Project Number: JZ MQP E009 A

Major Qualifying Project Report:

Supply Chain Management in the Logistics Industry

Submitted to the Faculty

of the

WORCESTER POLYTECHNIC INSTITUTE

in partial fulfillment of the requirements of the

Degree of Bachelor of Science

By

Francisco A. Diaz

Dated: June 21, 2009

Approved

By: Prof. Joe

Zhu
Abstract
The goal of this Major Qualifying Project was to analyze the performance of warehouse

operations relating to the client LG Electronics at AGUNSA’s Distribution Center in

Santiago. By gathering information from REPORT warehouse documents, meetings with

the various warehouse departments, observational analysis of the processes, and time-data

collection of these operations, I was able to assemble a general overview of LG operations

and identify the weaknesses and wastes within these. Through the analysis of incoming

shipment timed data, I was able to present the current performance of Reception

operations and make recommendations to diminish costs incurred within this process,

which could potentially increase capacity of warehouse operations by 20%.

ii
Acknowledgements
I would like to thank AGUNSA and REPORT for sponsoring my Major Qualifying Project.

Specifically, I would like to thank Rodrigo Jimenez for presenting me with the opportunity

to complete this project at AGUNSA’s Distribution Center in Santiago. Within REPORT, I

would like to thank Gaston Oyarzun for the opportunity to work with him to improve

warehouse operations and for the guidance he provided throughout the project. Within

the Planning and Control department, I would specially like to thank Claudio Marin and

Ismael Vial for their support and assistance during the project. I would like to thank Maria

Jose Hernandez and Felipe Huerta from Human Resources for providing data relevant to

the project and guiding me through the labor-related aspects of the project. My

appreciation goes to all individuals of REPORT, AGUNSA, and MTO who were part of the

distribution center. Thank you for integrating me into the organization for the 2 months

this project encompassed.

Without the support and commitment of the mentioned individuals, this project would not

have been able to be completed and produce significant information.

Table of Contents
1 Introduction........................................................................................................................ 1
2 Background & Literary Review.........................................................................................3
2.1 History.........................................................................................................................................3
2.2 AGUNSA Worldwide.......................................................................................................... 4
2.3 AGUNSA Services............................................................................................................... 5
2.3.1 Ship Agency Services...........................................................................................................5
2.3.2 Agency for Airlines...............................................................................................................8
2.3.3 Transportation Services.......................................................................................................8
2.3.4 Operation & Administration of Terminals...........................................................................8
2.3.5 Stevedoring Services............................................................................................................9
2.3.6 Pilot Boats............................................................................................................................9
2.3.6 Container Depot...................................................................................................................9
2.3.7 Freight Forwarding...............................................................................................................9
2.3.8 Bunkering...........................................................................................................................10
2.4 Logistics & Distribution.............................................................................................................10
2.4.1 REPORT Ltd................................................................................................................ 12
2.5 Warehouse Operations.............................................................................................................14
2.5.1 Reception...........................................................................................................................15
2.5.2 Storage.................................................................................................................................... 15
2.5.3 Order Picking............................................................................................................. 16
2.5.4 Added Value Services........................................................................................................16
2.5.5 Dispatch.............................................................................................................................17

3 Methodology................................................................................................................... 18
3.1 Performance data-collection....................................................................................................23
3.1.1 Common data-collection procedure.................................................................................23
3.1.2 Reception time-recorded activities....................................................................................24
3.2 Comparing and Analyzing Timed Activities.............................................................................27

4 Warehouse Operations at AGUNSA’s Distribution Center in Santiago..........................29

4.1 First Continuous Procedure......................................................................................................30
4.2 Second Continuous Procedure.................................................................................................34
4.3 Third Continuous Procedure....................................................................................................35

5 Results & Discussion....................................................................................................38

5.1 White Line LG SKUs.......................................................................................................... 38
5.1.1 Refrigerators........................................................................................................................... 38
5.1.2 Washing Machines.............................................................................................................41
5.2 Overall Shipment Performance................................................................................................45
 5.3 Potential Performance..............................................................................................................47

6 Conclusion & Recommendations................................................................................50

6.1 Recommendation #1: Additional Reception Supervisor..........................................................50
6.2 Recommendation #2: MTO Specifications for Planning and Control Schedule......................50
6.3 Recommendation #3: Additional Container Truck Driver........................................................51
6.4 Recommendation #4: Motivational Incentives........................................................................51

References............................................................................................................................ 53
Bibliography.....................................................................................................................54
APPENDIX A: Second Continuous Procedure Investigation..................................................57
APPENDIX B: Timed Data Collection...............................................................................60
APPENDIX C: Planning and Control Schedule (Example from May 29, 2009).................64
APPENDIX D: SPSS Data Calculations (for all shipments)................................................66
APPENDIX E: SPSS Data Calculations (for refrigerator shipments)......................................70
APPENDIX F: SPSS Data Calculations (for washing machine shipments)........................74
Table of Figures
Figure 1: AGUNSA offices worldwide................................................................................6

Figure 2: Logistic Provider Abilities – Third Party Logistics (TPL) Provider Position...........11

Figure 3: AGUNSA’s Inner Network.................................................................................12

Figure 4: AGUNSA’s Distribution Center in Santiago (DCS)................................................13

Figure 5: Warehouse Cost Category....................................................................................16

Figure 6: Time oriented data-collection model for Reception.............................................24

Figure 7: Warehouse Operations' Continuous Procedures..................................................29

Figure 8: Steps B-F of Reception..........................................................................................31

Figure 10: LG Technical Service Sticker...........................................................................32

Figure 11: Pallet Label..........................................................................................................32

Figure 9: SGS Sticker............................................................................................................28

Figure 12: Example of Refrigerator Pallet in Reception Area..............................................33

Figure 13: White Line Storage Area.....................................................................................34

Figure 14: Electronics Storage..............................................................................................34

Figure 15: Flowchart of REPORT's Warehouse Operations.................................................37

Figure 16: Refrigerators - Reception Time Distribution.......................................................40

Figure 17: Washing Machine - Reception Time Distribution..............................................44

Figure 18: Labeling Machine with Printer............................................................................58

Figure 19: Labeling Machine without Printer......................................................................58

Figure 20: Example of Assembly Line for Added Value Services........................................59

Table of Tables
Table 1: Exports in 12 countries: 1995-2007.....................................................................4

Table 2: AGUNSA services worldwide...............................................................................7

Table 3: Refrigerator Shipments...........................................................................................38

Table 4: Refrigerators Step-F Times.....................................................................................40

Table 5: Washing Machine Shipments................................................................................41

Table 6: Washing Machine Step-F Times.............................................................................43

Table 7: WFT8501TEPT Worker-Dismount time relationship.............................................44

