540:462 FACILITIES PLANNING AND

MATERIALS HANDLING
WAREHOUSE OPERATIONS
(part 3)
Class Meeting: TF 2 10:20-11:40am (HILL-009)

Honggang Wang
1

Example: Storage Capacity

Consider a simplified representation of a warehouse that
stores four products: A, B, C and D.
Daily demand and replenishment quantities for the four
products are given in the table in the next slide.
Replenishments are staggered, with product A being
replenished on days 1, 5, 9, ; product B being replenished on
days 3, 11, 19,; product C being replenished on days 2, 8 ,
14, ; and product D being replenished on days 6, 18, 30,
Due to the assumed deterministic conditions and the
repeating inventory cycles, an aggregate cycle of 24 days will
occur and repeat indefinitely.
Assuming that daily demands are met prior to storing the
replenishments, the storage requirements for the products
are given by their replenishment quantities.
2

Example
Product

Daily Demand
(pallet loads)

Replenishment Quantity
(pallet loads)

40

12

12

What is the required storage capacity if dedicated storage

location policy is used?
What is the required storage capacity if random storage
location policy is used?

Period
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
Maximum

Product A
8
6
4
2
8
6
4
2
8
6
4
2
8
6
4
2
8
6
4
2
8
6
4
2
8

Product B
10
5
40
35
30
25
20
15
10
5
40
35
30
25
20
15
10
5
40
35
30
25
20
15
40

Product C
2
12
10
8
6
4
2
12
10
8
6
4
2
12
10
8
6
4
2
12
10
8
6
4
12

Product D
5
4
3
2
1
12
11
10
9
8
7
6
5
4
3
2
1
12
11
10
9
8
7
6
12

Aggregate
25
27
57
47
45
47
37
39
37
27
57
47
45
47
37
27
25
27
57
59
57
47
37
27
4

Random Demand of Storage Space

Under dedicated storage conditions, we can use a
service-level approach.
When demand for storage is a random variable,
storage capacity can be determined on the basis of the
probability of a shortage of space.
With dedicated storage, Q j storage slots are assigned to
product j for j = 1,n.
The probability of there being a sufficient number of
storage positions for product j is simply the probability
of storage demand being less than or equal to Q j.
This probability is denoted by the cumulative
distribution function Fj (Q j).
5

Example
Consider a warehouse used to store five products, A, B, C,
D, and E based on dedicated storage policy.
Suppose that the probability distribution for the number of
storage slots required for each product on a given day can
be approximated by a normal distribution, with means and
stds given in the table in the next slide.
For example, based on normal distribution table, the zvalue of + 2.25 is equal to 0.98778.
The overall probability of one or more shortages in the
entire warehouse is equal to 1 (0.98778)5 0.06.
It implies that having storage capacities equal to the mean
plus 2.25 times the std will yield a probability of 0.06 of
having at least one space shortage on a given day.

Example
Product

Mean

STD

30 slots

8 slots

40 slots

10 slots

50 slots

15 slots

50 slots

12 slots

40 slots

12 slots

The number of storage

slots assigned to
product j (Q j) is then
determined by service
level

This observation naturally lends itself to two optimization

problems.
Min # of storage slots with the desired level of assurance
Max the probability of not having a space shortage, given
a number of storage slots.
7

Random Storage Policy

Savings?

Order Picking Operations

Distribution of Pickers Time

10

Travel
Elimination
Cross-docking

Minimization
Space Planning

Combination
Batch Picking

Automation Principle
Stock-to-Picker System: Carousel

11

Search
Automation Principle
Prerouted, preposted picking document
Non-contact scanner
Stock-to-Picker System

12

Pick
Given a picking list, sequence the visits to the picking
locations so that the overall traveling effort (time) is
minimized.
How picker traverses aisles the route they take
Often difficult to describe a pick routing or sequence to
picking
Easy to tell picker which location is next pick
Difficult to tell picker exact route to take to next pick

13

The considered warehouse layout

Crossover Aisles

x
x

x
x

x
x

x
x

Items
to be
picked

Picking Aisles

Docking station
14

A graph-based representation of the

underlying topology
a2

a3

a4

a5

a6

3
4

v3
3

v2

v5

v4

v7
v11
15

v9

v1

v6

3
b1

b2

v12

x
x

v8

a1

b3

b4

v10

v0

b5

b6

15

A picking tour
a2

a3

a4

a5

a6

3
4

v3
3

v2

v5

v4

v7
v11
15

v9

v1

v6

3
b1

b2

b3

b4

v10

v0

v12

x
x

v8

a1

b5

b6

16

Example: An optimal tour?

