ISSN 1822-6515 EKONOMIKA IR VADYBA: 2008.

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ISSN 1822-6515 ECONOMICS AND MANAGEMENT: 2008. 13

THE DESIGN AND OPERATION OF WAREHOUSE

Kristina Rimiene
Kaunas University of Technology, Lithuania, kristina.jakstaite@ktu.lt

Abstract
Warehouses often involve large investments and operational costs. That is why their design process is so important. The processes, served by labour, machines and information systems, has to be carefully studied before implementing, because it can cause great losses after. The paper deals with attitude that the main factor for warehouse design is its process flow, which can be divided into several phases: receiving, storage, orderpicking and shipping. Decisions taken in the warehouse design process are allocated to three levels strategic, tactical and operational. Managers meet different warehouse design problem and dealing with them at the right level and right time are lead to the optimal throughput. Warehouse layout and functionality is based on process, resource and organization ground. The aim of the paper is to identify the decisions at strategic, tactical and operational levels concerning warehouse design and to survey the processes, resources as well as policies influencing the warehouse organization. Methods of the survey include nonfiction and special literature comparative analysis and synthesis, the generalization of the research results. Keywords: warehouse design, warehouse operation, storage, receiving, order-picking, shipping.

Introduction
As a result of global competition and supply chain concepts, including a focus on integral inventory control, warehousing has become a critical activity in the supply chain to outperform competitors on customer service, lead-times, and costs (De Koster, 1998). The worldwide tendency of using higher product variety with no market limitations and adoption of Just-In-Time (JIT) production or distribution management philosophies have emphasized the requirement to ensure efficient logistics operations. Market competition makes companies to improve their distribution network design and operation. At the same time this places higher requirements on performance of a warehouse, because these are one of the most important supply chain elements. During the last decades a relatively new application area has attracted the attention of scientists and researchers, whose field of interest includes logistics and supply chain management. Seeking to develop a methodology for systematic warehouse design different layers of decisions were searched. Starting from the middle of seventieth the warehouse design problem was searched by such scientists as Heskett (1973), Firth et al. (1977), Hatton (1990), De Koster (1998), and lately by Govindaraj et al. (2000), Rouwenhorst et al. (2000), Rushton et al. (2000, 2006), Hassan (2002), Waters (2003), Gu et al. (2005, 2007). But still, there is no overall accepted system for design of warehouse structure and functionality. Warehouses often involve large investments and operational costs. That is why the design process is so important. The processes, served by labour, machines and information systems, has to be carefully studied before implementing, because it can cause great losses after. Lots of small warehouses in different supply chains lately are consolidated to gain a competitive advantage through economy of scale. Managers meet different warehouse design problem and dealing with them at the right level and right time leads to the optimal throughput. The aim of the paper is to identify the decisions at strategic, tactical and operational levels concerning warehouse design and to survey the processes, resources as well as policies influencing the warehouse organization. The object of the survey is warehouse design process. Methods of the survey include nonfiction and special literature comparative analysis and synthesis, the generalization of the research results.

Warehouse design
Industrial competitiveness depends on reductions in operating expenses such as those related directly to facilities and their design (Gopalakrishnan et al., 2004). Facilities design and its components such as plan layout development, warehousing design and materials handling system design have been viewed as necessary elements, although they are often viewed as cost centers. Decisions taken in terms of warehouse 652