Table 8: Average Times for All Shipments (Part 1)..............................................................45

Table 9: Average Times for All Shipments (Part 2)..............................................................46

Table 10: Substantial Idle Times Summary..........................................................................47

Table 11: Specific Reception Task Times.........................................................................47

Table 12: Average Daily White Line Reception Times........................................................48

Table 13: Possible Extra Capacity Calculations................................................................48

Table 14: Washing Machine Potential New Profits (Chilean Pesos)...................................48

Table 15: Refrigerator Potential New Profits (Chilean Pesos)..............................................48

Table 16: May Reception Financial Analysis....................................................................49

Table 17: Recommended Labor & Equipment Specifications for White Line Products in
this study.......................................................................................................................51
1 Introduction

In today’s industries, companies are consistently looking for improvement within their

operations. The search for competitive advantage and differentiation has been more

critical than ever before as the number of competitors in the various industries continues

to grow. Integration of the supply chain has become an important way for companies to

1
gain competitive advantage .

Supply chains are responsible for the movement of a product or service from supplier to

customer, and through the various networks within them, involved in adding value to the

final customer. They include vendors, producers, intermediaries, and logistics service

2
providers, all working together to create more value than competitors . According to the

principles of supply chain management, modern companies attempt to achieve high-

volume production and distribution using minimal inventories throughout the logistics

3
chain that are to be delivered within short response times . These objectives have placed a

great deal of responsibility on the logistics system to achieve smooth and efficient

operations. The growing emphasis on logistics operations is due to the important role

logistics costs have in the overall production costs.

1
Hertz, S., & Alfredsson, M. (2003). Strategic development of third pardy logistics providers. Industrial
Marketing
2
Management , 32, 139-149.
Gourdin, K. N. (2006). Global Logistics Management (2nd Edition ed.). Oxford, UK: Blackwell Publishing.
3
van den Berg, J., & Zijm, W. (1999). Moderls for warehouse management: Classification and examples.
International Journal of Production Economics , 59, 519-528.

1
Implementing an efficient logistics system can be difficult for many companies. As a result,

they have turned to third-party logistics providers (3PLs) in order to reduce the risks of

managing logistics operations. A 3PL provider is an external service provider who

4
manages, controls, and delivers logistics activities on behalf of a shipper . The decision to

outsource logistics activities depends on a multitude of variables: centrality of the logistics

function, risk and control, cost/service trade-offs, information technologies, and

5
relationships with logistics providers . Throughout the years, 3PL companies have

expanded and created networks that have become beneficial to many companies. Their

specialization in this supply chain activity has made them key players in the improvement

of customer satisfaction. At the same time, the distribution networks 3PLs have established

have provided access to international distribution opportunities that individual companies

6
could not create by themselves due to high risks and costs .

Within these networks, the logistics activities require that at least management and the

execution of transport and warehousing be involved. In fact, the efficiency and

effectiveness of these distribution networks in turn is largely determined by the operation

7
of the nodes in such a network, i.e. the warehouses . As a result, warehouse management

has become an important component of the supply chain. And companies all around the

world are trying to minimize waste and costs within these warehouse operations.

4
Hertz 2003
5
Selviaridis, K., & Spring, M. (2007). Third party logistics: a literature review and research agenda. The
International Journal of Logistics Management , 18 (1), 125-150.
6
Bask, A. H. (2001). Relationships among TPL providers and members of supply chains - a strategic
perspective. Journal of Business & Industrial Marketing , 16 (6), 470-486.
7
Rouwnhorst, B., Reuter, B., Stockrahm, V., Houtum, G. v., Mantel, R., & Zijm, W. (2000). Warehouse
design and control: Framework and literature review. European Journal of Operational Research , 122, 515-
533.
2 Background & Literary Review

2.1 History

Since its foundation in 1960, Agencias Universales S.A., globally known as AGUNSA, has

grown to be one of the leading maritime port agencies, primarily operating in Latin

America. Through the decades, AGUNSA’s expertise has rapidly grown through the

integration of new technology, new services, and new investments around the world.

th
As the 20 century came to an end, the growing export markets around the globe (see

examples in Table 1) aided AGUNSA’s expansion through the increasing demand for its

services. In 1994, Empresas Navieras S.A. became aware of AGUNSA’s critical role in

South American agency services and acquired a substantial portion of the company’s

stocks, boosting AGUNSA’s available capital. As well as a financial asset, ENSA further

extended AGUNSA’s network. ENSA is the majority stockowner of Compañía Chilena de

Navegación Interoceánica S.A. or CCNI (69.73%), Portuaria Cabo Froward S.A. (69.83%),

and AGUNSA (66.00%). This allowed for AGUNSA to offer all of the services it offers

8
today, ensuring a wide range of resources through this agency network.

AGUNSA continues to improve its services, fulfilling their mission to empower and

expand the service to cargoes, passengers, means of transportation and terminals

networks, with an effective offer adding value to clients, vendors, employees and

8
Empresas Navieras S.A. (2006). Historia. Retrieved April 2, 2009, from Grupo Naviera Web Site:
http://www.empresasnavieras.com/index.php?option=com_content&task=view&id=8&Itemid=10&bloqueo=
1
 9
shareholders . AGUNSA’s high level of service is demonstrated through its membership in

the S5 Agency Organization – the association for the leading service agencies worldwide.

1400000
1995
1996
1200000
Exports (Million USD at 2009 Currency)

1997
1998
1000000 1999
2000
800000 2001
2002
600000 2003
2004
400000 2005
2006
200000 2007

10
Table 1: Exports in 12 countries: 1995-2007

2.2 AGUNSA Worldwide

The Chilean company has been primarily operating in South America since the 1960’s. As

the demand for agency services grew around the world through the growing export

markets, AGUNSA became a multinational corporation with offices around the world. The

holding Empresas Navieras S.A. opened many opportunities in the 1990’s for AGUNSA to

further expand internationally. As a result, AGUNSA manages offices in Asia, Europe,

9
AGUNSA. (2006). About AGUNSA: Mission. Retrieved March 22, 2009, from AGUNSA Web Site:
http://www.agunsa.com/eng/index.php?option=com_content&task=view&id=25&Itemid=26
10
World Trade Organization. (2008). CDS Time Series Selection. Retrieved April 17, 2009, from The Inter
Agency Task Force on International Merchandise Trade Statistics: http://imts.wto.org/CDS/gp/tsselection.aspx
North America and South America, with headquarters in Santiago, Chile. Figure 1 displays

the different locations where AGUNSA is currently stationed. All locations guarantee the

primary service AGUNSA offers: ship agency services. All other nine areas of service are

offered respectively (see Table 2).