a2

a3

a4

a5

a6

3
4

v3
3

v2

v5

v4

v7
v11
15

v9

v1

v6

3
b1

b2

v12

x
x

v8

a1

b3

b4

v10

v0

b5

b6

17

 Commonly used
approaches

Pick

Traveling Salesman
Problem (TSP)
S-Shaped strategy
Largest gap strategy
Bin numbering strategy

18

Aisle-by-Aisle Heuristic
Heuristic, proposed in 1999, that
routes the picker to visit every
main aisle once.
The order picker starts at the
depot and goes to the left most
aisle containing items to be
picked.
All items in this main aisle are
picked and a cross aisle is chosen
to proceed to the next main aisle.
Determines which cross aisles to
use to go from one aisle to the
next in such a way that the travel
distance is minimized

19

Order Picking Equipments

Static shelving
Most common equipment for
storage in piece pick
operations
Economical where there are
few picks per SKU or where
parts are very small
Carton flow rack
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
Most useful when there is a
very high number of picks per
SKU

20

Order Picking Equipments

Carousels (Horizontal and
Vertical)
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
Most common in picking
operations with very high
number of orders, low to
moderate picks per order, and
low to moderate picks per SKU
Provide very high pick rates as
well as high storage density
Pick-to-light system (LED
display of item and quantity to
pick) are often integrated into
carousels for accuracy
21

Order Picking Equipments

Automatic storage and
retrieval systems (ASRS)
Mini-load or unit-load
types
Provides extremely high
storage density with
capabilities to work in
racking up to 100 feet high
High costs of ASRS
equipment and the length
of the retrieval times make
it difficult to incorporate
into a piece picking
operation.
22

Automated Conveyor and Sortation

Systems

23

Inventory Management
Impact of objectives on inventory
management:
High customer service = more inventory
Low transportation costs = more inventory
Low warehousing costs = less inventory
Fast deliveries = more inventory
Reduced labor costs = more inventory

Overall desired results = less inventory

24

Inventory Management Functions

Fluctuation (safety or reserve stock)

Lot size
Transportation
Anticipation
Supply interruption
Seasonal

Synchronized manufacturing buffer

25

Carrying Cost
Cost of carrying inventory defined as a percent of the
dollar value of inventory per unit of time (generally one
year).
Depends mainly on cost of capital invested as well as the
costs of maintaining the inventory such as taxes and
insurance, obsolescence, spoilage and space occupied.

Such costs vary from 10-35% annually, depending on

type of industry.
Ultimately, carrying cost is a policy variable reflecting
the opportunity cost of alternative uses for funds tied
up in inventory.
26

Inventory Performance Measurements

Inventory turnover
Stockouts/backorders
Obsolete/excess inventory
Inventory budget variances
Critical supply items
Inventory investment

27

Inventory Turnover Ratio

Definition: The number of times that an inventory
turns over or cycles during a year
Formula: Inventory turnover = annual cost of goods
sold divided by average inventory level
Example:
Annual cost of goods sold = $21,000,000
Average inventory level = $3,000,000
Solution: Inventory turnover = 21,000,000/3,000,000 = 7

So this inventory would be considered to turn

seven times per year
28

Paretos Law: ABC Analysis of

Inventory
A items: High dollar volume Those relatively few
items whose dollar value account for 75-80% of the
total dollar value of the inventory
B items: Medium dollar volume Usually about 3040% of the inventory items whose total dollar volume
accounted for about 15% of the total dollars invested
C items: Low dollar volume The bulk of the items,
usually about 40-50%, whose total inventory dollar
volume is almost negligible, accounting for only 5-10%
of the total inventory dollars volume

29

ABC Analysis Calculation

Calculate annual usage (projected or historical) in
units for each item
Multiply usage by unit cost to determine annual
dollar usage
Sort annual dollar usage from highest to lowest
Sum total annual usage for all items
Evaluate relationship to each category limit (e.g.
80% of total annual usage for A items) and
assign categories
30