Warehousing Fundamentals

Lecturers: Prof. Wanie C / Mr. Kughong W.

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Transportation & Logistics
Three Key Questions to Answer

▪ Why do we have warehouses?

▪ ▪▪ Store, Handle, and/or Flow Product
▪ What are the core operational functions?
▪ ▪▪ Receive, Putaway, Store, Pick, Pack, Ship
▪ How do we assess and improve performance?
▪ ▪ Activity Profiling and Benchmarking
▪

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Warehouse definition

“Warehouses are typically viewed as a temporary

place to store inventory and as a buffer in supply
chains.
They serve as static units matching product
availability to consumer demand and as such have
a primary aim which is to facilitate the movement
of goods from suppliers to customers, meeting
demand in a timely and cost effective manner”.
Primarily a warehouse should be a trans-shipment
area where all goods received are despatched as
quickly, effectively and efficiently as possible.
Van den Berg (2012)
Why have warehouses?

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Why have warehouses or other facilities?
▪ Better Match Supply & Demand (store)
▪ ▪▪ Demand and supply are not always in synch
▪▪ Storing product buffers for unexpected
▪ shortages/demands
▪ Enables Consolidation Opportunities (flow)
▪ Larger shipments have lower per unit transportation costs
▪ Bulk buying discount opportunities
m origins
n destinations

mn versus m+n total arcs

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Types of Warehouses in the Supply Chain
FG Warehouse
Raw Materials FG Warehouse
Warehouse

FG Warehouse

Finished Goods (FG)

Work-‐In Process
Warehouse
(WIP)
Warehouse

Distribution Center (DC)

Regional or Local DC
Fulfillment Center (FC)

adapted from Frazelle, E. (2001) World Class Warehousing and Material Handling 8
Different Facilities Serving Different Roles
 Raw Material Storage - close to a source or manufacturing points
 WIP Warehouses - partially completed assemblies and components
 Finished Goods warehouses -buffers located near point of manufacture
 Local Warehouses -in the field near customer locations to provide rapid
response to customers
 Fulfillment Centers -holds product and ships small orders to individual
consumers (cases or eaches) -predominately for e-commerce
 Distribution Centers -accumulate and consolidate products from multiple
sources for common shipment to common destination/customer
 Mixing Centers -receives material from multiple sources for cross-docking and
shipment of mixed materials (pallets to pallets)

Two Competing Objectives Fundamental

Store - maximize utilization of space Warehousing Trade-off:
Flow - optimizing throughput Space vs. Time
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 Form of the Product Along Supply Chain
The unit of storage for a product gets
smaller as it moves downstream from
container to pallet to case to eaches.

A General Handling Rule:

The smaller the handling unit, the
greater the handling cost!

 Size impacts design & operations Fundamental Warehousing

 Inbound vs. Outbound Design Element:
 Pallets to Pallets
Inbound to Outbound size
 Pallets to Cases
 Pallets to Eaches
adapted from Bartholdi, J. and S. Hackman (2016) Warehouse & Distribution Science (Release 0.97)
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Core Operational Functions

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 Core Warehouse Functions
~10% ~15% Percent of Labor Costs ~55% ~20%

Receive Put-Away Store Pick Check, Pack, Ship

Receive Put-Away Store Pick Check-Pack-Ship

• Scheduling arrivals • Material handling • Physically hold the • Moving items from • Check order for
• Dock management • Verify storage material storage for orders completeness
• Receipt of materials location • Consumes space • Verify inventory on • Confirm documents
• Unloading & staging • Move material in more than time hand • Place in package(s)
• Inspection for storage location • Multiple forms of • Create shipping • Collect common
damage, short, • Record level & storage (pallet, documentation orders
incomplete, etc. location case, each) • Consists of travel, • Schedule pick ups
• Set slotting location search, & extract • Load vehicle

Value-Add Services Returns

• Customization of products: • Handling product reverse flows for multiple reasons

• Labeling & tagging, Special packaging, Minor (damage, expired, returned, etc.)
assembly, Kitting, Re-pricing, etc. • Can run 5% (retail) and up to 30% (e-commerce) of volume
• Postponement of components • Steps can include inspection, repair, reuse, refurbish,
recycle, and/or dispose

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Common Flow Patterns Drop Ship or Direct

Receiving

Pallets

Pallet Reserve
Pallets

Case Pick
Cases

Eaches Pick
Cases
Crossdock
Eaches

Sorting

Unitizing

Shipping

adapted from Bartholdi, J. and S. Hackman (2016) Warehouse & Distribution Science (Release 0.97) 13
Activity Based Layout