2.3 AGUNSA Services

This leading service agency offers a variety of services and solutions besides their maritime

agency services. Under their current operation, AGUNSA offers ten areas of service: (1) ship

agency services, (2) airline agency services, (3) transportation services, (4) operation and

administration of terminals, (5) stevedoring services, (6) pilot boat services, (7) container

depot and services, (8) freight forwarding, (9) bunkering and (10) logistics and

11
distribution .

2.3.1 Ship Agency Services

As a ship agency, AGUNSA offers a variety of services to be handled for the clients in

order to achieve the most efficient and effective results. AGUNSA acts a global

commercial representative for all clients, ensuring the clients have accessibility to the

entire AGUNSA network. AGUNSA administers the sale of freight and space booking for

their clients and all financial services related with these shipments. In order to make the

process as smooth as possible, AGUNSA also manages the legal procedures, inventory,

and the overall port-to-port administration. Navigation assistance is also available.

11
AGUNSA. (2006). Services and Solutions: Ship Agency Services. Retrieved March 22, 2009, from
AGUNSA Corporation Web Site: http://www.agunsa.com/eng/index.php?
option=com_content&task=view&id=84&Itemid=94
 12
Figure 1: AGUNSA offices worldwide

12
AGUNSA. (2006). About AGUNSA: AGUNSA worldwide. Retrieved March 22, 2009, from AGUNSA Web Site: http://www.agunsa.com/eng/index.php?
option=com_content&task=view&id=116&Itemid=137

6
 Services
Ship Agency Transportation Logistics Operation & Stevedoring Pilot Container Freight Bunkering
Agency for Services & Administration Services Boats Depot Forwarding
Services Airlines Distribution of Terminals
Argentina
Chile
China
Colombia
Costa Rica
Ecuador
El Salvador
Guatemala
Honduras
Hong Kong SAR
Location

Italy
Japan
Korea
Mexico
Peru
Portugal
Spain
USA (LA)
USA (Miami)
Uruguay
Venezuela

= Operated by AGUNSA
= Operated by company within the AGUNSA network
13
Table 2: AGUNSA services worldwide

13
AGUNSA Service and Solutions 2006
AGUNSA’s ship agency services have acquired a tremendous amount of influence over

South America, and continue to grow around the world.

2.3.2 Agency for Airlines

One of AGUNSA’s newest services is the operation of agency services for airlines.

AGUNSA offers legal representation and consultancy, marketing, and financial

management to clients. In addition, many airport services are offered such as sales counter

operation, customer service assistance, and all operative requirements for airplanes such

as fuel supply. AGUNSA is currently administrating these airline agency services for Air

Canada (Chile, Ecuador, Peru), United Airlines (Chile), and Emirates Airlines (Chile).

2.3.3 Transportation Services

Another core service area offered by AGUNSA is transportation for national and inter-

national cargo. These services include customs representation and consultancy, cargo

insurance, and the entire shipment administration. AGUNSA’s extensive network allows

for one of the most reputable transportation operations.

2.3.4 Operation & Administration of Terminals

AGUNSA controls the core services of terminals for clients. The four areas required to run

an efficient terminal – administration, maintenance, operations, and commercial

management – are offered to clients.

8
2.3.5 Stevedoring Services

AGUNSA operates the loading and unloading of cargo for clients. AGUNSA manages

general orders with the mainstream teams and offers their Project Cargo team for more

complex cargo transportation.

2.3.6 Pilot Boats

The embarking and disembarking of vessels, as well as at-port assistance and

maintenance, is also offered to clients.

2.3.6 Container Depot

With the high demand of import and export cargo, AGUNSA offers container warehousing

as well as the retail of containers and accessories for these.

2.3.7 Freight Forwarding

Many of the services previously mentioned are combined together to offer freight

forwarding to small and medium size clients. Everything from shipping, transportation,

logistics and distribution are offered to clients through AGUNSA, corporations within the

AGUNSA network, or through qualified third-party operators.

2.3.8 Bunkering

AGUNSA acts as a supplier of all fuel and lubricants needed for vessels and ports.

And the final service AGUNSA offers is logistics and distribution.

2.4 Logistics & Distribution

Globalization, market pressures, and growing competitors have driven companies to find

areas to differentiate themselves in, in order to gain competitive advantages and expand

14
their market share . Enhancing supply chain management has been a key area for this

restructuring process. Apart from a financial incentive to enhance these, logistics &

distribution are key processes connected with customer satisfaction – today’s new high-

value corporate objective – as customers are continuously demanding greater value from

15
the supply chain . As a result 3PLs – third party logistics providers – have become

increasingly popular around the world. They have been attractive logistics alternatives to

both large and smaller enterprises as they deliver the complex services required by large

enterprises, and aid small companies to enter other domestic and international markets

through services that, if handled by the enterprises themselves, could pose higher risks.

The high customer adaptation and problem solving abilities of 3PLs have made them more

14
Hertz 2003
15
Gourdin 2006
appealing than other logistics service providers (see Figure 2). The 3PL market has grown

over USD$10 billion in just a year, from USD$187.4 in 2007 to USD$199.7 billion in

16
2008 .

17
Figure 2: Logistic Provider Abilities – Third Party Logistics (TPL) Provider Position

Chile’s capital is not only home to AGUNSA’s headquarters, but also home to AGUNSA’s

first warehouse. Beginning in 1996, AGUNSA launched its logistics and distribution

2
service division with a 300 m warehouse in the outskirts of Santiago in Lampa. Today, the

2 2
Santiago L&D division operates an 80,000 m warehouse, resulting in 126,000 m of

warehousing operated by AGUNSA worldwide. These warehouses offer reception,

storage, added value, and distribution services. Although the warehouse is owned by

AGUNSA, the warehouse is operated and administered by one of AGUNSA’s daughter

companies – REPORT (see Figure 3).

16
Armstrong, R. (2009, January 28). 3PL Customers Report Identifies Service Trends, 3PL Market Segment
Sizes and Growth... Retrieved March 23, 2009, from Thomson Reuters Web Site:
http://www.reuters.com/article/pressRelease/idUS213963+28-Jan-2009+PRN20090128
17
Hertz 2003
2.4.1 REPORT Ltd.

Originating in one of Chile’s busiest and most popular ports, Recursos Portuarios y Estibas

Ltda, known as REPORT Ltd., began operating in Valparaiso as a stevedoring service

provider. Today, REPORT operates 12 offices throughout Chile. It offers a variety of

services, mainly focusing on warehouse operations and stevedoring. These services have

become crucial to AGUNSA’s Distribution Center in Santiago (DCS).

