Warehouse Automation
Introduction
There are over 325, 000 distribution centers in the United States. Currently less than a third of these DC’s are thought to have revenue structures large enough to support the investment necessary to acquire a Distribution Center Information System, but with the cost of hardware technology continuing to fall and the power of software continuing to rise, more and more of the 325,000 will be able to afford a system in the next few years. In fact, as the number of installations increases, the application of technology for logistics information handling systems will shift from being a LEADING EDGE application to a MANDATORY process, necessary to SURVIVE in the competitive game of being a Distributor. “Facing the Forces of Change”, the DREF Report, the Arthur Anderson study commissioned by the National Association of Wholesaler Distributors, refers to this transition as changing from being an “investor” in technology to being a “satisfier” in the use of technology.
With the exception of the few who have already invested in and successfully installed such a system, the rest are in the following situation:
1. Spending 10-40% too much on labor.
2. Spending too much on material handling equipment, directly related to the excess labor.
3. Investing 5-25% too much in inventory safety stock.
4. Constantly running out of space and either renting additional space or making expensive capital investment in additional square footage.
5. Losing significant money due to errors.
6. Losing sales due to errors.
7. Investing several days’ labor a year to physically count the inventory.
8. Not shipping product, and therefore losing revenue during the physical inventory count.
When the aggregate dollar effect of the above is effectively analyzed, the amount of money being invested in non-production and errors is sufficiently large to pay for an automated system which will reduce or eliminate these dollar-draining factors.
The intent of this article is to clearly illustrate the advantages of an automated warehouse information system by taking a walk through a hypothetical wholesaler’s warehouse and see how they are doing things now, function by function, and then have a discussion among ourselves, out of earshot of our hosts, of things that we have noticed about their current system. When we are finished with the walkthrough we will install and discuss a hypothetical information system, replacing the manual one we see during the walkthrough.
Scenario
Typical Wholesale, Inc. is a mixed-goods distributor. They generate $80 million a year in revenue and are growing at about 7% a year. They ship all of their product out of one 250,000 square foot distribution
center. The DC has 40,000 square feet devoted to bulk floor storage, 90,000 square feet devoted to pallet rack storage, 14,000 square feet devoted to hazardous materials and a 40,000 square foot, two-level mezzanine, one level for “repack” items, which are small items picked as “each” and one level for case and bulky items. The DC has 18,000 square feet devoted to receiving, with 10 receiving doors. They have 30,000 square feet devoted to shipping with 15 shipping doors. There are 125 DC employees working staggered shifts from 6:00 AM to 8:00 PM. They also distribute a significant number of lines from their original distribution center, a location that was supposed to be completely vacated with the advent of the new, recently opened distribution center described above. It hasn’t happened yet.
This company has a central computer system which has all the traditional accounting and management functions automated. Their systems are fairly advanced and have done a good job of giving Typical good leverage on their assets of inventory and accounts receivable. Recently they have invested in advanced buying system software which gives them the ability to forward buy, thus adding a new dimension to managing their inventory asset. All of their computerized systems depend upon the movement of paper through the organization, and nowhere is this more apparent than in their distribution center.
To get an idea of how the distribution center operates, we are going to take a brief tour or “walkthrough” of the warehouse facility. We have been fortunate enough to get as out guides through the facility both the warehouse manager, and his superior, the Vice President of operations. The descriptions we will encounter as we walk through are seen through the eyes of these two people and filtered by our own understanding of what they are saying.
Another thing to factor into the picture this walkthrough generates is the fact that this is a simulated walkthrough written on paper. In a real walkthrough you find yourself in a huge cavern of a building with racks towering 25 or more feet or more above you and with people and equipment flying in all directions. apparently all at once. Completing the overall environment in a real walkthrough, the lighting is marginal so you can’t always see with any degree of certainty what is really going on. The location by location description of this written account gives the inaccurate impression of quiet and calm, and organization; it doesn’t give an accurate impression of the fact that there are multiple people performing each of the operations we will “see”. So multiply all your impressions and observations by several factors and add a degree of controlled chaos to get a more real impression.
