STORAGE AND WAREHOUSING:SCIENTIFIC APPROACH TO WAREHOUSE PLANNING

1. SCIENTIFIC APPROACH TO WAREHOUSE PLANNING

Warehouse planning is more than pouring a concrete slab and installing some rack and tilting up some walls. Warehouse planning is not a static, one-time activity. The changing, dynamic environment within which warehouses are planned quickly renders existing plans obsolete. Therefore, warehouse planning must be a continuous activity in which the existing plan is constantly being scrutinized and molded to meet anticipated future requirements. For a warehouse to accomplish its objectives, ware- house managers must consider the variable warehouse resources and mold them into an effective plan. A successful warehouse maximizes the effective use of the warehouse resources while satisfying customer requirements.

1.1. Requirements for Successful Warehousing

To be successful into the 21st century, warehouse planning must be accomplished within the frame- work of a clear, long-term, consistent vision of where the warehousing operations are headed. The following strategies should form the basis of this vision.

1. Professionalism: Warehousing will be viewed as a critical supply chain enabler and a com- petitive strength, not as an inert facility.

2. Customer awareness: Serving the customer is only the foundation; satisfying them is vital to their continuing to patronize your organization.

3. Measurement: Warehouse standards will be established, performance will be measured against these standards, and timely actions will be taken to overcome any deviations.

4. Operations planning: Systems and procedures will be put into effect that allow the warehouse manager to plan the operations proactively rather than reactively respond to external circum- stances.

5. Supply chain network: Warehouses will not be viewed as independent operations but as an element of the overall, well-planned supply chain.

6. Third party / outsourcing: More intelligent use of third-party logistics (3PL) is the norm so that organizations can focus on core competencies.

7. Pace: The reduction of lead times, shorter product lives, and increased inventory turnover result in an increase in the pace of the warehouse.

8. Variety: More different SKUs and more special customer requirements result in an increase in the variety of tasks performed in the warehouse.

9. Adaptability: Due to the increase in warehouse pace and variety, all warehouse systems, equipment, and people will be able to handle products that vary in size and weight.

10. Uncertainty: All uncertainty will be minimized; discipline will be increased.

11. Integration: Integration needs to be understood as not only a method of improvement within, or even between, processes but rather as a method of improvement of the whole process.

12. Inventory accuracy: Inventory above 99% is the norm with real-time warehouse management systems, bar coding, and electronic order processing. Annual physical inventories are elimi- nated and cycle counting is fully embraced.

13. Space utilization: Space utilization will be enhanced through dynamic slotting or the place- ment of product in a facility for the purpose of optimizing material handling and space efficiencies.

14. Housekeeping: There is efficiency in order in the warehouse. The certainty that the work areas are safe, free of congestion, and properly organized enables personnel to move through a day’s work with just the work on which to concentrate.

15. Orderpicking: The criticality of orderpicking will be understood, and procedures and layouts will be designated to maximize orderpicking efficiency.

16. Business process continuous improvement (BPCI ): The power of the people will be unleashed via a methodical process of continuous improvement.

17. Continuous flow: There will be a clear focus on pulling product through the logistics system and not building huge inventories.

18. Warehouse management systems: Real-time, bar code-based, RF communication Warehouse management systems (WMS) will be required to meet today’s requirements.

19. Change: Organizations that will usher in the new century successfully will be the organiza- tions that proactively embrace change.

20. Leadership: There must be a balance between the control aspects of management and har- nessing the energy of change to create peak-to-peak performance of leadership.

1.2. Warehouse Objectives

The resources of a warehouse are space, equipment, and personnel. The cost of space includes not only the cost of building or leasing space but also the cost of maintaining the space. Typically, the cost of space in a warehouse is $0.20 to $0.30 per cubic foot per year for taxes, insurance, mainte- nance, and energy. A company that is ineffectively using its available cubic space is incurring ex- cessive operating costs.

The equipment resources of a warehouse include data-processing equipment, dock equipment, unit load equipment, material-handling equipment, and storage equipment, all of which combine to represent a sizable capital investment in the warehouse. In order to obtain an acceptable rate of return on this investment, the proper equipment must be selected and it must be properly used.

Oftentimes, the personnel resource of the warehouse is the most neglected resource, even though the cost of this resource is usually the greatest. Approximately 50% of the costs of a typical warehouse are labor related. Reducing the amount of labor, pursuing higher labor productivity, good labor relations, and worker satisfaction, will significantly reduce warehouse operating cost.

