STORAGE AND WAREHOUSING:WAREHOUSE EQUIPMENT PLANNING

WAREHOUSE EQUIPMENT PLANNING

Like space planning, effective equipment planning must follow a very specific methodology. The general steps to this methodology are:

1. Specify what functions the equipment must perform.

2. Identify equipment alternatives.

3. Evaluate the equipment alternatives.

4. Select the equipment.

This methodology is appropriate for equipment planning for all warehouse activities: receiving, shipping, storage, order picking, and data processing.

The first step in the equipment planning methodology is to define the function the equipment must perform: what must the chosen equipment be able to do in order to accomplish the desired objective? This question is crucial, and it must be thoroughly answered before one begins to identify alternatives. Failure to adequately specify the objective the equipment must accomplish, and the minimum capabilities the proper equipment should have to achieve that objective, will often result in selection of equipment that fails to solve the real problem. It is amazing how often poor specifi- cation of requirements provides a brilliant solution to the wrong problem.

Unfortunately, no standard guidelines exist that guarantee a thorough specification of the capa- bilities desired of the equipment. What is desired of the equipment will vary, not only from warehouse to warehouse but also from activity to activity performed in a given warehouse. Although each circumstance will require different answers to different questions, the types of questions that will allow adequate specification of the capabilities the equipment must have are virtually the same for

all activities within a warehouse. Table 3 lists the types of questions one might have to answer before specifying begins. The specifications of the capabilities desired of equipment should then be detailed; they should be in writing; then they should be reviewed by each member of warehouse management who will be affected by the equipment in order to identify any overlooked specifications.

The next step in equipment planning is to identify specific equipment alternatives that meet the needed specifications. This step is critical because if the ideal equipment for the job is never identified, then obviously the ideal equipment will not be selected.

At this point in the equipment planning process, the intent should not be to identify the specific make or model of each alternative but rather to identify generic categories of alternatives. First, one must compare the various generic equipment alternatives in order to identify the best alternative; then, in step 4 of the equipment planning process, the specific makes and models in that generic category are compared.

Unfortunately, choosing the best equipment alternatives is easier said than done because of the enormous variety of warehouse equipment on the market today. The number of combinations of equipment that can be made to achieve a certain goal is virtually limitless. A great deal of ingenuity and foresight is often required to predict the impact of integrating several types of equipment into a warehouse system. Consequently, the identification of warehouse equipment alternatives is an art as well as a science. The art does not necessarily have to be inborn; it can be acquired by keeping abreast of the capabilities of existing warehouse equipment and new innovations in the state of the art. Excellent sources of continuing education on warehouse equipment are the many trade publications on warehousing and material handling; trade shows, where equipment manufacturers show and discuss their wares; and seminars and conferences on warehousing and material handling.

A proper evaluation of warehouse equipment alternatives must be a quantitative comparison of the alternatives. This is not to say, however, that the choice should be based solely on dollars and cents or that the many qualitative attributes of the alternatives—flexibility, reliability, or maintaina- bility, for example—have no bearing on the merits of one alternative or another. On the contrary, superior qualitative attributes of an alternative will often overshadow its apparent economic inferiority to the point where this alternative is chosen as best. In fact, where such a decision is made, the ‘‘economically inferior’’ alternative is judged not to be really economically inferior because its qual- itative attributes do indeed have economic value. The problem, then, is an inability to express this qualitative value in quantifiable, economic units (dollars and cents). One solution to this problem is to discontinue the attempt to quantify economically the qualitative attributes of an alternative and instead quantify the qualitative attributes in judgmental units and convert the economic units—dollars and cents—into these judgmental units to form a common base for comparison of alternatives.

The first step in the economic evaluation of equipment alternatives is to identify and estimate the relevant costs of each alternative over its useful life. Relevant costs are usually divided into two categories: investment costs and annual operating costs. Investment costs are incurred to obtain the equipment; they occur on a one-time or periodic basis. The most common investment cost is the purchase price of the equipment. Typically, investment costs are depreciable, and they are often subject to capital investment tax credits.

Annual operating costs are the recurring expenses that keep the equipment in operation. Typical annual operating costs are the wages of operating personnel, the costs of equipment maintenance, and the taxes and insurance costs incurred by owning the equipment. Annual operating costs are generally not depreciable.

Once the relevant life-cycle costs of the alternatives have been identified and estimated, a detailed time-value-of-money analysis must be performed for each alternative. Economic analysis techniques are presented in Chapters 52 and 54 of this Handbook.

Consideration of the qualitative attributes of the equipment alternatives may very well result in selection of equipment that might not have been chosen if the economic analysis had been the sole basis of comparison. However, a casual discussion of the intangible, qualitative attributes of the equipment alternatives that causes a reversal of a decision originally based on the tangible dollar costs of the alternatives will often not withstand the scrutiny of those who must review the decision. Consequently, the discussion of the qualitative aspects of equipment alternatives must be explicit and well documented.

Some qualitative factors that are often looked at are:

Ability of the equipment to fit into and serve warehouse operations Versatility and ability to adapt to day-to-day changes in products and fluctuations in productivity requirements Flexibility (ease of changing or rearranging the installed methods) Limitations imposed by the equipment on the flexibility and ease of expansion of the layout, building, or both

Use of space

Safety and housekeeping

Working conditions and employee satisfaction

Ease of supervision and control Availability of trained operators

Frequency and seriousness of potential breakdowns Ease of maintenance and rapidity of repair

Volume of spare parts that must be stocked Availability of repair parts

Quality of product and risk of damage to materials

Ability to pace, or keep pace with, productivity requirements

Personnel problems: training capability, disposition of unnecessary workers, job description changes, and union contracts or work practices

Availability of needed equipment

Tie-in scheduling, inventory control, and paperwork Effect of natural conditions: land, weather, etc.

Potential delays from required synchronization and peak loads Supporting services required

Time required to get into operation, i.e., to complete installation, training, and debugging Availability of capital or investment money

Promotional or public-relations value

The final step of the equipment planning process is to select the specific equipment. The selection process is as follows:

1. Sell management on the proposed equipment and obtain approval for any capital appropriations required.

2. Compose detailed specifications of the equipment required.

3. Identify vendors who can potentially provide the equipment.

4. Prepare and distribute a vendor bid package.

5. Receive and evaluate the vendors’ bids.

6. Select and order the equipment.

Evaluating vendors and their specific equipment requires the same decision process that should be used when selecting the desired generic equipment. The decision should be based on a combination of economic and qualitative factors. The obvious economic factor that must be considered is the invoice price, which will include purchase price, sales tax, freight costs, installation costs, and so on. The qualitative factors to be considered will include many of the same factors as the evaluation of generic-equipment alternatives, such as the volume of spare parts that must be kept on hand, the ease of maintenance, the rapidity of repair, and the availability of repair parts and service. In addition, other factors specifically related to vendor selection are the availability of the equipment, installation and debugging services provided, warranties, and the reputation of the manufacturer and its local representative. Consequently, equipment and vendor selection should never be based solely on a low invoice bid. The judgmental units used to select generic categories should be used here.