Receiving
Typical’s receiving operation emanates from the operations office, which is quite close to the receiving area and has large glass windows viewing the distribution center. In the operations office there are usually a number of operations and supervisory people milling around. There are also a number of computer workstations and printers which are attached to the central computer and which are used for a number of functions. The function that starts receiving is the printing of the receiving package for about-to-arrive inventory. This package includes a purchase order and a set of extremely clever, complicated and expensive sticky removable labels which serve a variety of functions in the receiving and putaway process. The person who “pulls” this package is a fairly senior warehouse operations employee, named Marv.
The receiving personnel pick up their receiving packages from Marv and they go to their receiving stations. Actually, the trigger for the receiving package was another activity performed in the operations office. That activity was the scheduling of the arrival of an inbound shipment at some pre-arranged time at a pre-arranged receiving location. So if things work as they should, the receiver, named Rick, goes to a specific receiving location and finds the open back end of a truck full to the brim with pallets of merchandise. A typical configuration of sticky removable labels, mentioned previously, consists of a group of rather small removable labels printed in typical small computer printing, and a group of rather large removable labels with very large letters, much bigger than computers typically print. Rick uses these as follows: using his pallet jack he moves a pallet off the truck and moves it into the staging area on the freight dock immediately adjacent to the truck. He removes one of the large sticky labels, one which accurately describes the merchandise on the pallet and puts it on the upper right hand corner of the carton occupying that position on the pallet. He then removes one of the small sticky labels, again, one which accurately describes the product on the pallet he has just removed and he puts that label on the purchase order next to the line item for the pallet he has just removed. This indicates that the line item, a full pallet, was received. Nothing ever being quite that simple, in this shipment there are two pallets that have mixed product, requiring Rick to disassemble the pallet and put a large label on each carton and a small label corresponding to that carton on each corresponding line on the purchase order. For this operation he ends up with a non one-for one relationship between the large labels and the small labels. There is one small label for each unique line item, but there are multiple large labels for each small label, reflecting the fact that the quantity being counted for that line item is a quantity greater than one. He makes a “tickie” mark on the purchase order next to the line item representing the case he has offloaded and labeled. When he runs out of cases for that line item on the purchase order he counts the “tickie” marks and compares that to the quantity ordered. If it is the same he initiates the same process with the next line item until he has unloaded the two non-homogenous pallets. If it isn’t the same, he circles the current line item and notes it as a short count, showing the total of his “tickie” marks. When he is finished unloading the truck he takes the receiving package back to Marv. Marv, when time allows, keys the results of the annotated and “tickied” PO back into the system so inventory and payables can be updated.
Things To Note
Several things. First, the paper that supports this system is labor intensive both in its production and in its use. It is also expensive paper, being special stock, weight and adhesive. It is really a system itself, ingeniously designed to assure accurate receiving both by count and by product type. The question is whether it is really accomplishing those two goals. Which leads to the second thing to not about this approach. If Rick forgets to make a “tickie” mark when he puts a label on the box he has created an error in the count that won’t be corrected until the vendor disagrees with a short shipment notification, and the inventory count will be in error, being corrected, if ever, only after the vendor has confirmed full shipment and somebody from the “error checker” department finds an extra case of the supposedly short shipped product in stock. Proliferate this sort of potential error and error recovery over the thousands of receiving transactions the warehouse has daily, and over the number of days necessary to recover and adjust inventory counts and you lead to the third, fourth, and fifth things to note about this system. Third, the inventory count is never really correct or dependable, and it is potentially understated, so, fourth, the buyers must use their intuition more than their information, leading to overbuying, and fifth there is an undue amount of ongoing labor being invested in supporting error correction for an already labor-intensive system. (Remember, Marv needs to re-key the PO, including any of Rick’s errors, back into the system.)
Putaway
As Rick unloads the truck he is building an array of pallets and cases in the area immediately adjacent to the truck he is unloading. This is by design; it is the staging area and is the point at which putaway starts.
A forklift driven by Betty, a long-term employee I this distribution center appears as the staging area fills. Her job is to take the stock that Rick has unloaded and put it into bulk storage. Bulk storage is the place where product is kept prior to being put in its picking location for picking and shipment. She knows where to put stock by reading the large labels that Rick has affixed to it. One of the things on the label is the primary putaway storage location. So Betty forks a pallet, looks at the location and takes the pallet to that location. As luck would have it that location is already full of product, presumably the same product type that she is now attempting to put away.
