Choosing the right high-density storage system

Manufacturers’ warehouse requirements for finished goods are far different from warehousing requirements of retailers and wholesalers found downstream in the supply chain.  Characteristically manufacturers stock fewer items and more of them.  The result: large inventories per item create the need for high-density storage systems. There is an implicit danger in investing in a storage system that simply provides the greatest number of pallet positions per square foot.  The danger being that the gross pallet positions available are not necessarily the net positions that can readily be used. Therefore without careful consideration, the workable capacity provided by a given storage system may be dangerously over-estimated.

Consider a bulk storage lane on the floor.  Suppose it accommodates 4 pallets deep and, by stacking two pallets high, yields a capacity of 8 pallets in total.  Keep in mind however, that before replenishing that lane it must be filled and subsequently picked clean prior to put away of new product or another lot of the same product.  So although the lane begins full only when it’s empty can it be filled again.  This means at any point in time, on average this lane is only ever half full. 

What looks like a capacity of 8 pallets is, in effect, a capacity of 4 pallets.  In an entire warehouse if every bulk storage lane followed this trend, 50% of the gross capacity of the building would remain unused.  Unless, to make increased use of the gross capacity, operators mix items or lots in a single lane and re-handle pallets to maintain utilization rates closer to the gross capacity.  The drawbacks of such an approach are that it puts inventory control at risk and greatly impacts operator productivity.

The general principle outlined above describing the danger high density storage poses also applies to drive-in and drive-through racking - however it does not mean that these storage systems are always poor choices for your warehousing needs.

Returning to the example of bulk storage lanes, consider the utilization of gross capacity when an item occupies two lanes.  One lane has a 50% capacity but the other, which serves purely as a storage lane until the former is picked clean, has 100% capacity used.  This brings the net utilization up to 75%.  If an item can occupy three lanes, that utilization jumps to 83%.  

What this second bulk storage example illustrates is that maximizing the gross capacity of a warehouse depends on matching a storage system to the inventory profile of the items stored in that system.  Without a careful consideration of the inventory profiles held in the warehouse and a realistic appraisal of the net utilization achievable, the wrong storage system will be employed.

Another example of matching a storage system to the inventory profile of product stored in that system comes in the form of “end of run” pallets.  Production runs never yield full pallets of finished goods: there is always a balance of product that makes for a small or partial pallet.  Fitting these partial pallets into a uniform storage system conceived for full pallets will always result in lost storage capacity. Consider storage openings of 56″ which are optimal for pallet heights of 52″.  Let’s say however, that an end of run pallet is only 28″ high - this leaves 24″ of unused capacity or a 56% net capacity utilization applicable to each end of run pallet stored.

The number of end of run pallets in a warehouse, while small in total, can lead to significant losses in available storage capacity unless the storage system design incorporates considerations for these pallets.  Options available include smaller pallet openings within the larger system or, perhaps, a separate section of the warehouse dedicated to smaller pallet storage.

In conclusion, operations managers can make significant gains by keeping a few things in mind when looking at the best way to store finished goods.

• 1) Gross capacity of a storage system is not the same as the net capacity.
• 2) Net capacity is a function of the inventory profile of products stored in the system.
• 3) “End of run” pallets complicate the effort to yield the highest net storage capacity of a given system.
• 4) When a storage system is mis-matched to the inventory requirements, capacity drops and/or warehouse productivity suffers.

Careful, thorough storage system design decisions upfront will avoid years of headaches and burdensome costs in the future.

Add comment August 25th, 2009

Logistics Beyond The Warehouse: Financial Implications of Supply Chain Management

Whether striving to finance business expansions or day-to-day operations, these have been difficult times.  For this reason, many companies are increasingly acknowledging the strategic need to unlock large amounts of cash tied up in inventories, sales and purchases.

The working capital of a company, that is, the difference between its current assets and short-term liabilities is an indicator of two things: first, the financial health of the company and its ability to meet its immediate obligations; and second, the company’s operational efficiency.

The importance of optimizing and managing working capital resides in the fact that companies need cash to finance growth and ongoing operations alike - as it’s just not possible to pay suppliers and employees with inventory.

A common shortcoming many companies encounter when implementing cash-driven initiatives is: failing to understand the relationship between supply chain activities and financial performance.  For example, the way orders are selected in the warehouse can affect Days-Sales-Outstanding (DSO) in addition vendor delivery performance can be leveraged when negotiating payment terms.

The following are a few examples of factors sometimes considered “soft” issues that can, in fact, provide a quantifiable return when improved:

Perfect Order Rate

The collection of invoices with erroneous deliveries (i.e. undetected mispicks, scratches) will cause not only deductions and charge-backs but also delays due to customers’ payment cycles.

Safety Stock Levels

There are several factors affecting inventory, however, when launching an inventory optimization initiative, the first step is to determine what the level of safety stock should be, and although inventory levels will fluctuate due to legitimate business reasons, there should be a set target.  For example, the total inventory of a product shouldn’t be greater than its safety stock if the product is received and shipped every day in full truck loads.

Fast moving material handling systems

Introducing cross-docking, reverse line picking and flow-through programs for those items and vendors that meet the volume, quality, service level and cost requirements will impact inventory reduction capability.

Order fulfillment cycle time

Once the company has a firm order from a customer, the time it takes to fulfill that order is incorporated into the cash conversion cycle.  Given this, the ability to respond to demand faster and while maintaining or lowering cost should drive transportation and warehouse initiatives.

Vendor Collaboration

Working with Vendors can make a big difference.  For example, moving inventory off the balance sheet through the pursuit of Vendor Managed Inventory initiatives can reduce a company’s investment in inventory.

There are many other factors rooted in supply chain activities that impact working capital performance and should be incorporated into the supply chain performance metrics.  These include:

• Vendor lead times
• Supply chain visibility
• Real-time proof of deliveries
• Forecasting accuracy
• Vendor performance linked to payment terms
• Minimum order quantity

The extent to which each of these factors influence the financial results vary from company-to-company, however, in order to implement an effective working capital optimization initiative the following steps should not be overlooked:

Analyse end-to-end supply chain processes - to identify opportunities based on depth of research and data analysis from vendors to customers.

Define performance metrics - to measure not only results but also leading indicators (e.g. input variables that impact results).

Set goals - at tactical and operational levels to ensure execution effectiveness.

Align cross-functional accountability - create cross-functional teams to drive improvement initiatives across the supply chain.

By increasing overall awareness and the attention given to the relationship between the supply chain and financial performance, companies can strive to link their activities in this area to their Working Capital Optimization initiatives.  The above most specifically suggests how to do so in regard to warehouse operations and material handling systems, and stresses the importance of the related Supply Chain metrics used to support this effort.

Add comment August 11th, 2009