Pallet Storage & Case/Carton Broken Case / Eaches

Retrieval Systems Picking Systems Picking Systems

Sortation &
Putaway
Accumulation

Unitizing &
Receiving Crossdocking
Shipping

adapted from Frazelle, E. (2001) World Class Warehousing and Material Handling
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Receiving

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Receiving
 Sets up the entire interaction at the warehouse
 Some best practices
 Use ASNs (advanced shipping notice)
 Electronic notification of pending deliveries (EDI 856 and EDIFACT
DESADV, Dispatch Advice, message)
 Can save 40% of receiving costs & used to trigger payment of the vendor
 Integrate yard and dock scheduling
 Queuing at facilities (dwell time) can exceed 20% of driver’s day
 Coordinating deliveries with carriers reduces carbon footprint
 Prepare for shipment at receiving
 Pre-package in issue increments - try to match order size
 Capture and communicate cube/weight info at receiving
 Apply tags and labels as needed

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Receiving
 The best option is to minimize receiving activity
 Pursue drop shipping when ever possible
 Direct shipping removes need for all touches and handling
 Explore multi-stop or multi-compartment options
 If drop ship is not possible, explore cross-docking
 IB pallets are sorted and moved to OB staging docks
 There is no staging, inspection, or storage at IB
 Cross-docking operations should not interfere with
other warehouse functions

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Putaway

18
Putaway
 Essentially order picking in reverse!
 Role of Warehouse Management System (WMS)
 Determines storage location for received items (slotting)
 Directs staff where to place product and records inventory level
 Requires:
 Data: size, weight, cube, height, segmentation status, current orders,
current status of pick face, etc.
 Identification (bar coding or RFID) of products and locations
 Different approaches & strategies
 Directed - to specific location selected ahead of time
 Primary vs Secondary Storage
 Fixed Location vs Random Most Efficient
 Shared vs Dedicated spaces
 Batched & Sequenced - pre-sort at staging for commonly located items
 Chaotic -user picks any location and records item-location

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Putaway - Minimizing Distance Traveled

Empty slot location for pallet storage

Location of pallet to be retrieved
Loaded movement (with pallet)

Empty movement (no pallet)

adapted from Bartholdi, J. and S. Hackman (2016)
Warehouse & Distribution Science (Release 0.97)
Current location
Putaway - Minimizing Distance Traveled
Interleaving Putaways and Retrievals
Dual Cycle Operations
Similar to vehicle routing in transportation

Empty slot location for pallet storage

Location of pallet to be retrieved
Loaded movement (with pallet)

Empty movement (no pallet)

adapted from Bartholdi, J. and S. Hackman (2016)
Warehouse & Distribution Science (Release 0.97)
Current location
Order Picking I: Pallets

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Picking - Pallets, Cases, & Eaches
Order Picking is the most labor intensive task ~50-60%
 Traveling 55%
 Searching 15%
 Extracting 10%
 Other tasks 20%
The method of picking differs based on the size of the
thing being picked
 Full Pallet Retrieval - easiest and fastest
 Case Picking
 Small Item Picking - most expensive and time consuming

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Pallet or Unit Loads What is a convenient location?
• Try one that minimizes total labor time
(distance) to putaway and retrieve:
Min c*Σi(dini)
Shipping • where:
c = labor cost per distance
di = distance for pallet location i from
receiving to location to shipping
ni = average number of times location i is
visited per year
least most least ≅ # pallets sold / # pallets in
convenient convenient convenient
order
e.g., A sells 30 pallets/year and Q=5, nA=6
B sells 60 pallets/year and Q 30, nB=2

Simple Heuristic:
1. Rank all positions from low to high di
Receiving 2. Rank all SKUs from high to low nj
3. Assign next highest SKU (nj) to next
Note that convenience is a function lowest location (di)
of warehouse layout and flow!
This is a Flow-Through design.
adapted from Bartholdi, J. and S. Hackman (2016)
Warehouse & Distribution Science (Release 0.97)
 Flow Through U-Shape (Centered)

U-Shape (Divided)
Corner

MIT Center for

25
Transportation & Logistics
Aisle Layout
• Usually best to have aisles parallel to flow
• Cross aisles can shorten distances - but
take up space & increases aisle crossing
• Angled/fishbone aisles can increase
efficiency - especially with central
dispatch point
• Fast moving items should be put in
convenient locations
• Convenience is a function of layout and
Cross aisles can shorten trips - but may slow down total time
shipping & receiving locations

