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

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

door locations. such as throughput.g. and width of aisles Door locations Level of automation Storage equipment selection Material handling equipment selection (order picking. These concern process flow design and the selection of warehouse system types in technical and economical aspects. the determination of a layout and a number of organizational issues. 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. At the strategic level the decisions of a long term usually connected to high investments are dealt with. 654 . solved at operational level. but still require some investments and should therefore not be reconsidered too often. Rouwenhorst et al. At the tactical level decisions have a lower impact than the strategic decisions. – tactical. As Rouwenhorst et al. The relations between different problems are not as strong as at the strategic level. Description of warehouse design and operation problems (Gu et al. They arise as an outcome of strategic level decisions. The outcomes of the tactical level decisions have a great influence on problems. and width of aisles. Table 1. level of automation. tactical decisions typically concern the dimensions of resources (storage system sizes but also number of employees). but still very important..length. All the decisions concerning warehouse design process can be grouped into decisions of different levels: – strategic. storage strategy selection and order picking method selection. sorting) Storage strategy selection (e. the response times and the storage capacities while minimizing additional investment and operational costs. and material handling equipment selection. random vs. Most of these steps in design process are interrelated and the time horizon differs – there might be decisions of a long. and – operational. This framework can be identified as one of the most comprehensive in present scientific works. He notes that all these design problems aim at optimizing performance criteria. 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. (2000) made a survey on problems related to warehouse design on three level decisions basis. short or medium term intersected. storage equipment selection. (2000) appoints. length.

usually. Facility layout is the arrangement of work space. so can be considered independently. distribution of movements. Decisions made at this level have strong relationship with strategic and tactical level decisions. accessibility. 2007). the decisions include: – the assignment of replenishment tasks to personnel.. Warehouse operation is based on process. but are not so deeply interrelated among each other. etc. 1990). fine-tuning of the organization policies. store the SKUs. All the design problems aim at optimizing performance criteria. 2000). – estimation of space requirements. – arrangement of warehouse functional area. Table 2. – the order sequencing. they represent the largest and most expensive assets of organization (Sthahl. and characteristics such as modularity. – the allocation of incoming products to free storage locations. Facilities are of crucial importance to organizations because. i. The absence of generally accepted design framework makes process of warehouse construction complicated. which in general terms smoothes the way to access facilities that have strong interaction (Canen & Williamson. The most appropriate warehouse layout depends on its particular operational conditions. compactness.. receive orders from customers. according to the storage concept determined at the tactical level. its design solutions must concern: – assignment of items to storage locations. So from the quantity of the decisions in different 655 . – determination of location and number of input/output (I/O) points.Warehouse space utilization problem at tactical level may be solved by efficient facility layout planning. – determination of number and dimensions of aisles. – design of the flow pattern. that warehouse operation is directly interconnected to design decisions. the response times and the storage capacities while minimizing additional investment and operational costs (Rouwenhorst et al. – the routing of order-picking. (2000). adaptability. the main decisions at the operational level concern assignment and control problems of people and equipment. retrieve SKUs and assemble them for shipment. 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. Trucks assignment to docks is one of tactical decisions in receiving and shipping stage of operation. and ship the complete orders to customers (Gu et al. may be: – the batching. – form of picking zones. Problems that arise in each level of warehouse design decisions are summarized in Table 2. it can generate logistics losses for company to sustain. – the dwell point selection. – the assignment of picking tasks to orderpickers.e. 2002). It is obvious from the examples above. Concerning the storage process. If not rationally designed in the beginning. – determination of location and number of docks. 1998). solved in the process of order picking. and flexibility (Hassan. So. such as the throughput. resource and organization ground. Warehouse operation The basic requirements in warehouse operations are to receive stock keeping units (SKUs) from suppliers. The problems. The relationships among these factors are covered in section below.

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

2007). Facilities. Internal factors include system characteristics. (2002) Linking warehouse complexity to warehouse planning and control structure. Table 3 presents some metrics for warehouses performance evaluation. (2002) World-class Warehousing and Material Handling. A. 2. J.. European Journal of Operational Research. B. 1-21. No.. R. Warehouse design and operation research domain in this paper was observed on the basis of design problems at strategic. European Journal of Operational Research.11. the overall demand for a product.1016/j. 177. The questions of finance and time cycling are of a great importance and must be concerned too. Rotterdam: School of Management. Performance evaluation metrics for warehouse (Huertas et al. European journal of operational research.045 Canen. 657 . & Roodbergen.– inventory is kept properly. P. 22. No. E. P. Warehouses need to be designed and operated in line with the specific requirements of the supply chain as a whole (Rushton et. References 1. Facilities. T. because their operation will have direct influence on customer service and overall cost. M. – no extra money is frozen in inventory. Turuvekere. recourses and organizational policies can be evaluated.5. 3. L. 381-395. M. H. (2007) Warehouse design: a structured approach. As external factor might be mentioned marketing channels. Next to these factors cycle time and finances of operation must be estimated and controlled. No. (2007) Research on warehouse operation: A comprehensive review. Goetschalckx. 6. G. Gopalakrishnan. It introduces four dimensions as the measures for warehouse operation control. – effective stock level is available. & Van de Velde. 199-209.. De Koster. Working paper. M. and operational policies. 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. organization. equipment.. Warehouses are expensive investment so have to be well designed and managed efficiently.al. Conclusions The warehouse design is influenced by some external and internal factors. De Koster. – warehouse capacity is economically reasonable and efficient. S.. 7.ejor. L. Gu. (1998) Facility layout overview: towards competitive advantage. International Journal of Physical Distribution and Logistics Management. R. 32. & McGinnis. H. Table 3. (1998) Recent developments in warehousing. Le-Duc.. Frazelle. Only interrelated warehouse design and operational cost-effective and timely decisions can bring the unit to optimal activity. D. & Canessa. M. 16. Baker. (2004) Computer integrated facilities planning and design. 8. F. R.7/8. New York: McGraw Hill. 198-203. B. including resources scheduling and policies embracement. C.2007. & Williamson. 481-501. doi:10. & Gupta. 2006). 182.7/8. M. customer demand pattern. J. 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. tactical and operational level as well as focused on the importance of decisions intersection at different stages of operation. (2007) Design and control of warehouse order picking: A litertature review. K. Erasmus University. De Koster. B. N. Faber.. 5. 4. and the state of economy (De Koster et al. supplier replenishment pattern and inventory levels.

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