One of the reasons Betty has the putaway function is that she is a senior employee. This distribution center uses its best and most experienced employees for putaway for many reasons, one of which is to cover situations like we have just encountered. Although the primary location, the one indicated on the label, is full, Betty, due to her experience knows several other places that have the space necessary to store a pallet of this size. So she searches until she finds a vacant one and puts the stock in that location. Luckily for future pick location replenishment Betty has a photographic memory and always remembers where she has put stock. She goes back to Rick’s staging area for another pallet and another putaway.
Things to Note
In non-priority, purely stream-of-consciousness order, here they are. First, Betty’s memory, photographic though it may be, occasionally produces blanks, just like any good camera. She also has been known to miss work due to illness or to take vacation or personal time off. In her absence, the only known way to find stock that she has put in a location alternate to the primary storage location is to wander and look. Depending upon how creative she has been in her choice, that endeavor can take anywhere from a few minutes to hours. (It has been known to occur that only the annual physical inventory uncovers some of the most inventively chosen locations.) This generates the next thing to note which is pure and simple labor waste. Just because something can generally be found in a “reasonable” length of time, whether by the person who originally put it away, or some relatively skillful backup doesn’t mean that the extra labor necessary to support that kind of a system makes any sense. In a distribution center doing thousands of activities a day, a few minutes per activity can add up to hours or days of wasted time; and time is money. Another factor, related to this is that if the primary location becomes empty after Betty has chosen her own personal backup location, and a new shipment of that product is received, and the new shipment is put in the primary storage location, any chance of having a FIFO system has just been eliminated. The primary location becomes empty, the new stock is received, and since the primary location is empty the new stock is put there, and the stock that Betty put “somewhere else” stays “somewhere else”. In the distribution business of today, with constant change in products generating an actual decline in value or sellability of products as they age, a system that does not assure that the oldest stock is always the stock that goes out first is not acceptable. Instead of FIFO, the “Betty System” leads to an inventory strategy known as FISH (first in still here). Another factor ill-served by this sort of a system is that the stock not in primary locations is stored in a manner that has no consideration for the best use of space (cube) and it contributes to the ever present “need more square footage” syndrome faced by all distribution centers. This wasted square footage costs money either in terms of space rented to accommodate overflow or actual capital investment in additional square footage.
Picking
There are two distinct picking operations in Typical’s distribution center. One is for case quantity orders, the other is for broken case or “each” orders. They are called “case pick” and “repack”.
The vast majority of orders come in to the central computer in some type of electronic form. The central computer assesses the order, and depending upon whether it is case quantity or repack it does different things.
Case quantity orders cause the computer to generate “case labels” which are more of the removable sticky variety of paper stock that we saw earlier in the receiving operation. In this instance, case labels are 12 to a sheet, 3 by 4. The computer prints on these labels the item to be picked and its picking location. There is one label for each case ordered. If you are wondering how the number of cases ordered always matches the number of case labels on the form, they don’t. The form is a continuous computer form that has twelve removable sticky case labels per continuous form sheet (perforation to perforation) and if they don’t match exactly, the balance are discarded.
The other picking operation is the repack operation. This function fills orders for each and broken case items less than 30 inches in size. Again, the central computer initiates the process be receiving an electronic order that, instead of ordering by case, orders by broken case quantity, or each. In this instance the computer generates an extremely ingenious form. The top consists of multiple small removable sticky labels and the bottom is a pick list.
Actually, there is a sort of hybrid third picking operation. It is called the “hand stack area” and is the lower level of the two level 41,000 square foot mezzanine. This area has pallet racks that accommodate either cases or repack items that are bulky or longer than 30 inches. Certain types of garden tools are an example of bulky items.
In all cases the picking documents are produced on the central computer’s high-speed printer and transported every few hours by courier to the distribution center which is 8 miles distant.