18
Figure 3: AGUNSA’s Inner Network

18
AGUNSA. (2006). About AGUNSA: Group structure. Retrieved March 22, 2009, from AGUNSA Web
Site: http://www.agunsa.com/eng/index.php?option=com_content&task=view&id=26&Itemid=27
 2
The 80,000 m distribution center is divided into 5 warehouse buildings as seen in the

figure below. The clients shown are the majority occupants of the warehouse, but not the

sole clients stationed there. Module D is currently the largest warehouse in the distribution

Module E

D1

Module D

Module A Module B Module C

Figure 4: AGUNSA’s Distribution Center in Santiago (DCS)

center. It recently received Sony as the newest client during Q3‘09. But the biggest

client in the entire DCS is LG, situated in this module. The expansion of module D, D1

(finished in 2007), currently holds only LG products, mostly White Line and Air

Conditioning products. The Electronics Line is situated in racks in module D. LG relies

on quality performance by REPORT’s warehouse operations in order to expand its

business in Chile.
2.5 Warehouse Operations

Within a logistics network, warehouses act as critical nodes with the primary function of

storage. Market competition requires continuous improvement in the operation of

19
distribution networks, which in turn requires higher performance from warehouses .

Distribution warehouses collect products from different suppliers and deliver these to a

number of customers. Regardless of the type of warehouse – distribution, production, or

contract – these facilities perform a variety of important functions such as:

 Providing temporary storage of goods

 Consolidating products for customer orders

 Serving as a customer service facility (after sales services, etc…)

 Protecting goods

 Performing added value services

20
 and Inventory (Facility Design)

Warehouses fulfill these functions through 5 main processes: reception, storage, order

picking, added value services, and dispatch.

19
Gu, J., Goetschalckx, M., & McGinnis, L. F. (2007). Research on warehouse operation: A comprehensive
review.
20
European Journal of Operaitonal Research , 177 (1), 1-21.
Heragu, S. S. (2006). Facilities Design (2nd Edition ed.). Lincoln, NE, USA: iUniverse Inc.
2.5.1 Reception

Reception is the first process encountered by an incoming shipment. The Logistics

Planning and Control department assigns instructions for the incoming transportation

(such as docking gate assignment) and will provide the necessary equipment required to

21
unload the shipment . Products will arrive at a receiving dock and be unloaded. These

will be checked and transformed if necessary (repacked into pallets) until storage

22
personnel carries on with the next step .

2.5.2 Storage

Storage is the second process that encounters an incoming shipment. Three fundamental

decisions must be made in order to fulfill the function of storage – how much inventory

should be kept in the warehouse for a stock keeping unit (SKU), how frequently and at

what time should the inventory for an SKU be replenished, and where should the SKU be

stored in the warehouse. This information is processed and communicated between 3PL

provider and supplier. Once a shipment has arrived, storage personnel, mostly operating

warehouse vehicles, transport the SKUs to their assigned location within the warehouse.

Warehouses may have a variety of physical storage layouts employing racks, storage

areas, and so on, depending on the physical characteristics of the goods (pallet storage vs.

23
case storage) .

21
Gu 2007
22
Rouwenhorst 2000
23
Gu 2007

15
2.5.3 Order Picking

Order picking, as seen in Figure 5, is the most expensive process of all. There is a variety of

order picking methods, which include a combination of batching, zoning, and picking

24
practices . Regardless of the combination, the purpose of order picking is to retrieve items

from their storage location and be transported to their sorting, consolidating, and/or

25
added value processes .

26
Figure 5: Warehouse Cost Category

2.5.4 Added Value Services

Although not necessarily part of the standard warehouse operations, added value services

follow order-specific instructions to enhance the products to be shipped. For example,

many customers ask for 3PL providers to place pricing tags and other stamps on products

in order to arrive at their final location ready to be sold.

24
Gu 2007
25
Rouwenhorst 2000
26
Van den Berg 1999

16
2.5.5 Dispatch

Once an order’s items have been sorted, processed through added value services (when

required), and consolidated, they are placed at the designated loading dock gate. Shipping

personnel will load these onto the respective carriers and be sent to customers (retail

27
stores, personal venues, other distribution centers, etc…) .

27
Rouwenhorst 2000

17
3 Methodology

The central goal of this project was to investigate the degree of efficiency within the

logistics cycle of warehouse operations for the client LG, at AGUNSA’s Distribution

Center in Santiago (DCS), to identify processes requiring improvement. AGUNSA’s Senior

VP of Commercial Logistics noticed a growth in the latest warehouse operations costs at

the DCS, specifically relating to labor costs. Today’s logistics research offers a variety of

approaches to audit warehouse performance, such as that of AGUNSA’s DCS.

28
Warehouse operations depend on three key components: space, people, and equipment .

By quantifying the allocation, productivity, and utilization of each, respectively,

warehouse performance can be analyzed. Since AGUNSA’s DCS does not seek to make

any physical rearrangement to its space allocation, it will be excluded from the warehouse

performance analysis.

The quantification of people’s productivity has led to a multitude of performance metrics.

Since 1997, a common warehouse performance metric has been the pallet-per-hour ratio

for each employee. This measure is collected for all employees each month over a period

of time (year), and a quality control analysis is performed in order to establish

29
benchmarks. Performance is thereon based on these standards .

28
Ackerman, K.B. (1997). Practical Handbook of Warehousing (4th Edition ed.). Norwell, MA: Kluwer
Academic Publishers
29
Ackerman, 1997

18
Other common performance metrics include:

 Orders per hour Orders Picked /

= Packed Total
Orders

 Lines per hour Lines Picked / Packed

Total Warehouse Labor Hours

 Items per hour Items Picked / Packed

= Total Warehouse Labor Hours

 Cost per order Total Warehouse Cost

= Total Orders

 Cost as percentage of sales = Total Warehouse Cost

Total Re venue 30

Most of these metrics focus on a group of orders, most commonly distributed over a

period of time (weekly or monthly) rather than analyzing each order performance in

depth. These are tools used to create benchmarks for overall performance and efficiency as

well.

Another approach used to measure efficiency is the Data Envelopment Analysis (DEA). It is

a linear programming technique that measures the relative performance of units with

multiple inputs and outputs. The efficiency of each unit is measured according to the ratio

30
Hill, J. M., & McGinnis, D. L. (2003). Warehouse Performance Assessment & Benchmarking. Georgia
Tech, (pp. 1-7). Atlanta.
of the weighted sum of outputs over the weighted sum of inputs. This allows for multiple

31
factors to be taken into account .

With the use of the Internet, the DEA model has been implemented to compare efficiencies

not just within, but also between warehouses. The rising DEA-variation model known as iDEAs,

Internet-based Data Envelopment Analysis for Warehousing, compares one warehouse to a

cohort of “peer” warehouses based on the best performance. The model can also identify

32
the technologies and practices that hold the highest operational efficiency .

