipment, different types of warehouses etc.

        vii.   Establishing the best combination of handling and storage equipment

       viii.   Outline of the key principles of warehouse automation and mechanization and key
               factors that influence the decision to automate a warehouse.

       As general rules, it can be established two or three designing alternatives. It is recommended
that these alternatives to include a simple conventional system, a system with medium mechanization
level and a system with high mechanization, automation level and technology. The growth in
mechanization degree is justified for the products with high speed. Invariably, a single designing
approach is not applicable for the entire range of products. To select the final option it is necessary to
analyze also, the operation and investment costs, another costs involved, rate of investment
recovery, the advantages and drawbacks of different alternatives, factors such as extension capacity,
adaptability and simplicity of solutions. The selected elements have different influences on the overall
solution. More automation may reduce the labor cost, but increase the investment cost. More storage
zones may improve the space utilization, but require more control. Zone picking may improve the
productivity of the stock selectors, but require more planning and control of picking. For these
reasons, it could be useful to develop an optimization model that would consider the tradeoffs
between all the available options and select the decisions leading to the best solution, according to
the specified criterion.
Order Picking Operations

       Order picking processes, in classical, traditional variant, suppose the existence of some
Collectors, persons who pick out the articles from storage places, based on a picking list. The
process of data introduction in an informatics system is manual, like the picking process of different
articles. Automatic picking of products supposes a series of methods which offer picking tools, as well
as data obtained based on developing informational and communication technologies. To develop an
effective order picking operation it is necessary to take in account the activity profiling, which consists
in defining the product movement in terms of lines, cases or units picked. This process is essential in
the present conditions, when the customers require smaller and more frequent orders.

       Related to effectiveness of order picking, an important step is the selection of the most
adequate picking equipment and technology. When it is involved in broken case picking, most
commonly picking equipment could be static shelving, carton flow rack, vertical or horizontal
carrousel, as well as mini load ASRS or automated conveyor and sorting systems. Piece picking is
used especially by e-commerce or mail catalogue companies and spare parts distributors. Case
picking operations know also, a large series of picking equipment, like pallet racking, configures in
wide or narrow-aisle type, carrousels, automatic storage and retrieval systems. For mail order and
Internet ordering for books and media, a particular picking system can be used, known as forwarding
picking. This consists in a group of picking stations or access point for pickers picking from walk
through shelving. A conveyor system links all the stations and the WMS controls the sequence that
the product moves through the system. The effectiveness of picking can be improved using advanced
picking technologies, including radio frequency terminal systems, wireless speech technology and
pick/put-to-light systems. In designing an order picking process it is useful to take in considerations
an effective slotting strategy, calculating the number of facings or locations required for each product.
Also, it can’t be neglected how the products are stored. The layout and pick zone design should be
integrated with the inbound and outbound flows of products. The picking methods are established
taking in account the characteristics of handled products, the number of orders and picks per orders,
as well as the pick type. There is a large variety of methods in this field, from single order picking,
zone and batch picking, to combinations of these and innovative methods, like cluster picking, wave
picking, zone-batch wave picking.

For example, batch picking is one of picking method based on the following principle:
       The collection of all order within a batch in a single pass of the order picking which uses a
consolidated pick list, the operator picking one group of a group of orders at the same Moment this
method has two alternatives:

         i.   The picking of products into a common tote and further manual sorting and packing at a
              pack station

        ii.   Collection in different totes of the line items for transport to an automatic sorter

       Batch picking is a method that can be used in a single pick zone or across multiple picking
zones. Cluster or Multi-order Picking is derived from discrete picking, but the difference is that the
operator picks all the products for a group of orders. The collector picks the clustered line in different,
distinct totes or cartons on the picking trolley. The advantage of this method is that when are reduced
number of picks per order, it is possible to reduce significantly the travel time. Zone-Batch-Wave
Picking can be considered a combination between Zone-Batch




Picking method and Wave-Picking method

This method is based on the following principle:

       For each operator is assigned a zone and he collects all lines for the orders stocked in the
assigned zone. In addition, he picks more than on order at a time. It is taking in consideration multiple
scheduling periods per shift. In designing an order picking system the importance of selecting the
right material handling equipment cannot be overstated. In this process, it has to take in account a
series of factors direct related such as product weight and volume, the fragility of products, health and
safety legislation, productivity rates. As consequence, this equipments for handling and transport of
picked products, is specialized for small and low cube items, like trolleys and conveyors, and
equipments for large and high cube items. Key objectives in the process of design an order picking
operation are represented by the increases in productivity, measured in pick rate, increasing in
accuracy and reduction of cycle time. Regarding the accuracy of this process, the development of
technologies, like barcode or RFID scanners, pick-to-lights systems, coupled with training and
monitoring through specialized systems has a positive impact on accuracy.

       In designing a warehouse, between typical warehouse functions, an important role has, the
order picking process in improving the warehouse performance. Developing an effective order picking
operation and enhancing this in pick accuracy and speed, need to integrate new technologies
combined with the adequate methods for picking the products. Benchmarking and Monitoring
International Warehouse Operations in Europe

       We report on a cross-sectional and longitudinal comparison of European distribution centers in
the Netherlands. European distribution centers are responsible for the distribution of a manufacturer's
(mostly Asian or American) products over customers in a large part of Europe, the Middle East, and
Africa, often with strict service-level agreements. In total, 65 physical warehouses, containing 140
European, Asian, and American European distribution center operations, in combination with different
outsourcing   relations   (own-account,   dedicated    outsourced   and    public   outsourced),   were
benchmarked in 2000 and monitored over the period 2000-2004. We conclude that both in 2000 and
2004, European warehouses are more efficient than Asian and American warehouses, and
outsourced operations (particularly public warehouses) are more efficient than own-account
operations. Over the period 2000-2004, efficiency appears to have declined substantially; the most
distinct differences are to be found among public outsourced warehouses and, because many
European distribution center warehouse operations of European origin are run by public service
providers, among European warehouses. This decline in efficiency also led to a decline in
productivity, in spite of the fact that overall the available technology has improved. We conjecture
potential causes for this decline.

       Benchmarking is essentially the process of identifying the highest standards of excellence for
products, services, or processes, and then making the improvements necessary to reach those
standards, commonly called "best practices." The justification lies partly in the question: why reinvent
the wheel? Many of the Fortune 500 companies use benchmarking on a regular basis (Bhutan and
Huq 1999). However, benchmarking operations is not an easy business. Usually, a number of
management ratios and other performance indicators are used for comparison. In warehousing,
commonly used ratios and indicators include cases or order lines picked per person per hour, picking
or shipment error rates, order throughput times, percentage of orders with special requests, etc.
(Forger 1998, Van Goor et al. 2003). The problem with these indicators is that they are not mutually
independent and that each of them depends on multiple input indicators. The number of order lines
picked per person per hour may be strongly influenced by system automation, the assortment size,
and the size of the warehouse.

       One way to overcome this is to look at the operation's efficiency. Commonly, the efficiency of
an operation is defined as a weighted sum of output indicators divided by a weighted sum of input
indicators. The problem in this approach is to express the numerator and the denominator in the
same unit and to determine the weights. This problem can be tackled by employing data envelopment
analysis (DEA) (see Cooper et al. 2004). With DEA it is possible to measure the relative efficiency of
a set of comparable decision-making units. A partial list of the many applications since its inception in
1978 is provided by Coelli et al. (2003).

       This study describes an attempt, based on DEA, to assess efficiency and efficiency change of
European distribution centers (EDCs): warehouses that are primarily responsible for the distribution of
a multinational's products over at least five countries within the EMEA region (Europe, Middle East,
and Africa). DEA is particularly appropriate for this evaluation because it integrates a variety of
performance metrics and provides a structured method for evaluating warehouse performance.

