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Automation & Computing, University of Birmingham,

Birmingham, UK, 11 September 2010

Improve Warehouse Management Process

Joanna Orzechowska Dr Ammar Al-Bazi

MSc student of Logistics Faculty of Engineering and Knowledge Management

Coventry University Coventry University

Coventry, UK Coventry, UK

orzechoj@uni.coventry.ac.uk Ammar.albazi@coventry.ac.uk

Abstract Nowadays any improvement of warehouse costs at once. Development of such a replenishment

performance might bring a competitive advantage for the system requires consideration of multiple constraints.

company in respect to highly competitive logistics market.

Taking into account only few of them, like the huge

This ongoing MSc research presents the previous practice number of orders receiving everyday from customers, the

of adopting mathematical programming to improve warehouse huge number of supply and products coming to warehouse

management process. The warehouse layout with a number of every day, the variety of warehouse operations, the

operating constraints was determined for future improvement. numbers of workers and the unpredictable demand, the

The investigation of the state-of-the-art of warehouse development of cost-effective replenishment policy seems

modeling practice is the first stage of this research. This stage is to be a complex process. The mathematical modeling,

necessary in providing an idea about development of linear with its Linear Programming and information technology,

programming model and all possible areas of improvement. brings the possibility to developed supportive tools in

The linear programming model development was next stage

replenishment policy and warehouse management.

of the research. Further the proposed model will be validated In general the purpose of any modeling is a better

thought a real case study. Sensitivity analysis will be applied in comprehension of reality and support in problem solving.

order to test the affect of changing a number of inventory

There are many different types of models. The paper

policies.

concerns the mathematical models with respect to Linear

Keywords- Warehouse Management, Linear Programming, Programming Modeling. Apart from better

Inventory, Optimisation, understanding, the additional propose of Linear

Programming Modeling is to obtain an optimal solution.

I. INTRODUCTION

The conceptual model will be transferred to

There are several reasons to inventory holding. The

mathematical language in the following way: The aim of

most important one is to cover the risk of variety in

the model will be transferred into an objective function.

demand and supply rate. Therefore, the inventory provides

The objective function is usually maximising the profit or

the buffer between the supply and demand. It enables to

minimising the cost. Then, constraints and requirements

provide high level of service, which is so important for a

will be represented as a system of equations and

company to survive in the market. The high inventory

inequalities.

levels guarantee satisfaction and quick response for

customer demand [15]. Nevertheless, the inventory

holding is not the only function of a warehouse [4]. It II. RESEARCH PROBLEM

often enables smooth coordination within all supply chain The warehouse, which is being investigated, purchases

by supporting the distribution. It is especially needed in products from external suppliers and earns money by

case of international corporations [12]. selling products to the groceries. The stored products are

Although the stock holding and warehouse keeping perishable therefore can be stored only for a specific

bring a lot of benefits for the company, there are high period of time. What is more, every product has different

costs associated with this. This is because the inventory shelf-live period what makes the replenishment

costs are one of the highest logistics costs. The problem is management even more complex. The warehouse tries to

that the higher the inventory level is the higher is the satisfy the unpredicted demand, which requires safety

service level and inventory keeping cost. Therefore, the stock. Nevertheless, the safety stock, which enables to

excellent warehouse management requires achievement of maintain high service level, results in higher inventory

appropriate inventory level to reach compromise between costs and deterioration costs.

benefits of stock keeping and expenses. The products stored in the warehouse are categorised

Managers are faced with the need to develop an into five groups. The current research concerns only one

appropriate replenishment system which enables of the groups.

maintaining of high service level and reducing inventory

1

III. WAREHOUSE MANAGEMENT PREVIOUS PRACTICE system. All of mentioned models have taken into account

Although many articles and models improving one product only.

inventory management have appeared in recent time, there [7] developed EOQ- based model for multiple

is relatively little literature on Linear Programming products with different schedules order for inventory

models of inventory or a warehouse. What is more, the policy considering the variable production costs. The

majority of those papers present the inventory demand is stochastic, the order and holding costs are fixed

optimization together with production planning while the and the production demand rate is deterministic. The

considered, in this paper, warehouse is a independent authors, basing of the previous one, have developed

entity and does not produce anything. Nevertheless, each another model applying the postponement policy as the

mathematical model or even simulation related to postponement policy modeling is a main purpose of the

inventory is still supportive for the research. paper. The model is a good approach of a real warehouse.

