A distribution center stores all product on pallets. Currently, the warehouse stores SKUs at any location with available space. However, the management is considering to change the storage policy in order to minimize the costs associated with picking. The management wants to rearrange the warehouse based on the frequency of SKU picks.
The warehouse has 7500 pallet storage locations arranged in 5-pallet high pallet racks with lane depth of 1 pallet. The picking policy can be changed into a fast-pick area and a reserve area (bulk storage). The ground level of each rack can be considered as the fast-pick area and the upper rack positions can be considered as the bulk storage area. There are 1500 ground level pallet locations and all or some of the ground level pallet locations can be considered as fast-pick area.
All pallets are of identical dimensions; but different SKU’s may have different numbers of cartons per pallet.
The attached Excel file gives a list of the SKU’s in the warehouse and something about their activity. Each row corresponds to one SKU and the columns correspond to the following fields:
SKU ID
Average # piece picks
Average quantity (in pallets) sold as cartons per week
Average quantity (in pallets) sold as full-pallets per week
The minimum # pallets to be stored in the fast-pick area (if any at all)
The maximum number of pallets expected to be on-hand at any time
If the average quantity sold as cartons is 0, that SKU is not considered for fast-pick area.
A trial run using the forward-pick and bulk storage was used to calculate the labor requirements for the new storage method. The labor savings for picking a carton from the fast-pick area instead of the reserve varies between 0.75 minutes and 1.5 minutes with an average of 1 minute per forward pick (for less-than-pallet quantities). Restocking a pallet from bulk storage to the fast pick area varies between 2.5 minutes and 3.5 minutes with an average of 3 minutes per restock.
If a SKU is stored partly in the fast-pick area and partly in bulk storage, then all of its carton picks must come from the fast-pick area and all of its full-pallet picks must come from the bulk storage area.
One minute of labor saving per pallet position can be converted into $0.45. On the other hand, to train the picking staff on the new picking strategy, it is estimated to cost $25,000 per year.
Objectives
Discuss the issues with the current storage policy.
Identify the SKUs that should be stored in the fast-pick area) and the quantity (in pallets). You may use the pallet-slotting software for the analysis.
Calculate the labor requirements for the storage plan and labor savings compared to current plan.
Perform a sensitivity analysis for the range of time savings and fast-pick area limit range.
Perform a cost analysis and discuss the advantages or disadvantages of the new policy.