Elmo is one of the case pick pickers. He drives a “tugger” with two small flat open trailers in tow. He picks up his stack of case labels from the shipping office and commences his pick run. The pick operation has been sorted by the central computer in warehouse location, and the warehouse has previously been organized in most to least ordered (A,B,C) merchandise order. As Elmo traverses the racks he stops, picks appropriate cases, removes case labels and puts them on the cases. Elmo has a supply of red sticky labels on the electric vehicle which serve as out of stock flags when he finds a designated pick location empty or when his order brings the pick slot to out of stock. The replenishment crew is responsible for assuring that these red label conditions are corrected as soon as possible. In theory there shouldn’t be very many of these out of stock conditions, because the inventory system and the order entry system on the main computer periodically monitor the inventory level relative to known order requirements. As the computer notes imminent out of stock conditions it generates replenishment advises for the replacement crew. But as we have seen in other areas already, theory and reality in a distribution center are sometimes different from one another. As Elmo fills his tugger with completed orders he offloads the cases to the conveyor system and continues his picking operation. When he has completed the picking operation he takes the remaining paperwork to Joyce in the shipping office.
The repack area is on the second level of the mezzanine and is designed to be a very fast pick area. Approximately 60% of Typical’s total numbers of lines picked come out of this area. Lorraine is one of the repack pickers. She obtains a stack of pick lists sufficient to occupy approximately half a shift according to the computer’s assessment of the number of lines compared to the going line per hour rate. She has a cart with shelves sufficient to accommodate several empty cardboard boxes that function as the containers for the orders. Since each pick list is a consolidation of several orders, one pass through the repack area results in multiple orders picked. Prior to the start of each repack pick shift the replenishment crew restock all the pick locations sufficient to support the load generated by that shift’s orders. This is done by a computer run after all the next shift’s orders have been processed and the inventory count known to the computer has been assessed for adequacy. If Lorraine encounters an out of stock condition, she uses the same type of red label employed by Elmo in the case pick operation. The replenishment crew is responsible for policing the repack area such that these out of stock situations, which aren’t supposed to occur are taken care of quickly. As Lorraine’s cart is filled with picked orders, she puts them on the conveyor for movement to the appropriate shipping door. The pick lists are sent to Joyce in the receiving office.
Things to Note
Not too much this time. The major item would again be the manually intensive nature of the system, involving the removal and attachment of sticky labels, and the intrinsic expense of the paper itself, including the cost of wasted forms. There is always also the chance of mis-picking inventory, meaning that the picker reads an item number, description, and location and actually picks from another location. This results in either a dissatisfied customer, if the item picked is not only wrong but of equal of less value than that which was ordered, or a monetary loss to Typical if the item picked is of substantially greater value than that which was ordered, and if the customer opts to keep the item and not lodge a complaint. It also results in another source of inventory error similar in effect to that which was noted from miscounts at receiving.
Conveyor
As the conveyable picked items are put on the conveyor system they are fed to a location where Ned has a duty station. Ned is sort of the conveyor commander. His job, requiring good eyesight, is to watch the cartons and cases as they approach him, read the two digit run number, which is printed on the label, previously attached by the picker, and key it into the keypad he is running. The conveyor system has a PC which reads the run number, and based on that input kicks the carton or case down one of the 15 spurs. This is the basis for the subsequent customer truck load work performed by shipping. The run numbers not only get the customer orders at the correct shipping location, they also dictate the load position for the order on the truck, getting first to be delivered orders to be put on the truck last.
Things to Note
Two things. First, there are machines that can read appropriately coded labels allowing the use of an expensive labor resource in more productive capacities. Second, these machines don’t daydream or have temporary optical malfunctions, both of which are characteristics of humans when they are employed in machine-like jobs.
Shipping
Cases from the case pick process, cartons from the repack pick process and cartons and bulky items from the hand stack area are constantly being conveyed to the shipping area. The various cases, cartons, and items are sorted by customer and put on carts. If the item, carton and case count on the cart matches the count on the bill of lading, the invoice and bill of lading are included with the shipment and the order is put on the appropriate truck for shipment to the customer.