operations, process planning, resources scheduling and facilities design should be made in an integrated manner in order to gain results compatible to supply chain overall goals. There are a few concepts of what warehousing is introduced below: Warehousing - goods interception and storage in assigned area and facility (Urbonas, 2004). Warehousing is a connecting link between producer and customer and is one of logistics system integrated parts (idonis, 2002). Warehouse is understood as a place for inventory that has no direct impact on production, states Minalga (2001). Keebler & Durtsche (2001) assumes, that warehouse is a location where a firm stores or holds raw materials, semi-finished goods, or finished goods for a varying length of time. The most general definition was proposed by Waters (2003): a warehouse is any location where stocks of material are held on their journey through supply chains. As well as storage, warehouses can be used for number of other activities. Warehouses are also involved in recovering products, materials, and product carriers from customers in order to redistribute them to other customers, recyclers, and original-equipment manufacturers (De Koster et. al., 2002). Goods arrive to a warehouse in a carrier and are unloaded at the receiving docs. They are put away into storage and later picked and shipped through shipping docks (Gu et. al., 2007). For each of these stages to be well performed previous organizational decisions have to be taken. Any underperformance in warehouse processes can lead to high costs, low reaction time and service level, and result in losses for all the supply chain. Basically, there may be distinguished three types of warehouses: distribution warehouses, production warehouses, contract warehouses. The distinct nature of each type was defined by Van den Berg and Zijm (1999): A distribution warehouse is a warehouse in which products from different suppliers are collected (and sometimes assembled) for delivery to a number of customers. A production warehouse is used for the storage of raw materials, semi-finished products and finished products in a production facility. A contract warehouse is a facility that performs the warehousing operation on behalf of one or more customers. Design criteria for each type warehouse may differ according to its functionality and operation, but there is overall goal while establishing or renovating every warehousing facility to make cost-efficient optimization decisions and find trade-offs concerning: maximum throughput, minimum investment, low operational costs, and reasonable storage capacity. As Gunasekaran et al. (1999) states, typically, warehousing comprises six major throughput activities: receiving, transfer, handling, storage, picking and expediting. Actually, more commonly warehousing activities are distributed into four groups of operations: receiving; storage; order picking; shipping. So, process flow design decisions define which of these or of additional operations (such as sorting, labeling, assembly, etc.) have to be implemented in the warehouse under considerations. The selection of warehouse system type deals with the decisions, what storage or sorting systems, i.e. systems that require a high investment, would be. There is no commonly accepted systematic procedure to run the process of warehouse design. Baker and Canessa (2007) proposed one of the most full-scale framework for warehouse design that consists of 11 steps: define system required; define and obtain data; analyze data; establish unit loads to be used; determine operating procedures and methods; consider possible equipment capacities and quantities; calculate equipment capacities and quantities; define services and ancillary operations; prepare possible layouts; evaluate and assess; identify the prepared design. Table 1 presents another framework for warehouse design and identifies problems of operation. The decisions include: material flow, department identification, relative location of departments, size of warehouse, size and dimension of department, pallet block-stacking pattern, aisle orientation, number, 653

length, and width of aisles, door locations, level of automation, storage equipment selection, and material handling equipment selection, storage strategy selection and order picking method selection. This framework can be identified as one of the most comprehensive in present scientific works. Table 1. Description of warehouse design and operation problems (Gu et al., 2007)
Design and operation problems Warehouse Overall structure design Sizing and dimensioning Department layout

Equipment selection

Operation strategy Warehouse operation Receiving and shipping

Storage

SKU-department assignment Zoning Storage location assignment Batching Routing and sequencing Sorting

Order picking

Decisions Material flow Department identification Relative location of departments Size of warehouse Size and dimension of department Pallet block-stacking pattern (for pallet storage) Aisle orientation Number, length, and width of aisles Door locations Level of automation Storage equipment selection Material handling equipment selection (order picking, sorting) Storage strategy selection (e.g. random vs. dedicated) Order picking method selection Truck-dock assignment Order-truck assignment Truck dispatch schedule Assignment of items to different warehouse departments Space allocation Assignment of SKUs to zones Assignment of pickers to zones Storage location assignment Specification of storage classes (for class-based storage) Batch size Order-batch assignment Routing and sequencing of order picking tours Dwell point selection (for AS/RS) Order-lane assignment

Different researchers propose different steps in warehouse design processes. Most of these steps in design process are interrelated and the time horizon differs there might be decisions of a long, short or medium term intersected. All the decisions concerning warehouse design process can be grouped into decisions of different levels: strategic, tactical, and operational. Rouwenhorst et al. (2000) made a survey on problems related to warehouse design on three level decisions basis. At the strategic level the decisions of a long term usually connected to high investments are dealt with. These concern process flow design and the selection of warehouse system types in technical and economical aspects. At the tactical level decisions have a lower impact than the strategic decisions, but still require some investments and should therefore not be reconsidered too often. They arise as an outcome of strategic level decisions. As Rouwenhorst et al. (2000) appoints, tactical decisions typically concern the dimensions of resources (storage system sizes but also number of employees), the determination of a layout and a number of organizational issues. He notes that all these design problems aim at optimizing performance criteria, such as throughput, the response times and the storage capacities while minimizing additional investment and operational costs. The relations between different problems are not as strong as at the strategic level, but still very important. The outcomes of the tactical level decisions have a great influence on problems, solved at operational level.