Customer requirements are simply the demand to have the right product in good condition at the right place at the right time. Therefore, the product must be accessible and protected. If a warehouse cannot meet these requirements adequately, then the warehouse does not add value to the product and, in fact, very likely subtracts value from the product.

Therefore, the following objectives must be met for a warehouse to be successful:

1. Maximize effective use of space.

2. Maximize effective use of equipment.

3. Maximize effective use of labor.

4. Maximize accessibility of all items.

5. Maximize protection of all items.

The two distinct types of continuous warehouse planning needed to result in an efficient and effective warehouse operation are contingency planning and strategic master planning.

1.3. Contingency Planning

Contingency planning is a defensive tool used to guard against a predictable future change in ware- house requirements whose timing is extremely difficult, if not impossible, to anticipate. In other words, a contingency plan answers the question ‘‘What do I do if some unexpected event or condition arises?’’ Contingency plans are needed to guard against the following short-term situations:

1. Equipment downtime

2. Labor problems

3. Surges of activity

4. Material supply disruptions

5. Other emergencies

Contingency planning is not crisis management or putting out fires, which entail developing solutions to problems after the problems occur. Proper contingency planning develops the action plan to the fullest extent possible before the problem occurs. Consequently, proper contingency planning can significantly reduce the lead time required to correct or accommodate the unexpected event. One does not wait until after a fire starts in the warehouse to install a sprinkler system; instead, one installs the sprinkler system long before as a contingency against a fire whose timing is unpredictable. Likewise, formal contingency plans can protect the warehouse for other conceivable circumstances with unpredictable timing.

To develop contingency plans for a warehouse, use the following procedures:

1. Make a list of the conceivable ‘‘bad things’’ that can happen to or within the operation.

2. Rank the bad things with the events having the greatest probability of occurrence, and / or the most adverse consequences if they do occur, at the top of the list.

3. Starting with the highest-ranked bad thing, carefully determine, in as much detail as possible, the proper steps and actions that should take place to resolve, eliminate, and deal with the consequences to the warehouse operations of the bad thing if and when it occurs.

4. Review these steps and actions with the key warehouse people and refine them based on the inputs received.

5. Publish the resulting contingency plans in print and drill those persons responsible for exe- cuting the plans at the time of need in the details of the plans so that everyone knows exactly when, how, and by whom the plan is to be executed.

6. Periodically review and update the contingency plans to keep them current with existing con- ditions in the operation.

1.4. Strategic Master Planning

Strategic master planning is an offensive tool designed to guard against a predictable future change in warehouse requirements whose timing can be anticipated. Strategic master planning is directed at forecasting future warehousing needs sufficiently in advance of the actual requirement to allow enough lead time to efficiently and effectively meet those needs.

Warehousing strategic master plans are needed to accommodate:

1. Forecasted growth or decline in the throughput

2. Space, labor, and equipment deficiencies

3. Product mix changes

4. Inventory increases or reductions

5. Warehouse control problems

Most of these ‘‘problems’’ do not develop overnight. Future inventory levels and product mixes typically can be predicted, based on historical and future business plans, years in advance. Granted,

forecasting with long planning horizons is risky. Forecasts are often inaccurate. Nevertheless, the forecast is the best available information concerning the future we have, and it is folly not to use that information to advantage. With today’s costs of warehouse space, labor, and equipment, more and more decision makers are demanding that future warehouse requirements be expressed in quan- titative terms rather than in subjective, qualitative assessments of needs. That is what strategic master planning is all about.

Contingency planning and strategic master planning are complementary. Strategic master planning without effective contingency plans will subject the warehouse to unanticipated problems that do not show up in a forecast of future requirements. Likewise, the absence of good strategic master planning will subject the warehouse to a continuous barrage of ‘‘fires’’ to be dealt with by contingency plans, many of which could have been avoided through proper insight and strategic planning. In either situation, the absence of one planning approach severely limits the effectiveness of the other.

1.4.1. Qualities of a Strategic Master Plan

A warehousing strategic master plan is a set of documents describing what actions must be accom- plished and when they must be accomplished to satisfy the warehousing requirements of an enterprise over a given planning horizon. A closer examination of this definition reveals the important attributes of a good warehouse strategic master plan.