A last, more general, performance evaluation technique is the assessment of financial and

nonfinancial metrics that are consolidated into an objective function with weights assigned

by the evaluator. The different performance metrics are presented in Figure 6.

31
Emrouznejad, A. (2001). Ali Emzounejad's Data Envelopment Analysis Web Page. Retrieved from
http://www.deazone.com/index.htm

32
McGinnis, L. F., Chen, W.-C., Griffin, P., Sharp, G., Govindaraj, T., & Bodner, D. (2002). Benchmarking
Warehouse Performance. Georgia Institute of Technology, School of Industrial & Systems Engineering.
Atlanta: GATech.
 33
Figure 6: Framework on operational metrics for the performance evaluation of a supply chain

The pallet efficiency model, benchmarking ratios, DEA, iDEAs, supply chain operational

framework, and other such models are cost accounting models that focus on direct costs

incurred within operations, but do not specifically identify what activities act as

bottlenecks, incur wastes, etc. Indirect costs are not measured to a large extent.

Unlike these models, the activity-based costing (ABC) method identifies activities that

consume resources and the level of consumption within each. Indirect costs are assigned

to direct costs, taking into account more variables and potential drivers of performance

within operations. The primary goal of this methodology is to measure the logical and

quantifiable relationships between the utilization of resources, the performance of

33
Gunasekaran, A., Patel, C., & Tirtiroglu, E. (2001). Performance measures and metrics in a supply chain
envirnoment. International Journal of Operations & Production Management , 21 (1/2), 71-87.
 34
activities, and the products or services they provide . Performance models can be created

from this ABC methodology.

In order to evaluate the performance of AGUNSA’s DCS and identify the origin of rising

costs, low value adding activities and wastes must be thoroughly observed. By

implementing a model based upon the ABC method, these activities will be taken into

account and evaluated to a much deeper extent than the other mentioned models.

Nevertheless, certain metrics from the other models will be used to analyze the ABC

costing data, mostly relating to capacity and costs statistics.

th st
From May 12 , 2009 to June 21 , 2009, I compiled a general overview of LG operations

at the distribution center through information gathered from REPORT warehouse

documents, meetings with the various warehouse departments, observational analysis of

the processes, and time-data collection.

First, I explored REPORT’s Manual of Logistics Procedures, which explained the standard

steps to complete the 5 processes, both physical and administrative tasks included. This

familiarized me with the expectations of warehouse operations by both REPORT and

AGUNSA. I then met with management and the various department heads that informed

me of current operations performance, future forecasts, and the overall operations cycle

specific to orders from the client LG. I explored the actual performance by entering the

34
Themido, I., Arantes, A., Fernandes, C., & Guedes, A. (2000). Logistic costs case study - an ABC approach.
Journal of the Operational Research Society , 51 (10), 1148-1157.
warehouse floor and observing each process (reception, storage, order picking, added

value services, and dispatch) in detail, analyzing activities involved in completing the

goals of each process. With this introduction to warehouse operations at the DCS, I was

able to formulate descriptions for the 5 processes.

3.1 Performance data-collection

As a result of these descriptions, I designed a data-collection model unique to the LG

Reception process, based on the Activity-based cost (ABC) model, measuring performance

in terms of time allocation. . The model I designed is divided into the major activities of

the Reception process that added value or cost to the LG operations in terms of time.

3.1.1 Common data-collection procedure

On a daily basis, I received the Reception Schedule from the Planning and Control

department that included all expected incoming shipments for the day (See APPENDIX D:

SPSS Data Calculations (for all shipments) for example). By identifying all LG orders, I created

a data-collection schedule that aimed to cover all of these orders. I arrived 10 minutes

prior to the expected time of arrival for the first shipment of the day. I reviewed all

Reception documentation for the incoming shipment and shadowed the Reception

Supervisor to gather the initial administrative-related data. Times were recorded upon the

completion of the various activities and specific observations were recorded for each

shipment, such as the number of unloading workers, required reception tools for

unloading, assigned reception labels, and number of damaged items. Upon the
completion of the Reception process, the time required for Storage personnel to transport

the unloaded shipment to the assigned warehouse location was recorded. Once this

process was over, idle time affecting the next shipment was recorded. Figure 7 shows the

different activities that were timed for each shipment.

Figure 7: Time oriented data-collection model for Reception

3.1.2 Reception time-recorded activities:

A. Request to open door: This activity marks the beginning of the Reception

process and is triggered by the Reception Supervisor contacting the Security

Monitor through professional radio walkie-talkies, requesting to open the

incoming shipment’s unloading dock gate. The truck is always stationed outside

the gate prior to the request. The activity ends once the gate has been opened.
 Idle Time: Between activities A and B.

B. Take photos of seal: This activity begins once the Reception Supervisor arrives

at the gate to take pictures of the container doors and of the seal locking these

doors. Once pictures have been taken, the activity is over.

Idle Time: Between activities B and C.

C. Open seal: The Reception Supervisor will signal the unloading crew to break

the seal once pictures have been taken and container information has been

recorded on the Reception forms. The activity ends once the Reception

Supervisor signals the driver to open the container.

Idle Time: Between activities C and D.

D. Open container: The activity begins once the driver begins to pull out of the

gate. He will leave the driver’s seat and walk to the back of the truck to open

the container doors. He will return to the driver’s seat and back the container

towards the gate as close as possible. Once the truck is no longer moving, the

activity is over

Idle Time: Between activities D and E.

E. Take photos of container: The activity begins once the Reception Supervisor

arrives at the gate and begins to take photos of the inside of the container in the

state in which it arrived. Once pictures are taken, the activity is over.

Idle Time: Between activities E and F.

F. Dismount boxes: The activity is triggered the Reception Supervisor’s order to

begin unloading the shipment. It will end once the last item has been placed in

the Reception floor area in front of the gate.

Idle Time: Between activities F and G.

G. Take photos of container: The activity begins once the Reception Supervisor

arrives at the gate and begins to take photos of the inside of the empty

container. Once the pictures are taken, the activity is over.

Idle Time: Between activity G and dock gate door being closed

Idle Time: Between activity of doors being closed and Reception

documentation is finalized
 Idle Time: Between the finalization of Reception documentation and the

beginning of activity H.

H. Storage for Reception: This activity begins once Storage personnel begin to

pick up the first set of items in the Reception floor area (with manual fork lifts or

lift trucks). Items will be transferred to their assigned warehouse location. The

activity ends once the last item is placed in the assigned location.

Special Idle Time (S.I.T. 1): Time reception is empty, but unable to receive next

shipment.

Special Idle Time (S.I.T. 2): Doors have been closed; however, the truck has

not left.