       EDCs form the heart of the European supply chains of international (mostly American and
Asian) manufacturers. These centers not only have a stock keeping responsibility but also have a
prime responsibility to organize the supply chain between international suppliers and customers in the
EMEA countries. Within Europe, the Netherlands has a dominant market share of EDCs. In 1997,
nearly 550 EDCs were located in the Netherlands. This is more than half of all the EDCs in Europe
(BCI 1997). According to Kuipers (1999), the number rose to 600 in 1999. Although we carried out
survey research mainly among the Netherlands' EDCs, the EDC population in the Netherlands is
sufficiently representative for the total population to develop generalizing statements about the
efficiency of EDCs located in Europe.

       This study focuses on the efficiency of the internal operations, which are compared for two
periods: the year’s 2000 and2004. We explicitly do not look at company or supply chain
benchmarking. We have restricted ourselves to performance variables that can directly be influenced
by warehouse management, albeit that some are design related and can therefore only be changed
in the long run. For this reason, we exclude input and output variables of a financial nature
(warehouses incur costs but are not responsible for sales) or variables measuring inventory turnover
(the levels of which are determined by the company strategy). The organizations behind EDCs are all
multinationals, many of them with multiple facilities worldwide. Benchmarking such organizations is
difficult, because results are only meaningful for comparable organizations and the unit of analysis
cannot be defined unequivocally. Also, reliable results could only be obtained with a sufficiently large
sample of such comparable organizations, which is very hard to realize.
                                             CHAPTER 7
                        Inventory and Warehouse Management
         Processes in the area of Inventory Management address the recording and tracking of
materials on a quantity and value basis. This includes planning, entry, and documentation of stock
movements such as goods receipts, goods issues, physical stock transfers, and transfer postings as
well as the performance of physical inventory (stocktaking). Warehouse Management Processes
cover warehouse-internal movements and storage of materials.



Warehousing and Storage


Inventory Management


         Manages the stocks of a company in quantities and values. It is integrated with supply chain
accounting and is responsible for goods receipts and goods issues, and for managing different stock
categories (available, blocked stock, in quality assurance, and so on) and special stocks (including
consignment stock, project stock, and so on). Enables a summarized visibility of stocks in the supply
chain.


Strategies


         SAP Warehouse Management allows you to manage your material flow, using advanced
putaway and picking strategies. In the standard system, these strategies for putaway include random
putaway (next empty bin), bulk storage, fixed bin, or addition to stock. The picking strategies include
standard strategies first-in first-out (FIFO), last-in first-out (LIFO), picking by shelf life expiration date
(SLED), or partial quantities first. For customer-specific strategies, solutions can be self-defined in
user exits.


Production Supply


         The material supply of storage bins in production can be handled with SAP Warehouse
Management. Picking for work orders is supported by advanced strategies and combined with
handling unit management. It is possible to pack for a specific work order.
Task & Resource Management


      Controls the tasks in the warehouse and optimizes the sequence in which the tasks are
executed. Ensures that, in the warehouse, the right task is processed by the right resource at the right
time. Helps minimize the routes in the warehouse. Is easy-to-handle and seamlessly integrates into
the SAP Logistics Execution System.


Radio Frequency/Bar-coding


      SAP provides direct radio frequency (RF), allowing the use of mobile RF terminals and
handhelds with scanning devices. This enables immediate and error-free data transfer -- setting a
high standard of quality for warehouse transactions. The character-based or graphical terminals and
handhelds receive data directly from the SAP system without using a middleware product and
transfer results immediately to wherever they are needed. The configurable barcode setup allows you
to use barcode standards (for example, EAN128 or SSCC) as well as any defined barcode systems
you define yourself.


Handling Unit Management


      You can use handling unit management (HUM) to reflect packing-based logistics structures in
SAP ERP. In SAP Warehouse Management, you can use handling units to process warehouse
movements, such as putaway, picking, or stock transfers. Furthermore, handling units can be created
in the warehouse, labeled, and picked for existing deliveries. HUM allows you to uniquely identify
packages, for example, pallets, in the warehouse and throughout the supply chain. This includes
EAN128 and SSCC18 labeling. The handling units can be nested and packed with different materials
or batches.