Things to Note
Assuming that Ned has been reading the run numbers on the labels accurately and that Joyce hasn’t been letting her file of incomplete orders remain unattended for too long, there is nothing wrong with this function. It is dependent for effectiveness upon at least two “upstream” functions, invoicing and the conveyor. If their level of efficiency and accuracy degrade, the shipping operation loses effectiveness. It is interesting to note that if you automate those two “upstream” functions, the paperwork moves one function “downstream”, cutting both manual labor and shipping time. Also, a test of whether this is the best of all possible systems would be to go through the mental exercise of answering a customer question about his order status when it is in shipping. Or of the customer asking to add an item to the order once it is in shipping.
Invoicing
Joyce in the shipping office gets a constant flow of the paperwork from case label picks and repack picks during the day. If the order is complete she uses a workstation connected to the central computer to release the order. This results in an invoice and a bill of lading being printed. These both go to shipping. If an order is not yet complete, Joyce files it and periodically checks to see if the incomplete orders have been filled. When they are complete she releases them, producing a bill of lading and an invoice.
Things to Note
Except that this step substitutes human labor for computer time, nothing. The time between reviews of incomplete orders can also contribute to late shipment and dissatisfied customers.
Physical Inventory
Each year the entire distribution center closes down for 3 days to conduct the annual physical inventory. Every item is counted and verified to the computer count and all imbalances are accounted for and reconciled.
Things to Note
The labor spent on this activity is contributing nothing to sales and profit. The time spent on this activity is dead time, since no orders are filled or shipped during it. So for a large expenditure, no revenue or profit is generated.
Summary
The warehouse walkthrough should have given you a fairly good feeling for several aspects of how a Typical’s Distribution Center functions. Major things we saw are:
1. Labor Intensive - Although Typical Wholesale’s DC Manager and his boss, the Operations Vice President manage to labor standards, monitor efficiency and manage a DC employee incentive system based upon labor efficiency, they are nevertheless working with a system that is essentially manual with computer-supplied paper support in several key functions. Their key methodology is primarily to try to work faster, because to work smarter requires information, and they are dealing with “history” not information.
2. Isolated Functions - Each functional area we visited in the walkthrough is essentially an end in itself with little or no continuous flow relationship to the other functions. For example, when Betty had to get creative in putting away an item when the primary storage location was filled, she put it away, and it is her job to remember where she put it. She is a functional and informational “island” separated from the rest of the operation; when the results of her function need to be known it is always the result of a breakdown in the “system” (we can’t find item X) and those results are only joined with the “system” by a great deal of manual thrashing and wasted time.
3. Paper Intensive - Not only is there a great deal of paper driving a labor-intensive manual system, it is very expensive paper in its own right. The point here is, that the paper, with all its variety of shapes and adhesive functions is really an attempt at an automated system. In examining an alternative to this “system” it is important to offset not only whatever enhanced function the alternative might have vs. the existing system , but also to offset the basic costs of one vs. the other.
4. Redundant - Two extremely obvious examples of this were where Marv re-keys the purchase order information and where Joyce is continually sorting the pended picking paperwork to discover completed orders and then release them to print the bills of lading and invoices. This type of duplication is not only costly in labor terms, it slows down both the flow of information to the central computer and the actual flow of orders to shipping and on to the customers.
Automated Alternative System
Since all the information we have examined so far has been fiction, fiction heavily based on concrete reality, but, nonetheless, fiction, let’s take advantage of fiction and install an ideal automated alternative to Typical’s current warehouse system.
First, let’s put a computer in the warehouse. Let’s make it large enough to handle as many functions as we want to give it. And let’s make sure it has enough disk storage to handle a lot of information. Let’s give it a lot of workstations and let’s further give it the ability to handle radio transmissions so some of the workstations can be mobile.
Let’s install it just after the annual physical inventory has been taken and finalized so we start with an accurate inventory count. Also, let’s do something as we finalize the physical inventory; let’s tell the new warehouse computer not only the count of the product in all the picking locations, and not only the aggregate count of all product in storage, let’s also tell it what the storage location should be for every type of product in the warehouse, and the actual storage location for every item in the warehouse. Let’s also add the fact that storage locations picked were all selected after considering optimum use of cubic feet and that appropriate warehouse re-organization and re-racking has taken place in support of this.
Now let’s open the distribution center for business and take a quick walkthrough looking at the new system.