Angled or fishbone
aisles can increase
efficiency by 20% but
take up more space.

adapted from Bartholdi, J. and S. Hackman (2016) Warehouse & Distribution Science (Release 0.97)
Order Picking II: Cases & Eaches

27
Case Picking from Pallets

pick faces

Cases -weighs 5-50 lbs (2.3-23 kg)

Can be handled by 1 person
Usually stored on pallet
Adamhallgmbh (Own work)for
MIT Center [CC BY-SA 3.0 de Uniform shape and size (conveyable)28
tp://creativecommons.org/licenses/by-sa/3.0/de/deed.en)],
Transportation & Logistics via Wikimedia
Case Picking

At Pepsi Co distribution center, order-pickers ride through the forward

pick area, picking cartons to pallets.

Carton picking area from both pallets (left and front) and carton flow
racks (right side back) at ABG.

Case picking of fast-movers from pallet to conveyor (far left side) at Toys’R Us

29
All photos from Bartholdi, J. warehouse-science.com
 Eaches Picking

Pick-to-light system where the zone control panel says

"Pick tote 02287" and lights up the appropriate storage
locations to pick from.

Fast-pick area for eaches at ABG. The flow rack is shallow

on the conveyor side and deeper on the opposite side.

Slow-pick area for eaches - note that there is no pick to

light system here. Workers pick according to the shipping
list in each box. A stock to picker system - Kiva (now Amazon Robotics) - which brings items to pick
to the picking station. Other STP systems include carousels and automated
storage/retrieval systems (AS/RS).
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photos from Bartholdi, J. warehouse-science.com
Order Picking III: Strategies

31
 Order 1: B-E-J-K-O-V
Picking Strategies Order 2: D-C-B-Q-R-S
Order 3: B-I-J-T-S-U-V

A E I M Q U

B F J N R V

C G K O S W

D H L P T X

Single Picker - Single Order

• Similar to grocery shopping with a list

• Good for low number of lines/order
• Suitable for short pick paths
• No need to “marry” the orders afterwards
• Expected travel time (distance) per item can be high
 Order 1: B-E-J-K-O-V
Picking Strategies Order 2: D-C-B-Q-R-S
Order 3: B-I-J-T-S-U-V

A E I M Q U

B F J N R V

C G K O S W

D H L P T X

Picklist: D-C-B-B-B-E-I-J-J-K-O-T-S-S-R-Q-U-V-V
Single Picker - Single Order
Single Picker -Multiple Orders (Batch)
• Similar to grocery shopping for many at one time
• Expected travel time (distance) per item is reduced
• Requires sorting and “marrying” items
• Can sort “on-cart” or after tour
• Works for both picker-to-stock and stock-to-picker
 Order 1: B-E-J-K-O-V
Picking Strategies Order 2: D-C-B-Q-R-S
Order 3: B-I-J-T-S-U-V

A E I M Q U

B F J N R V

C G K O S W

D H L P T X

• Similar to divide and conquer grocery shopping for

multiple people
Single Picker - Single Order • Well suited for orders with high line count
Single Picker -Multiple Orders (Batch) • Expected travel time (distance) per item is reduced
Multiple Picker -Multiple Orders (Zone) • Minimizes congestion & socializing in pick aisles
• Pickers can become “experts” in a zone but lose order
Zone I Picklist: D-C-B-B-B-E completion accountability
Zone II Picklist: K-J-J-I-O • Requires sorting and consolidation of items
Zone III Picklist: T-S-S-R-Q-U-V-V • Allows for simultaneous filling of orders
• Difficult to balance workload across zones
Check, Pack, & Ship

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Check, Pack, & Ship
 Checking
 Create & verify shipping labels
 Confirm weight and cube
 Pack
 Package for damage protection
 Unitizing pallets
 Ship
 Essentially reverse of receiving
 Dock door and yard management
 Minimize staging requirements
 Container/trailer loading
optimization

By heb@Wikimedia Commons (mail) - Own work, CC BY-SA 3.0,

https://commons.wikimedia.org/w/index.php?curid=17332612 36
Profiling & Assessing Performance