One of approaches in warehouse mathematical The purpose of [11] is to evaluate the existing

modeling with respect to inventory levels is an Economic inventory policy and reduce total costs of existing

Order Quantity model (EOQ). The example of one of the warehouse. The author takes into account the multi-

simplest EOQ models is presented in [8]. The aim of this products models with limited storage area capacity. Many

model is a minimisation of costs by optimising the order different types of costs are considered to develop the

quantity. The model takes into account ordering costs (the model. This are replenishment costs, picking costs,

stock is ordered from outside supplier) and holding costs inventory holding costs, reception costs and shortage costs

only to obtain the minimum total inventory costs as a which occur when the warehouse is not able to satisfy

result of achieving the optimal order quantity. None customers demand. A few constraints are taken into

additional costs and constraints, which usually exist in real account like: storage capacity or costs capacity. The

warehouse, are considered. Therefore, the author of the demand is variable and the supply lead time is

paper presented very basic and non-realistic model. What deterministic.

is more, the model is fully deterministic as a result of the

fact that both the demand and the lead-time are known In order to minimise total warehouses costs, the best

with certainty. Nevertheless, this simple model was used ordering policy was developed by [4] by optimising the

as a prototype in developing more advanced and more amount and rate of ordering. The authors took into

realistic models by many others. Few of them are account the procurement costs, the holding costs and the

discussed below. shortage costs.

[1] proposed the EOQ model with fixed shelf-life and [14] developed the model for sequence of n time

a declining demand rate. The authors have taken into periods minimising total n-periods costs associated with

account the following assumptions: the warehouse stores finished goods inventory, holding only one product in a

one type of product only, the shelf-life period is fixed, the warehouse. The purpose of this paper was to research the

products which passed the expiry date cannot be sold and profits from Just-in-Time replenishment system

the order is placed only when the need occurs. Also the implementation. Firstly, author presented single decision

lead time is constant and known, shortages are forbidden, model. The decision about the minimal amount of

and the demand rate is deterministic, decreasing over- purchased products satisfying the demand is created in the

time, expressed as a polynomial function and is dependent period n=0. The author concludes that the more periods

on the remaining normalised time. The model is were considered (the larger the n was) the higher the costs

maximising the profit and minimising the costs taking into of the inventory were. Therefore, the dynamic model, with

account the mentioned assumptions. The model presented decision making before each period begun, was

in this paper is significantly more advanced and provides developed. In this Just-in-Time model the reduction of

notably better approach to reality than the original basic costs was significant.

EOQ model. Nevertheless, it is still far from realistic

modeling of real inventory policy. It is because in real IV. AIM, OBJECTIVES AND MATHODILOGY

warehouse usually more than one product is stored, the

shortages occur and demand is not deterministic. Also in The aim of the research is to develop Linear

existing warehouses many additional aspects need to be Programming Model with a view to improve the

taken into consideration. performance of warehouse management process. In order

to deliver the aim of the research project, the following

Many papers based on EOQ, focused on additional objectives have been established:

assumptions and aspects, have been published. [3], for To identify the current practice of mathematical

example, have presented the EOQ considering the firm modeling of warehouse management.

deterioration of goods with respect to credit policy. The To indentify the existing warehouse

inventory management and EOQ has been analysed by management practice with special focus on

several authors in relation to deterioration of products and replenishment policy.

discounts for deteriorated products, e.g. [5] or [10] dialed To develop a Linear Programming Model

with this problem. Also few authors incorporated delivery supporting the replenishment system.

to customers transportation costs into theirs models (e.g.

[2] or [9]). [6] developed the EOQ-based model with To verify the developed Linear Programming

special focus on recovery inventory remanufacturing Model.

2

To run a number of managerial scenarios in one and involves higher levels of racks. It is dedicated to

order to improve the current practice. store products in pallets only. The forward area is located

in the lowest levels of racks so that products can be

First three objectives were already met. To satisfy each reached by pickers from the floor level. In the forward

objective, the relevant tools and techniques are identified areas there are store separated products which are

as follows: systematically replenished by unloading of pallets from

The semi-unstructured interviews with warehouse the reserve area.

manager and observation of warehouse processes brought Picking is conducted manually by pickers collecting

the knowledge necessary to understand and identify the goods from the forward area. Pickers are following the

current warehouse management policy. snake path while picking, what is shown in the figure 1.