3.2 Comparing and Analyzing Timed Activities

After recording the different steps of the model mentioned above, I statistically analyzed

the compilation of data. This statistical data included means, standard variations,

frequencies, minimum and maximum values, and percentage contributions plots for each

activity. This would analyze the raw data and create key figures for each step. After these

descriptive statistics were calculated, the different variables were compared to one

another in order to identify what variables demonstrated cause-and-effect relationships.

For example, the number of workers or the number of equipment used was plotted against

dispatch times in order to understand how the allocation of these resources affected the
activity’s cycle times. On the other hand, ratios such as lines per hour and items per hour

were also calculated to create benchmarks to compare the different order processing’s and

to create standards for future operations. These results were driven through quality

control analysis as well and led to the evaluation of potential performance, revolving

around the decrease in wastes and the increase in capacity. Note that idle times were only

used in the statistical analysis if they were greater than 5 minutes.

The objective was to determine areas needing improvement, wastes present, and overall

performance of the Reception process for LG shipments. I looked at the different products

LG sent to the DCS and variations within each. I also looked at how the varying number of

workers and unloading tools affected the efficiency of the activities, as mentioned before..

From this analysis, I determined the key areas creating the least value and requiring the

most improvement. Recommendations were made to improve efficiency and reduce

wastes within the process.

4 Warehouse Operations at AGUNSA’s Distribution Center in Santiago

Like many other warehouses, AGUNSA’s DCS is very labor intensive. In module D,

REPORT employees perform storage, order picking, added value services, and

administrative activities. A third-party company – MTO – performs reception unloading

and dispatch loading activities.

The warehouse has implemented 3 mainstream continuous procedures as seen in Error!

Reference source not found..

Figure 8: Warehouse Operations' Continuous Procedures

These continuous procedures incorporate the 5 processes of warehouse operations

mentioned in Section 2.5 Warehouse OperationsREPORT does differ from other warehouse-
operating companies by combining the Storage and Order Picking processes into the

responsibility of one department.

4.1 First Continuous Procedure

The first continuous procedure is basically the Reception process. From the container

depot, trucks transport containers to the warehouse. The Reception Office will check

transportation documentation from the drivers regarding the shipment, which will be

verified with the Planning and Control Schedule. Upon approval, the truck will reposition

the container at the assigned unloading dock gate and the Reception Supervisor will fulfill

administrative activities – Steps A-E mentioned in Section 3.1.2 Reception time-recorded

activities: – that will lead to Step F: Dismount Boxes (See Figure 9).

The first 10% of the SKUs in the shipment will be set aside in the Reception area for

REPORT’s Technical Inspection to check the inside products for any damages or

hazardous conditions. A certain number of these must pass in order to approve the

admission of the shipment into the storage locations (specific to each SKU). If this

requirement is not met, the Technical Inspection employees will inspect another 10%; if

the requirement is not met again, they will inspect all items in the shipment. Items that

pass the Technical Inspection will be labeled with the LG warranty label (See Figure 11).
 Figure 9: Steps B-F of Reception

Manual forklifts are used to unload containers on most occasions; however, certain

unique SKUs of greater weight will require a lift truck. MTO employees will place the

shipment SKUs into pallets according to specifications on the box and pallet labels and

wrap these with stretch wrap to consolidate them (See Figure 14).
The Reception Supervisor will also pass the pallet labels (See Figure 12) and SGS (Societe

Generale de Surveillance – provides inspection, verification, testing, and certification

35
services ) stickers to MTO employees to be placed on the SKUs (See Figure 9). Any

damaged boxes will be set aside and sent to the LG’s Damaged Goods area in order to be

repackaged according to Technical Inspection instructions (whether the product has been

affected by the damaged packaging or not).

Figure 10: SGS Sticker

Figure 11: LG Technical Service Sticker

Figure 12: Pallet Label

35
SGS. (2009). Nuestra Organizacion. Retrieved May 18, 2009, from SGS in Chile Web Site:
http://www.cl.sgs.com/es_cl/our_organization_cl
 Figure 14: Example of Refrigerator Pallet in Reception Area

Once all items have been unloaded, the Reception Supervisor will take photos of the

empty container to capture the state of the container for insurance purposes. The gate will

be closed, Reception Order forms will be finalized (reception process will be deemed

completion status within the system), and they will be transferred to the Storage team to

begin the transportation of pallets to their assigned storage location. White Line products

are stored on floor sections designated by location codes, with pallets being positioned

one on top of the other (See Figure 14). Electronics are stored in racks both in module D1

and module D (See Figure 15).

 Figure 14: White Line Storage Area

Figure 15: Electronics Storage

4.2 Second Continuous Procedure

The second continuous procedure begins with an Order Picking request. The Storage team

will retrieve the number of items requested by the order and deliver them to the Added

Value Service area or straight to the Dispatch Area according to order instructions. In the

Added Value Service, LG’s customers’ requests will be implemented, such as placing

pricing labels on all order items. Once Added Value Service has finished these activities,
they will re-consolidate the pallets. The Storage team will retrieve these and deliver them

to the assigned Dispatch gate due to a subsequent Order Picking request.

4.3 Third Continuous Procedure

The last continuous procedure begins in a similar manner to the reception procedure.

Truck arrives at assigned loading dock gate, gate opening is requested to security monitor,

door is opened and loading begins by MTO employees (initial administrative steps are not

required by the Dispatch process). Copies of the transportation and dispatch documents

will be given to the truck driver with specific instructions of the delivery time and

destination for each order being shipped. These trucks are hired by LG’s customers, or by

third-party companies within the AGUNSA network. Figure 16 is a flow chart of the

operations within the logistics cycle at the DCS.

According to the General Manager and the Planning and Control department, one of the

primary issues in warehouse operations for LG, and one of the key sources of overhead

st
costs, has been the lack of performance in the Reception process, the 1 continuous

procedure. In fact, the capacity of incoming containers for LG is defined by the time

allocated to each activity in the Reception process (resulting in 120 minutes allocated to

each incoming shipment by the Planning and Control Schedule). The capacity for LG

White Line containers is 20 per day and 5 containers per day for LG Electronics. Unlike

the other processes, the inability to fulfill this capacity during regular work hours by the

Reception process makes it the bottleneck. Continuous procedures 2 and 3 have met
corporate expectations, and the observation of these procedures deemed them acceptable

performance. Since the Reception process acts as the largest source of overhead labor, the

model presented in Section 3.1.1 Common data-collection procedure is only specific to this

process. As a result, the objective will be to analyze Reception-related activities only.