Storage and Stock Management

Serial Numbers: Handling unit management makes serial numbers known in the warehouse.
Batch Management: Batch management is integrated into all SAP WM processes. This includes the
handling of batches and batch determination for delivery picking, for production supply, or in internal
warehouse processes. Also, active ingredient processing is integrated into the batch determination
process in SAP WM.


Hazardous Materials: Although many materials that are classified as dangerous can be placed into
storage along with other goods, some require special handling and placement into specially designed
storage facilities. Some examples of these materials include explosives, petroleum fuels and oil,
poisons, corrosive liquids, and radioactive materials. SAP WM is designed to manage the handling
and storage of hazardous materials.


Quality Management Integration


       SAP Warehouse Management is integrated with quality management (QM), thus allowing
warehouse administrators to manage and track inspection lots that are stored in the warehouse.


Visibility


Warehouse Activity Monitor: The warehouse activity monitor helps a manager oversee, plan, and
optimize work processes in the warehouse. It provides a tool to notify those responsible if there are
delays or errors in the overall system. The warehouse activity monitor also helps to identify and
correct warehousing problems or critical processes soon after they occur.


Radio Frequency (RF) Monitor: The monitor for RF activities lets you display the current workload
and resource capacity in the entire warehouse. A graphical tool that gives an overview of the current
workload status in the groups that workers are assigned to, it enables a warehouse manager to easily
access and influence the work process by redistributing tasks between different work groups and
prioritizing the tasks within a group.


Task Monitor (available with task and resource management): The task monitor allows you to
manage and control the resources and tasks in a site. It enables a manager to influence the allocation
of tasks to different resources and to perform various operations (tasks and resources, for example).
Compared to the RF monitor, the task monitor drills down to a more detailed view of tasks (such as
picking, packing, and weighing) that can be generated from different SAP enterprise documents.
Decentralized Warehouse
       Customers can decide to use SAP WM as a stand-alone system, connected with a central
ERP system. This interface is also available as a standard interface for the connection of certified
partner WM systems. The system distributes master data and inbound/outbound deliveries
automatically. All quantity-related processes, physical movements, and picking/packing operations
are handled in the decentralized WMS. All financial- based functions (such as valuation, credit limit
check, and ATP) are handled in the central system. An enhancement of the system communication
covers the changeability of deliveries triggered centrally.


Automated Workload Release


       Supports the control and timing of activities in the warehouse, based on progress control and
the time it takes to pick, pack, and move the demanded goods to the outbound area. Activities of
several picking groups can be monitored through the physical goods movement processes.

Physical Inventory

       Manages physical inventory for your organization's own stocks or for special stocks in your
warehouse. The following physical inventory procedures are supported:


      Periodic inventory
      Continuous inventory
      Cycle counting
      Inventory sampling


   Physical inventories for legal reasons, for balance sheet purposes, or for internal controlling
reasons are also supported.


Planning Phase of Physical Inventory


       The physical inventory process can plan which material has to be counted at which storage
location on which date. Stocks can be blocked for goods movements before the beginning of
counting, measuring, and weighing.


Counting Phase of Physical Inventory
       RF transactions support stock counting. After the results have been entered, you can monitor
the differences and trigger a recount if necessary. If you post quantity differences for your locations,
an update of the material valuation and financial accounting is triggered automatically.


Monitoring of the Physical Inventory Activities


       Detailed functions for monitoring the completeness of the physical inventory, the status of open
and completed physical inventory activities, and the results of historical physical inventory activities
are available. You can monitor the activities on material or location level.


Dependent Vs. Independent Demand Inventory


       Some inventory items can be classified as independent demand items, and some can be
classified as dependent demand items. While we need to make the timing and sizing decisions for all
inventory items, we must be careful in the manner in which we make those decisions for these two
types of items.