Starting in receiving we see Rick with a stationary workstation installed in his receiving lane. He keys his security code and a purchase order is displayed. He verifies that the purchase order accurately reflects the truck he is positioned to unload and pulls the first pallet. He verifies what line item on the purchase order this pallet represents, puts a pre-printed barcode label on the pallet, uses a barcode scanner attached to his workstation to read the barcode, and the line item on the purchase order is received. The warehouse computer has just been notified that the receipt has been made and the pallet is ready for putaway. Even though we can’t see it, this pallet has also been time date stamped, and we also know who received it.
Rick then uses his pallet jack to repeat the process on the next pallet.
As the staging area behind Rick begins to fill with pallets, Betty appears on her fork lift. The fork lift has a mobile radio frequency workstation mounted on it. The workstation has a small display that displays as much information as the larger, stationary one that Rick is using. It also has a full function keyboard. Betty parks next to the first pallet that Rick unloaded, uses the barcode label and reads the result on her display. The display directs her to a storage location, one that the computer knows has two characteristics. First, it is empty, and second, it is one of the storage locations specifically reserved for this type of product, based on velocity (A,B,C) and cube. Betty goes to that location, scans the barcode on the location, scans the barcode on the pallet and puts the product in the location. The computer now knows not only that the product has been received, but that it is in storage and in what location, and by whom it was put away, and when.
Back at the truck Rick is continuing his receiving operation. He has just encountered a pallet with several different kinds of item on it, one that needs to be broken down to be received. This pallet represents several lines on the purchase order. He breaks down the pallet, pulls off the first case, identifies what it is and puts the cursor of his workstation at that line item. Then he puts one of his pre-printed barcode labels on the carton and scans it. The computer receives that carton against the total count for that P.O. line item, but all Rick sees is the same cursor on the same line item. Since this is his first day with this new system, even though he has been extensively trained in its operation, he tries to move the cursor to the next line item, since that has been the routine he has built up with the full pallet receipts. The workstation alarm sounds and a highlighted statement appears on the screen saying item count incomplete. Then he remembers that he is doing a mixed pallet receipt and needs to receive the rest of the cases for that line item. He finds the next case, puts the barcode label on it, scans it and the purchase order screen reappears. He continues this process with the rest of the cases for that line item, and for the rest of the cases on that pallet. As he scans the last case, the only one for its line item, the alarm again sounds and a red highlighted comment appears: “special handling for backorder number 126945. Crossdock.” Rick knows that this means to set it aside where it can be quickly picked up. As he finishes unloading the truck, Clyde from shipping appears on a forklift with a mobile workstation mounted on it, and he asks where the crossdock is. He has been dispatched to pickup the case by the warehouse computer through the mobile mounted terminal. The computer was aware as soon as the case was scanned that it had been received and that there was a backorder to be filled by it, so it notified shipping. Rick shows him which case it is, and Clyde scans the case, puts it on the lift and takes it to shipping for delivery to the customer.
Meanwhile Betty is continuing the putaway operation. In her putaway runs through the warehouse she has seen various familiar old storage locations empty. Her years of experience have caused her to make nearly subconscious mental notes of them. She has just scanned the last pallet from Rick’s staging area, and received her putaway instruction on her mobile workstation. The instruction, based on what the product is and her previous experience doesn’t match with her preference, since one of the vacant locations she has noted has previously been ideal for the product she is about to put away. Lapsing to old habits, she goes to that location, scans the location and an alarm sounds from the mobile workstation. The display says, “not proper location”. She has been trained to know that in the case of such a disagreement with the system, she can hit a system override key, which she does, scans the location, scans the product and leaves the product in that location. However, the computer is aware of the discrepancy, and it notifies Marv in the operations office of an improper putaway. This initiates whatever management action is appropriate.