 # ' )$ # $ #')$# $ # ' )$ # $
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Figure 16: Flowchart of REPORT's Warehouse Operations

5 Results & Discussion

In this section, raw data will be explained, followed by a discussion of the analysis

gathered from said data, resulting in recommendations to diminish wastes, i.e. idle times.

5.1 White Line LG SKUs

The White Line at LG ships mostly refrigerators and washing machines to AGUNSA’s

Distribution Center in Santiago.

5.1.1 Refrigerators

During the time-collection period, 4 different types of refrigerator SKUs were admitted into

the warehouse in 13 shipments.

Table 3: Refrigerator Shipments

The recorded times for these shipments resulted in the following statistical results.

Refrigerator shipments started an average of 21.01 minutes late during weekday

operations. Although this is a non-value adding aspect of the process, almost all instances

amounted to a late start that was within quality control calculations (See Figure 17).

Late Start Chart (Refrigerators)

80

70
60
50
40
Time (minutes)

30
20
10
0

02 4 6 Observation8 10 12 14
Avg. Late Start
Min. Late Start Late Start (mins) Average "Allowed" Lateness

Figure 18: Late Start Refrigerators Quality Control

Active reception time averaged a total of 54.92 minutes. For Step F (Dismount boxes),

times correlated with the number of boxes within the shipment. These times met Planning

and Control expectations with an average of 19.5 seconds/box for shipments with 67 and

73 boxes, and 20.8 s/box for shipments with 122 boxes (See Table 4). These consistent

results were achieved with 3 MTO employees assigned to shipments of 67 and 73/74

boxes, and 4 MTO employees for 122 boxes, with 2 manual forklifts per shipment.
 Table 4: Refrigerators Step-F Times

The average reception idle time was 16.27 minutes for all shipments. An average of 27.8

minutes remained for storage to transport the respective pallets to their storage

destination in the warehouse. However, the average idle time of 19 minutes between the

end of the Reception process and the beginning of storage, and the average of 15 minutes

for Storage personnel to transport the refrigerator pallets to their assigned storage location

exceeds the allocated capacity of 120 minutes by around 6 minutes, on average.

Refrigerators
Reception TimeRemaining Time
Idle Time

31.07%
45.77%

23.17%

Figure 19: Refrigerators - Reception Time Distribution

5.1.2 Washing Machines

During the time-collection period, 5 different types of washing machine SKUs were

admitted into the warehouse in 26 shipments.

Table 5: Washing Machine Shipments

Washing machine shipments started an average of 43 minutes late. This average was far

above the “allowed” late start, the time allocated for variability and delays. In order to

achieve adequate operation levels with an acceptable level of late starts, the average

number of minutes for late start per container should be at most 20 minutes; however, the

ultimate goal is to eliminate any late start times in order to increase the efficiency of

operations relating to washing machine orders.

Late Start Chart (Washing Machines)

140

120

100
Time (minutes)
80

60

40

20

0
0 5 10 Observation 15 20 25
Min. Late Start Late Start (mins) Avg. Late Start Average "Allowed" Lateness

Late Start Chart (Washing Machines)

140

120

100
Time (minutes)

80

60

40

20

0
0 5 10
Observation 15 20 25

Figure 20: Late Start Washing Machines Quality Control

Active reception time averaged 63.4 minutes. For Step F, times on average varied

according to the shipment volumes (See Table 6). Washing machine WFT1001TEPT, of

3
volume 50.7299 mt , was unloaded at an average of 9.5s/box. WFT8501TEPT, with

3
volume of 65.4459 mt , was unloaded at an average of 11.2 s/box. WFT6605TTP and

3
WFT7500TTP, both with volumes of 70.7256 mt , resulted in unloading times of

11.3s/box, with a consistent number of 3 MTO employees using 2 manual forklifts.

Table 6: Washing Machine Step-F Times

Four MTO employees and 2 manual forklifts unloaded the WFT1001TEPT shipments 75%

of the time. For WFT8501TEPT shipments however, there was a distinct difference in

unloading times when 3 and 4 MTO employees were present. Allocating 4 employees,

regardless of the number of manual forklifts, was 8:19 minutes faster than shipments

involving 3 employees (not including 3-employee outlier of 43:15 minutes) (See Table 7).
 Table 7: WFT8501TEPT Worker-Dismount time relationship

As a result of these time-consuming procedures and large quantities of idle time, only 7.63

minutes were available to complete a 20-minute Storage activity that was on average

preceded by 19 minutes of idle time. The average washing machine shipment surpassed

the 120-minute time allocation by around 31 minutes.

Washing Machine
Reception TimeRemaining TimeIdle Time

40.81%
52.83%

6.36%

Figure 21: Washing Machine - Reception Time Distribution

Due to overlapping times between Electronics and White Line shipments, and due to the

scarce number of Electronics shipments during the time-collection period, only 3

shipments were recorded. For the complete list of times recorded, see APPENDIX B: Timed

Data Collection.

5.2 Overall Shipment Performance

Average times for all steps in the model presented in Section 3.1.2 Reception time-recorded

activities: are shown in Table 8 and Table 9, for the 42 shipments recorded. The most

significant waste for the initial administrative activities is seen in the initial idle time,

between the gate opening request and the approach by the Reception Supervisor to the

door to capture photos of the seal. This idle time was primarily caused by the allocation of

one Reception Supervisor to the 4 gates within sub-module D1 (LG White Line sub-

module). Although idle time exist between steps E and F, these are not statistically

significant (n=5).

Table 8: Average Times for All Shipments (Part 1)

Once step-F was completed, the biggest source of waste of the entire process presented

itself. After MTO employees finish their unloading activities, it takes an average of 13

minutes for the Reception Supervisor to arrive at the gate to take pictures of the container

and complete the Reception process. The probably cause is the same as for the previous

idle time mentioned – 4 gates to one Reception Supervisor. This time could be effectively

used to begin the storage process much sooner, which is another significant source of idle

time (See Table 9 After Done Idle Time). Once the Reception process has been officially

finished and reported to the Reception Office, it takes an average of 21 minutes for

Storage to begin their activities.

Table 9: Average Times for All Shipments (Part 2)

S.I.T.s 1 and 2 are present in 4 and 8 shipments, respectively, but do not qualify as

statistically significant calculations.

Table 11: Substantial Idle Times Summary summarizes some of the idle times calculated in the

results mentioned, averaging a total of 16 minutes of idle time in 41 of the 42 shipments.

 Table 11: Substantial Idle Times Summary

In addition to these steps, times for technical inspection, stretch film application, pallet

sticker application, and SGS sticker application were also recorded for 33 of the 42

shipments (see Table 13: Specific Reception Task Times).

Table 13: Specific Reception Task Times

For the complete list of SPSS formulated calculations, see APPENDIX D-F.