Essential background of the issue was obtained from

written publications like journals, reports and books in

respect to operational research and linear programming The

problems in terms of warehouse management. lightest

Next step will be the collection of appropriate products

warehouse data. The researcher will conduct semi-

structured interviews with warehouse key employees.

Furthermore, the inspections of warehouse processes will

be accomplished. The warehouse historical records review

and other quantitative data capturing will be conducted as

well. This will be needed to develop the model and to

obtain the results.

The Linear Programming Model with its Excel Solver The

representation will be adopted as a methodology to solve heaviest

the problem. Also it will be applied to a development of products

more scenarios and comparison of results. The sensibility

Figure 1. Snake path in picking

analysis will be the methodology used to develop more

scenarios.

They pass the same path regardless of the amount and

location of products which needs to be picked because of

safety reasons. Thanks to this and the fixed location of

V. CASE STUDY products the goods are always picked and put in cages

The company, which is being researched, is a decreasingly from the heaviest to the lightest in respect to

warehouse, storing perishable products, including care of sensitive light products. Therefore the demand of

refrigerated and frozen food, requiring storage in fridges fragile products on the bottom of cage does not occur

or freezers, ambient food products, drinks and other while picking. The voice picking system enables easy and

products of small grocery assortment like tobacco. fast location and picking of products.

The warehouse is provided by external suppliers in Outbound involves dispatching, loading goods to

regular periods. The warehouse purchases products and vehicles and shipping. The figure 2 presents the

sells it with appropriate profit to its customers represented warehouse layout

usually by nets of small retail groceries. The warehouse

also provides third-part logistics service holding stock for

external companies.

The work in the warehouse is split to three, eight-hour

shifts; therefore the warehouse works 24 hours per day.

There are four main processes in the warehouse: receiving

on the goods-in, storage in the storage area. Receiving

division involves following activities: unloading the

lorries, counting the products to check if the number of

delivered products is correct, updating the level of goods

in the warehouse in the warehouse management system

and allocating goods in storage area in appropriate

allocations.

There are three storage areas: chilled, frozen and

ambient. In each of them the product storage location is

assigned to the products in appropriate storage areas

decreasingly with product weight.

Each of racks is split into forward and reserve areas.

The reserve area is much more extended than the forward Figure 2. Warehouse layout

3

VI. PROPOSED LP MODEL - variable holding costs of product i per unit.

The proposed model is a multi-period and multi- variable costs associated with purchasing products by

product model of perishable products taking into account warehouse for product i per unit.

the discount while passing the display date by products. constant space required to storage one unit of for

The demand is unknown. The costs of purchasing and product i

storage of products are known per unit. - variable percentage of products sold without

discount,

This research is ongoing and the objective function of

the model will maximize total net profit associated with (1- ) percentage of products sold with discount,

sail of products taking in to account purchase and storage

costs. - constant discount for each of m products

The constraints will involve: constant budget for each of n perios

constant storage capacity

Satisfaction of demand constant minimum inventory level of product i

Storage area capacity constant minimum order quantity of product i in

Products size period j

Budget constant maximum order quantity of product i

minimum safety stock level in period j

minimum order quantity

maximum order quantity

Models explanation is presented below.

The research is ongoing MSc dissertation and the

validation of the model using real data have not been Objective function (1):

done yet. Therefore non results and sensitivity analysis is The total gross profit of the warehouse is represented

presented in this paper. Nevertheless the model is in objective function as follow:

expected to support warehouse management concerning

the order quantities decisions. The purpose of this model

is to maximize total net profit by finding the optimal

order quantities for each of products in each of As it can be noticed the total gross profit is divided in to

considered periods. two partial profits:

(a) and (b)

Find maximum of the function:

The part (a) represents the profit in period j while

selling products i with normal price . The part

(1) (b) describes the profit while selling

products with discounted price .

The total warehouse costs are represented by

subject to: (7)

Where are holding costs

and are purchasing costs.

Therefore the objective function (1) maximize the total

net profit.

constrain (2):

The constrain (2) concerns the space capacity of the

warehouse.

The represents an inventory level

for all products in period j.

Where: The is a space taken by all stored

products in period j, which is limited by the warehouse

product number space capacity S. The S is constant and does not depend

- period number on period.

order quantity of product i in period j to the

warehouse the decision variable constrain (3):

demand (the amount of sold products) for product i The constrain (3) concerns the budget capacity,

in period j. The demand is random. where, according to (7),

- variable inventory level for product i in period j. are total

variable selling price of one unit of product i.