Independent demand inventory item: Inventory item whose demand is not related to (or dependent
upon) some higher level item. Demand for such items is usually thought of as forecasted demand.
Independent demand inventory items are usually thought of as finished products.


Dependent demand inventory item: Inventory item whose demand is related to (or dependent
upon) some higher level item. Demand for such items is usually thought of as derived demand.
Dependent demand inventory items are usually thought of as the materials, parts, components, and
assemblies that make up the finished product.




Types of Inventory


Raw materials Inventory: This consists of basic materials that have not yet been committed to
production in a manufacturing firm. Raw materials that are purchased from firms to be used in the
firm's production operations range from iron ore awaiting processing into steel to electronic
components to be incorporated into stereo amplifiers. The purpose of maintaining raw material
inventory is to uncouple the production function from the purchasing function so that delays in
shipment of raw materials do not cause production delays.


Stores and Spares: This category includes those products, which are accessories to the main
products produced for the purpose of sale. Examples of stores and spares items are bolts, nuts,
clamps, screws etc. These spare parts are usually bought from outside or some times they are
manufactured in the company also.


Work-in-Process Inventory: This category includes those materials that have been committed to the
production process but have not been completed. The more complex and lengthy the production
process, the larger will be the investment in work-in-process inventory. Its purpose is to uncouple the
various operations in the production process so that machine failures and work stoppages in one
operation will not affect the other operations.


Finished Goods Inventory: These are completed products awaiting sale. The purpose of finished
goods inventory is to uncouple the productions and sales functions so that it no longer is necessary to
produce the goods before a sale can occur.


Uses of Inventory


Anticipation Inventory or Seasonal Inventory: Inventory are often built in anticipation of future
demand, planned promotional programs, seasonal demand fluctuations, plant shutdowns, vacations,
etc.


Fluctuation Inventory or Safety Stock: Inventory is sometimes carried to protect against
unpredictable or unexpected variations in demand.


Lot-Size Inventory or Cycle Stock: Inventory is frequently bought or produced in excess of what is
immediately needed in order to take advantage of lower unit costs or quantity discounts.


Transportation or Pipeline Inventory: Inventory is used to fill the pipeline as products are in transit
in the distribution network.
Speculative or Hedge Inventory: Inventory can be carried to protect against some future event,
such as a scarcity in supply, price increase, disruption in supply, strike, etc.


Maintenance, Repair, and Operating (MRO) Inventory: Inventories of some items (such as
maintenance supplies, spare parts, lubricants, cleaning compounds, and office supplies) are used to
support general operations and maintenance.


Objectives of Inventory Management
There are three main objectives of inventory management, as follows:


Provide the desired level of customer service: Customer service refers to a company’s ability to
satisfy the needs of its customers. There are several ways to measure the level of customer service,
such as: (1) percentage of orders that are shipped on schedule, (2) the percentage of line items that
are shipped on schedule, (3) the percentage of dollar volume that is shipped on schedule, and (4) idle
time due to material and component shortage. The first three measures focus on service to external
customers, while the fourth applies to internal customer service.


Achieve cost-efficient operations: Inventories can facility cost-efficient operations in several ways.
Inventories can provide a buffer between operations so that each phase of the transformation process
can continue to operate even when output rates differ. Inventories also allow a company to maintain a
level workforce throughout the year even when there is seasonal demand for the company’s output.
By building large production lots of items, companies are able to spread some fixed costs over a
larger number of units, thereby decreasing the unit cost of each item. Finally, large purchases of
inventory might qualify for quantity discounts, which will also reduce the unit cost of each item.


Minimize inventory investment: As a company achieves lower amounts of money tied up in
inventory, that company’s overall cost structure will improve, as will its profitability. A common
measure used to determine how well a company is managing its inventory investment (i.e., how
quickly it is getting its inventories out of the system and into the hands of the customers) is inventory
turnover ratio, which is a ratio of the annual cost of goods sold to the average inventory level in
dollars.

				
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