37
Warehouse Activity Profiling
 How do we determine how to design and operate a warehouse or
distribution center?
 Data worth examining . . .
 Number of SKUs in the warehouse
 Number of pick-lines per day & number of units per pick-line
 Number & size of customer orders shipped and shipments received per day
 Rate of new SKU introductions and respective lifecycle
 Be sure to look at the distribution, not just averages!
 Data sources:
 Master SKU data - physical, financial, and other characteristics
 Order History -customer transactions (physical rather than financial)
 Warehouse Layout - location information -least standardized

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Segmentation Analysis
 It’s not just for demand planning!
 Different segmentation views give different insights
 Frequency of SKUs sold
 Top selling SKUs influence retail operations -not necessarily
warehouse operations
 Frequency of pallets/cases/cartons by SKU
 Will not necessarily follow SKU frequency
 Provides insights into receiving, putaway, and restocking
 SKUs with few pieces per case will rise to the top
 Frequency of picks by SKU
 Order picking drives most labor costs
 Determines slotting and forward pick
locations
 Variability of demand
 Seasonality -by year, quarter, day of week, time of day . . .
 Correlation to other products -affinity between items and
families
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Measuring and Benchmarking
 Major Warehousing Cost Drivers
Labor = (person-hours/year) x (labor rate)
Space = (area occupied) x (cost of space)
Equipment = (money invested) x (amortization rate)
 Performance Measures
 Productivity/Efficiency
 Ratio of output to the inputs required
 e.g., labor = (units, cases, or pallets) / (labor hours expended)
 Utilization
 Percentage of an asset being actively used
 e.g., storage density = (storage capacity in WH) / (total area of WH)
 Quality / Effectiveness
 Accuracy in putaway, inventory, picking, shipping, etc.
 Cycle Time
 Dock-to-Stock time - time from receipt to being ready to be picked
 Order Cycle Time -time from when order is dropped until it is ready to ship
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Key Points

41
 Core Warehouse Functions
~10% ~15% Percent of Labor Costs ~55% ~20%

Receive Put-Away Store Pick Check, Pack, Ship

Receive Put-Away Store Pick Check-Pack-Ship

• Scheduling arrivals • Material handling • Physically hold the • Moving items from • Check order for
• Dock management • Verify storage material storage for orders completeness
• Receipt of materials location • Consumes space • Verify inventory on • Confirm documents
• Unloading & staging • Move material in more than time hand • Place in package(s)
• Inspection for storage location • Multiple forms of • Create shipping • Collect common
damage, short, • Record level & storage (pallet, documentation orders
incomplete, etc. location case, each) • Consists of travel, • Schedule pick ups
• Set slotting location search, & extract • Load vehicle

Value-Add Services Returns

• Customization of products: • Handling product reverse flows for multiple reasons

• Labeling & tagging, Special packaging, Minor (damage, expired, returned, etc.)
assembly, Kitting, Re-pricing, etc. • Can run 5% (retail) and up to 30% (e-commerce) of volume
• Postponement of components • Steps can include inspection, repair, reuse, refurbish,
recycle, and/or dispose

42
Common Flow Patterns Drop Ship or Direct

Receiving

Pallets

Pallet Reserve
Pallets

Case Pick
Cases

Eaches Pick
Cases
Crossdock
Eaches

Sorting

Unitizing

Shipping

adapted from Bartholdi, J. and S. Hackman (2016) Warehouse & Distribution Science (Release 0.97) 43
Activity Based Layout

Pallet Storage & Case/Carton Broken Case / Eaches

Retrieval Systems Picking Systems Picking Systems

Sortation &
Putaway
Accumulation

Unitizing &
Receiving Crossdocking
Shipping

adapted from Frazelle, E. (2001) World Class Warehousing and Material Handling
44
Trade-Offs & General Rules
Two Competing Objectives Fundamental
Store - maximize utilization of space Warehousing Trade-off:
Flow - optimizing throughput Space vs. Time

A General Handling Rule:

The smaller the handling unit, the
greater the handling cost!

Fundamental Warehousing
Design Element:
Inbound to Outbound size

45
Primary References

 Bartholdi, John, And Steven Hackman (2016) Warehouse & Distribution Science,
Release 0.97. Available at: www.warehouse-science.com. Additionally, there are
photos and videos of different warehouses and distribution centers as well as other
tools available here.
 Frazelle, Edward (2001) World-Class Warehousing and Material Handling, McGraw
Hill.
 Richards, Gwynne (2011) Warehouse Management, Kogan Page Limited.
 Napolitano, Maida (2003) The Time, Space, and Cost Guide to Better Warehouse
Design, Distribution Group.
 Questions, Comments, Suggestions ?

MIT Center for

Transportation & Logistics