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Warehouse space utilization problem at tactical level may be solved by efficient facility layout planning. Facility layout is the arrangement of work space, which in general terms smoothes the way to access facilities that have strong interaction (Canen & Williamson, 1998). Facilities are of crucial importance to organizations because, usually, they represent the largest and most expensive assets of organization (Sthahl, 1990). If not rationally designed in the beginning, it can generate logistics losses for company to sustain. The most appropriate warehouse layout depends on its particular operational conditions, and characteristics such as modularity, adaptability, compactness, distribution of movements, accessibility, and flexibility (Hassan, 2002). So, its design solutions must concern: assignment of items to storage locations, arrangement of warehouse functional area, determination of location and number of docks, determination of location and number of input/output (I/O) points, determination of number and dimensions of aisles, estimation of space requirements, design of the flow pattern, form of picking zones. Table 2. Warehouse design decisions levels
Design decisions level Strategic level (long term decisions) Tactical level (medium term decisions)

Operational level (short term decisions)

Problems to solve Design of process flow Selection types of technical systems Dimensioning of storage system Layout design Selection of equipment Design of the organization Fine-tuning of the organization policies

According Rouwenhorst et al. (2000), the main decisions at the operational level concern assignment and control problems of people and equipment, i.e. fine-tuning of the organization policies. Concerning the storage process, the decisions include: the assignment of replenishment tasks to personnel, the allocation of incoming products to free storage locations, according to the storage concept determined at the tactical level. The problems, solved in the process of order picking, may be: the batching, the order sequencing, the assignment of picking tasks to orderpickers, the routing of order-picking, the dwell point selection, etc. Trucks assignment to docks is one of tactical decisions in receiving and shipping stage of operation. Decisions made at this level have strong relationship with strategic and tactical level decisions, but are not so deeply interrelated among each other, so can be considered independently. Problems that arise in each level of warehouse design decisions are summarized in Table 2. All the design problems aim at optimizing performance criteria, such as the throughput, the response times and the storage capacities while minimizing additional investment and operational costs (Rouwenhorst et al., 2000). The absence of generally accepted design framework makes process of warehouse construction complicated. It is obvious from the examples above, that warehouse operation is directly interconnected to design decisions. Warehouse operation is based on process, resource and organization ground. The relationships among these factors are covered in section below.

Warehouse operation
The basic requirements in warehouse operations are to receive stock keeping units (SKUs) from suppliers, store the SKUs, receive orders from customers, retrieve SKUs and assemble them for shipment, and ship the complete orders to customers (Gu et al., 2007). So from the quantity of the decisions in different 655