As we move to picking, we first go to the case pick operation. We see Elmo with the same tugger as before, but now we see that he also has a mobile workstation mounted on his electric conveyance. As he goes to each location directed by his workstation, he scans the barcoded location and scans the barcoded case and puts it on the tugger. At one of the pick locations, as he takes the cases indicated from the location and scans them, the alarm on his workstation goes off. The screen says “verify shelf count”. Elmo counts the number of remaining cases and keys that quantity into his workstation. The reason for this action was that when the computer was set up, among other things it was told was what the re-order point for that location should be to cover most potential out of stock conditions. Since the computer also knew the initial count, and in real time knows what the removal count has been, it keeps track and when the re-order point is reached, during the pick operation when it occurs it directs the picker to do a cycle count on the spot to verify the computer’s count (it doesn’t tell the picker what it thinks the count is) and if the two match it continues with the pick operation. If the two don’t match, it directs the picker to count again. If, after three tries the count from the picker is different from the computer count, the computer accepts the picker’s count and updates its file to reflect that count. In any event, if replenishment is in order, it directs the next available worker, via the mobile workstation to do a replenishment to that location. When Elmo completes his pick assignment he puts the cases on the conveyor.
In the repack area Lorraine has a new tool to use. It is a complete PC in a handheld package, with internal storage, a display, a keyboard and an integrated barcode scanner. She puts this device in a “cradle” that is attached to another PC which is attached to the warehouse computer. Putting it in the cradle allows the PC to download a quantity of orders, typically enough for a full day’s work by existing lines per hour standards. A pick list is displayed on the handheld screen and as she picks the items she scans the location once and each item from that location as she puts them in their separate cardboard boxes, after scanning the barcode on the box. The barcode on the box ties the items to the individual customer orders and gives the computer the ability to validate item count against each order as the picked orders are uploaded periodically during the day by putting the handheld into the cradle. As the orders are completed they are put on the conveyor.
If Lorraine encounters an out of stock situation she goes to a workstation at the end of the picking lane and scans the item number. This action dispatches one of the replenishment crew to validate the situation, reconcile the item count on the computer and replenish the picking location. This not only restocks an out of stock shelf, it accomplishes a cycle count. This situation will become extremely unusual as the new system becomes fully operational due to the new facilities it gives to the replenishment crew when they do their regular replenishment of the repack area. That operation is triggered prior to the beginning of each repack pick shift, as previously, but now it includes a cycle count of each location to be replenished. So every time a picking location is shown by the computer to need replenishment against the next shift’s picking requirements, a cycle count occurs. Conversely, any location which is shown not to have had activity within the last three working days is scheduled for a cycle count. After three of these in a row the computer notifies purchasing and operations of a slow moving item requiring attention. This attention will usually include a lowering of the safety stock, a relocation of the item’s pick location, and consideration of a “fire sale”.
The new automated cycle counting is expected to force a level of accuracy not ever seen in Typical’s inventory count with its previous system. The result of this is expected to be the elimination of the need for a yearly physical inventory.
The conveyor has had an interesting change. Ned isn’t there anymore. Instead, a 360 degree barcode scanner has been installed which reads the bar codes that have been put on the cases or cardboard totes. As long as the barcode label is not on the bottom of the box, the scanner picks up the number, which has been associated with the customer’s order and therefore the run number and spur and the system works just as it did previously. Any non-read items are conveyed to the end of the conveyor. At this location there is a sensor which, although it doesn’t read barcode, does sense the passage of the carton or case and it notifies the computer that an unscanned item has arrived. The computer selects the member of the replenishment crew who is closest to the end of the conveyor at that moment, who also has not got a current assignment and dispatches him via his mobile workstation to the end of the conveyor. When the replenisher gets there he finds the barcode label which is usually on the bottom, scans it and waits for the response on his mobile workstation. The workstation tells him which shipping location to take the item to. When he gets it there the shipping clerk scans the item and the computer treats it the same as if it had passed the conveyor scanner normally.
Invoicing is now interactive with the rest of the warehouse system, so as the items pass the scanner on the conveyor the system builds the invoice item by item. As soon as the last item necessary to the customer’s order has been scanned the invoice and the bill of lading are released to the computer’s print queue, ready for release by shipping personnel as they load the truck. In the new system a “ready for loading” function on the computer helps the shipping department. This system displays on the stationary display in each shipping lane. George, one of the shipping clerks, places the display cursor by one of the ready to load lines, indicating that he is loading that customer order. As he assembles the cases etc. he scans each one. When the last item is scanned the printer installed at that lane prints the invoice and the bill of lading. The invoice is included with the shipment and the bill of lading is retained with the others for this shipment, and they are given to the driver at departure.