5.3 Potential Performance

st
The waste created by the 1 continuous procedure has had a large impact on the capacity

and performance of warehouse operations for LG orders. On a daily basis, White Line

operations produce an average of 5 ½ hours of reception idle time. This lack of efficiency

has not only limited capacity from growing, but has created additional overhead costs (i.e.

overtime labor) that should not exist with the current limit of 20 containers/day.
 Table 15: Average Daily White Line Reception Times

Table 16: Possible Extra Capacity Calculations

Table 16 shows the potential additional capacity that could be reached by eliminating idle

time or morning shipment late starts. In other words, at current operations performance,

for every 4 containers, 1 entire new shipment could be processed from the wasted time in

these procedures. This could result in substantial financial potential gain. A 20% increase in

profit could result from improving operations and increasing capacity (See Table 17 and Table

18).

Table 17: Washing Machine Potential New Profits (Chilean Pesos)

Table 18: Refrigerator Potential New Profits (Chilean Pesos)

During the month of May alone, the difference between real LG White Line warehouse

operations and potential performance differed by 58.3 hours, part of which created an
overhead human resource cost of $129,954 Chilean pesos (See Table 20). Although the

overtime labor cost for the month of May 2009 accounts for 2% of Total Operations Cost,

this time-based difference critically affects other indirect total costs such as diminishing

customer satisfaction and future opportunity benefits.

Table 20: May Reception Financial Analysis

6 Conclusion & Recommendations

The goal of this project was to identify the weaknesses of the warehouse operations cycle

for the client LG at AGUNSA’s Distribution Center in Santiago. In order to complete this

objective, I produced a general overview of the warehouse operations relating to LG

orders. After generating this overview and observing current operations, it was clear that

the Reception process was the bottleneck component of the cycle. Substantial idle times

and inappropriate allocation of resources created a large pool of wastes for this procedure.

In order to reduce overhead costs, certain actions can be taken to minimize and

eventually eliminate these wastes.

6.1 Recommendation #1: Additional Reception Supervisor

The first recommendation is to assign 2 Reception Supervisors to the 4 doors during the 2-

hour shipment slots. Through this additional supervisor, idle time between steps A and B

and F and G will be reduced. The simple tasks this additional supervisor must perform,

totaling an average of 8:09 minutes, can be assigned to an existing REPORT employee

without the need to acquire new employees.

6.2 Recommendation #2: MTO Specifications for Planning and Control Schedule

A second recommendation is to incorporate MTO specifications within the Planning and

Control Schedule. The difference between 3 and 4 MTO employees involved in certain

shipments can critically reduce unloading times, or result in insignificant differences (over-

allocating resources to a shipment). The specifications described in Table 21 are

recommendations for the products reviewed in this study. REPORT should further research
these requirements for all incoming products in order to ensure the right distribution of

MTO employees within the various clients and reduce costs.

Table 21: Recommended Labor & Equipment Specifications for White Line Products in this study

6.3 Recommendation #3: Additional Container Truck Driver

A third recommendation is to acquire further truck drivers to transport the containers from

deposit to the dock gates. The late arrival of truck drivers at dock gates in the morning had

a substantial effect on the rest of the day’s performance, generally resulting in overtime

required. By eliminating late starts, overtime costs could be drastically decreased. It will

be financially more beneficial to hire an additional driver than continue to operate with

overtime costs.

6.4 Recommendation #4: Motivational Incentives

Last but not least, a lack of motivation was observed at some points of the warehouse

operations cycle. By offering seminars that teach employees of the importance of high

performance levels (ex: higher customer satisfaction  greater profits), new attitudes

could be instilled into culture of the company. Additional compensation based on

performance
levels is also another incentive to increase motivation and reduce the current weaknesses

of the processes within warehouse operations.

By implementing these recommendations, wastes in the warehouse operations cycle

st
stemming from the 1 continual procedure will be reduced, along with costs incurred by

said wastes. Benefits such as additional capacity, increased customer satisfaction, and

greater profits are just a few of the results that these recommendations could generate.

Nevertheless, it is extremely important for REPORT to tackle the bottleneck of the

warehouse operations cycle in order to grow as a distribution center.

As requested by Gaston Oyarzun, an introductory analysis of automating some activities

within the second continuous procedure can be found in APPENDIX A: Second Continuous

Procedure Investigation.
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APPENDIX A: Second Continuous Procedure Investigation

REPORT’s General Manager at the Distribution Center in Santiago asked for a quick

overview investigation concerning the implementation of automated activities within the

second continuous procedure (order picking and added value services).

The implementation of an AGVs for the order picking activities results in the following

costs:

 Average Vehicle Price = 2862.85 UF (Units of currency used in Chile)

 High Maintenance Costs

 Laser System Installation = 5725.69 UF

 And additional new operational costs

These costs exceed the budget that could be invested in the project according to Mr.

Oyarzun.

Automating certain steps within the added value services could potentially decrease labor

costs and increase efficiency. One possibility is to install an automated labeling line, the

most popular added value service. The automatic labeling line would remove labels from

the labeling roll, it would position these according to the client specifications, which

would require a rotating labeling machine. The machine must be capable of exceeding

current performance velocity, which could potentially result in a relatively high

percentage placement error.

 Figure 22: Labeling Machine with Printer

Figure 23: Labeling Machine without Printer

Instead of a fully automated system, a partially automated system could be implemented.

Sandra Torres from INSAA Ltda (Ingenieria y Control LTDA), an industrial projects consulting

firm, suggested 3 options: using automatic labeling machine with manual

controls that prints labels, using automatic labeling machine with manual controls without

built-in label printer, and manual labeling with an assembly-line moving strip. The last

option, the most attractive, least costly system, would implement a moving strip that

would require assembly-line-style activities (See Figure 24). At the end of the line, a pallet-

consolidating machine and a stretch wrap machine could be optional additions. The

overall process would require less employees and would create a more continuous, faster

process – increase in efficiency.

Figure 24: Example of Assembly Line for Added Value Services

APPENDIX B: Timed Data Collection

60
APPENDIX C: Planning and Control Schedule (Example from May 29, 2009)
 APPENDIX D: SPSS Data Calculations (for all shipments)
Descriptives

66
Frequencies
Means
 APPENDIX E: SPSS Data Calculations (for refrigerator shipments)
Descriptives
Frequencies
Means

# Boxes vs. Time

Model vs. Time

Volume vs. Time

Weight vs. Time

Model Information (weight, Volume)
 APPENDIX F: SPSS Data Calculations (for washing machine shipments)
Descriptives
Frequencies
Means
# Ppl vs. Time

Weight vs. Time

Volume vs. Time

# Boxes vs. Time

Equip vs. Time

Model vs. Time

Models Information (Weight & Volume)