levels above, it is obvious that there are many issues involved in design and operating a warehouse to meet these requirements. To run a successful warehouse today is a great challenge (Jane, 2000). The decisions to be taken by the managers of logistics warehouse may include: customer requirements fulfillment, warehouse space utilization, stock level management, warehouse and distribution costs reduction, automation level and information technologies implementation, etc. Timely and accurate information about products, resources and processes are essential to operationalize a planning and control structure that effectively and efficiently achieves the high performance of warehousing operations required in todays marketplace (Faber et al., 2002). As already mentioned in section above, main warehouse processes may be distinguished into four categories. Decisions for each of them are detailed in Table 1. Receiving is a set of inbound activities that start with unloading goods and materials on the receiving dock, staging, and checking and verification of materials quality and quantity (Hamdan & Rogers, 2007). Order picking is the retrieval of a number of items from their warehouse storage locations to satisfy a number of independent customer orders (Petersen, 1997). Storage is the core activity of warehousing and it identifies the location where goods are deposited and held until they are demanded for usage (Gunasekaran, 1999). Shipping staging materials on the shipping dock for verification of order quantity, visible damage, order/invoice accuracy, and loading materials on the designated truck (Hamdan & Rogers, 2007). Receiving and shipping are the interface of a warehouse for incoming and outgoing material flow (Gu et al., 2007). Order picking is generally recognized as the most expensive warehouse operation, because it tends to be either very labor intensive or very capital intensive (Frazelle, 2002). And storage is a major warehouse function (Gu et al., 2007). Warehouse resources include personnel as well as warehouse equipment: stock keeping units SKUs (like boxes, pallets), storage systems/subsystems (shelves, automated conveyors), pick equipment (reach trucks), order-pick auxiliarities (bar code scanners), information systems (computers, warehouse management systems), material handling equipment (truck loaders, palletizers). The proportion of work, performed by warehouse workers vs. machines, depends on the type of warehouse and inventory to handle. Accordingly they would be hold as manual, mechanised or automated warehouses. The level of warehouse mechanisation or automation is influenced by the storage and orderpicking systems (automated storage and retrieval systems) in it. Organizational policies are usually required by some warehouse processes. Rouwenhorst et al. (2000) identified such specific organizational policies at each stage of operation: assignment policy (receiving) determines allocation of trucks to docks, dedicated storage policy (storage) prescribes a particular location of each product to be stored, random storage policy (storage) allows an operator to decide a storage location, class based storage (storage) allocates zones to specific product groups according turnover or other criterion, correlated storage or family grouping (storage) aims at storing simultaneous products at nearby positions, forward/reserve policy (storage) defines which item in what quantity are stored in the forward are, replenishment policy (storage) indicates how replenishments are timed, zoning policy (order-picking) divides pick area into picking zones, served by different orderpickers, batch picking/single order picking policy (order-picking) prescribes, how order have to be picked in batches or one by one, routing policy (order-picking) defines the sequence of retrievals and the route to visit their locations, dwell point policy (order-picking) prescribes the position of idle order-pick equipment, dock assignment policy (shipping) allocates orders and trucks to docks, operator and equipment assignment policies addresses tasks to personnel and equipment. Picking an appropriate policy requires strongly reasonable decisions of warehouse management. This always is connected to warehouse resources at a disposal and processes in operation. In other words, managers should ensure that considering each item: 656

 inventory is kept properly, effective stock level is available, no extra money is frozen in inventory, warehouse capacity is economically reasonable and efficient. Table 3 presents some metrics for warehouses performance evaluation. It introduces four dimensions as the measures for warehouse operation control. Table 3. Performance evaluation metrics for warehouse (Huertas et al., 2007)
Quality Performance measures of a warehouse Accuracy in storage Accuracy in picking Inventory Operational costs Total storage costs per unit Commodity cycle time Order cycle time Labor productivity (employees/moved unit) Resource consumption (space, equipment, labor) Flow (moved units through the system in a given period) Throughput volume (moved units/day) Productivity ratio (handled units per day/working hours per day)

Finances Cycle time Productivity

Estimating each criterion the efficiency of warehouse process, recourses and organizational policies can be evaluated. Next to these factors cycle time and finances of operation must be estimated and controlled. Only interrelated warehouse design and operational cost-effective and timely decisions can bring the unit to optimal activity.

Conclusions
The warehouse design is influenced by some external and internal factors. As external factor might be mentioned marketing channels, customer demand pattern, supplier replenishment pattern and inventory levels, the overall demand for a product, and the state of economy (De Koster et al., 2007). Internal factors include system characteristics, organization, and operational policies. Warehouse design and operation research domain in this paper was observed on the basis of design problems at strategic, tactical and operational level as well as focused on the importance of decisions intersection at different stages of operation, including resources scheduling and policies embracement. The questions of finance and time cycling are of a great importance and must be concerned too. Warehouses need to be designed and operated in line with the specific requirements of the supply chain as a whole (Rushton et.al., 2006). Warehouses are expensive investment so have to be well designed and managed efficiently, because their operation will have direct influence on customer service and overall cost.

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