First of all, a good warehouse strategic master plan is a formal set of documents. It should not consist simply of ideas, thoughts, possibilities, desires, and so forth that are casually recorded ‘‘some- where,’’ if at all. A good plan is a formal set of documents that have been created, collected, edited, and so forth specifically as a strategic master plan of action. Common components of this set of documents include an implementation plan, a descriptive narrative, scaled facility drawings, and supporting economic cost and justification data.

Second, a good warehouse strategic master plan is action oriented. Where possible, the plan should set forth very specific actions to be taken to meet requirements rather than simply stating the alter- native actions available to meet those requirements. The strategic master plan is established based on a set of premises concerning future production volumes, inventory levels, manpower levels, avail- able technology, and so forth. As long as these premises are clearly stated as a part of the strategic master plan, and understood, problems should not arise with regard to implementing actions that prove to be based on false premises.

The strategic master plan should be time phased to indicate when each recommended action should be implemented to meet changing warehousing requirements. Typically, scaled facility draw- ings should accompany each recommended action to illustrate what the facility will look like after a given action has been implemented.

Finally, a good warehouse strategic master plan should encompass a specified planning horizon. It should have a definite beginning point and a definite ending point. Typically, the planning horizon is stated in terms of years. A five-year master plan might serve the years 1991 through 1996.

1.4.2. Strategic Master Planning Methodology

The general methodology for developing a warehouse strategic master plan consists of the following seven-step procedure:

1. Document the existing warehouse operation.

2. Determine and document the warehouse storage and throughput requirements over the specified planning horizon.

3. Identify and document deficiencies in the existing warehouse operation.

4. Identify and document alternative warehouse plans.

5. Evaluate the alternative warehouse plans.

6. Select and specify the recommended plan.

7. Update the warehouse master plan.

Step 1 involves obtaining or developing scaled drawings of the existing warehouse facilities and verifying their accuracy. The accuracy of existing drawings should never be assumed. It should always be physically verified on the warehouse floor.

Existing warehouse equipment should be identified and documented. The labor complement of each area of the warehouse should be determined and the general responsibilities of each person documented. Existing standard operating procedures should be scrutinized and compared against what actually takes place on the shop floor. The first step of the master planning process establishes a baseline against which recommendations for improvement can be compared.

Step 2 involves defining what materials will be stored in the warehouse and the volume anticipated during the planning horizon. Items to be stored in the warehouse should be classified into categories according to their material-handling and storage characteristics.

Forecasts or production schedules should then be used to predict the storage volumes and turnover rates of each category of material over the specified planning horizon. Ideally, these volumes would be stated in terms of the unit loads in which the materials would be stored and handled.

Step 3 involves identifying potential areas of improvement in the existing warehouse operation. The potential for improvement may exist because the operation lacks sufficient capacity to handle future requirements or because existing facilities, methods, equipment, and / or labor forces are not the most efficient or effective available.

Step 4 deals with identifying alternative facility, equipment, procedural, and / or personnel plans that will eliminate or minimize the deficiencies identified in the existing warehouse operation. From these alternative plans of action will come the specific time-phased plan of action to be recommended for meeting the warehouse requirements over the given planning horizon.

Step 5 of the master planning process involves performing both an economic and a qualitative assessment of the alternative plans of action. The economic evaluation should consist of a time-value- of-money assessment of the total life-cycle costs of competing alternative plans of action. The qual- itative assessment of alternatives requires that the alternatives be subjectively compared on such attributes as personnel safety, flexibility, ease of implementation, maintainability, potential product damage, and so forth.

Step 6 involves selecting the best of the alternative plans of action implicated by the economic and qualitative evaluations and specifying the recommended warehouse strategic master plan. The master plan will document the space, equipment, personnel, and standard operating procedure re- quirements of the warehouse over the planning horizon. In addition, scaled facility drawings should be included showing the recommended warehouse layout for all revisions recommended by the plan of action.

The first six steps of this procedure will result in a warehouse strategic master plan. The strategic master planning process, however, will not be complete. In fact, it will never be completed, since strategic master planning is a continuous activity. Step 7 is the process, therefore, of updating the master plan. By its very nature, a strategic master plan is inaccurate. Since it is based, to a large extent, on predictions of the future, the warehouse strategic master plan will require updating as better information concerning the future is obtained. Consequently, it should never be used as a precise tool but only as a valuable guideline for planning future warehouse operations.