Things to Note
There are less people. Ned and Joyce have been re-assigned because their jobs have been taken over by the computer. Not only that, but the results of what had previously been expedient, isolated “function” are now vital integrated “information”. The scanning of an item on the conveyor is not just a manually assisted input to the automation of a spur gate, it is a real time status update to the customer order system. It is also an incremental update to an automated part of a complete customer service system which had previously been an isolated manual paperwork sorting process that Joyce had performed between phone calls, crises and coffee breaks.
There is less paper. The only paper in receiving, putaway, picking, replenishing and conveying is the pre-printed barcode label. This is a standard-sized set of adhesive labels which have a set of pre-printed sequential numbers in barcode format. They have no individual significance until they have been attached to a moveable unit (pallet, case, carton, tot) and associated with a purchase order, storage location or customer order. If one is spoiled prior to attachment the only loss is the actual value of that label. Other than that, they are all used, in sequential order as their time comes.
The system is real time. This allows for activities to occur when they need to, such as cycle counts or fixing out of stocks. It allows for a high degree of customer service in the form of cross docking back orders and doing customer order inquiries or additions at any stage in the picking to shipping process. It allows for actual current on hand quantities of inventory to be accurately available, allowing quick customer service in exceptional order requirement situations. It also allows the system to track velocity, which provides a constant input to refining the warehouse stocking locations, with the most ordered items in the most accessible spots, and it allows the system to track usage, and check its accuracy, making the reduction or elimination of slow-moving items an ongoing system by-product. It allows the actual implementation of a location management system. Since it knows now what slot is the best slot for incoming inventory it forces such thing as best use of space and elimination of wasted time looking for slots.
The items are time stamped. This, coupled with the fact that the computer positively knows where everything is at all times, in real time, allows the system to be positively FIFO.
It is way more efficient. What you can’t really see from out walkthrough of the new system is what else is going on. Unseen is the fact that the new system dispatches putaways, replenishments, crossdocks, and case picks in the most efficient manner. The computer has been given a map of the warehouse and a standard time for each activity. Based this the computer optimizes labor efficiency. Coupled with the inherent efficiency of knowing positively where to put the next incoming item and where it is when it needs to be retrieved the computer’s contribution to labor efficiency is significant.
Quantifying the Business Case
After seeing the way that Typical Wholesale is operating the warehouse currently, and seeing a fictional ideal system, it is apparent there are some major advantages to an automated information system to run their distribution center. The next step is to quantify the business case.
Simply stated, that means to compare the cost of the new system to the dollars to be gained by doing it. If the amount to be gained is favorable when compared to the cost, it would seem reasonable to implement.
Unfortunately, the cost is the easier of the two parts of the equation to quantify, and therefore the easier of the two to focus on with the frequent result being confusion and lack of progress with the sale.
So the focus of this section of the marketing guide is quantifying the dollar results to be expected from an automated warehouse information system and the means of presenting an negotiating agreement to those results.
The base method is to examine every tangible feature offered by the system and state at least one business effect resulting from the feature. If the feature can’t have a one to three word statement of business effect associated with it, then it is not a feature worth discussing. Further, once a one to three word business effect is stated, if it can’t be quantified in terms of some form of measurable dollars, then the business effect is of no use. For example, if the feature is “cross docking” one possible business effect is customer service. Customer service can be stated in terms of some form of increased sales, which can be quantified in terms of expected profit from those sales. The only intangible in this case would remain what the sales increase might be. that can typically be effectively handled by creating a low, medium, high case, and quantify the dollars from each. Similarly, “location management” could be shown to have several business effects; “cube optimization” (reduce offsite rental requirements, do more volume for same capital investment, or delay capital investment for expanded square footage) “labor savings” and “inventory savings”. The purpose of this section and the planning sheets below is to give you a way to gather the necessary functional and financial information to support the investment. Not only can you describe your proposal as a way of doing business that is faster, smarter, better and leaner, you can quantify, at least within ranges, the dollar advantage.
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