4

warehouse costs and is a budget capacity in period j. Rrate Based on Time-to-expiry Technical Note. Journal of

Operational Research, 26( 6), 759-767.

The budget capacity is constant in each of n periods.

[2] Baumol, W.J. and Vinod, H.D. (1970) An inventory

theoretic model of freight transport demand, Management

constrain (4): Science 16, 413421.

The constrain (4) represents the need of safety stock [3] Chung , K. J. and Liao, J.J. (2009), The optimal ordering

holding. policy of the EOQ model under trade credit depending on

the ordering quantity from the DCF approach.

is an inventory level of product i in

European Journal of Operational Research, 196 (2), 563-

period j which is limited by the minimum inventory level 568

of product i. The is constant for any of m [4] Ghiani, G., Laporte, G. & Musmanno, R., (2004).

products. Introduction to logistics systems planning and control,

John Wiley and Sons.

constrain (5): [5] Kevin Hsu and Wen-Kai, (2009). EOQ Model for

Imperfective Items Under a One-time-only Discount.

The constrain (5) sais that the , the quantity of Omega 37 (5),1018-1026

products i in period j ordered by warehouse is limited, [6] Konstantaras, I. & Skouri, K., 2010. Lot sizing for a single

and does exist the minimum and maximum order product recovery system with variable setup numbers.

quantities, respectively and , for each of European Journal of Operational Research, 203(2), 326-

335.

products in each of periods. [7] Li, J., Edwin Cheng, T. & Wang, S., 2007. Analysis of

postponement strategy for perishable items by EOQ-based

Constrain (6): models. International Journal of Production Economics,

The amount of purchased products cannot be less than 107(1), 31-38.

zero. [8] Linear programming. Available at:

<http://docs.google.com/viewer?a=v&q=cache:it_cjs_sHo

YJ:www.econ.surrey.ac.uk/people/rpierse/files/cop7.pdf+li

near+programming+%22inventory%22&hl=pl&pid=bl&sr

cid=ADGEESgsav9lMgpKD_fXsDYYOhASuJeKAAC4lt

4ARQ9mJcTL0GQ8Neq0r33L_R87hrG3B0nB1nPNPUCq

However the optimal order quantity models have m2ObdcvnmdyFduaUaQgckvl3zQP7T6rGoHXHHzkImq

appeared before, the majority of them take in to account V4e14XRxAJOPt7gjIA&sig=AHIEtbQOFavoRdWgkc_xe

only a few of aspects considered in this research. As it Ma62FiUozt9fw> [Access date: 17/06/ 2010].

can be noticed while literature review many of papers [9] Madadi, A., Kurz, M.E. and Ashayeri, J. (2010), Multi-

present one-products models or one-period models or level inventory management decisions with transportation

cost consideration. Transportation Research, 46 (5), 719-

both, one-products and one-period only. Current research 734.

is devoted to multi-products and multi-period model. [10] Panda, S., Saha, S. & Basu, M., 2009. An EOQ model for

Additionally the demand, prices and inventory level perishable products with discounted selling price and stock

variations are allowed in the model which was not often dependent demand. Central European Journal of

was done in different papers. What is more, the discount Operations Research, 17(1), 31-53

for deteriorated products is considered while developing [11] Strack, G. & Pochet, Y., 2010. An integrated model for

warehouse and inventory planning. European Journal of

the current model. Operational Research, 204(1), 35-50.

[12] Berg, J.P.V.D., (2007). Integral Warehouse Management:

The Next Generation in Transparency, Collaboration and

Warehouse Management Systems, Lulu.com.

VII. FUTURE WORK [13] Winston, W.L. (1998). Operations Research: Applications

The linear programming model will be validated and Algorithms International ed., Brooks/Cole.

through a mid-sized warehouse located in Coventry. All [14] Ehrhardt, R., 1997. A model of JIT make-to-stock

outputs will be analysed and discussed through a inventory with stochastic demand. Journal of the

sensitivity analysis study. Operational Research Society, 48(10), 1013

[15] Rushton, A., Croucher, P. and Baker, P. (2006). The

REFERENCES handbook of logistics and distribution management,

Kogan Page Publishers

[1] Avinadav, T, Arponen, T. (2009). An EOQ Model for

Items with a Fixed Shelf-life and a Declining Demand

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