Implementation of Lean Warehousing to Reduce the Level of Returns in a

Distribution Company
K. A. Bonilla-Ramirez1, P. Marcos-Palacios1, J. C. Quiroz-Flores1, E. D. Ramos-Palomino1
J. C. Alvarez-Merino1
1
Ingeniería Industrial, Universidad Peruana de Ciencias Aplicadas (UPC), Lima, Perú
(u201410160@upc.edu.pe, u201410711@upc.edu.pe, juan.quiroz@upc.edu.pe, pcineram@upc.edu.pe,
pciijalv@upc.edu.pe)

Abstract – In this study, the problem of high levels of be seen as a source of waste or activities without added
returns of orders to be dispatched, affecting distribution value, due to the intensive operations they carry out [5],
companies of the mass consumption sector, was analyzed. For [10]. The principles and tools of the Lean philosophy have
this reason, the study was carried out for the company AT, been “normally applied to improve the internal logistics of
which presents an index of 12.10% returns, equivalent to $ the company and not the warehouse” [11]. Therefore, there
158,061.69 in lost sales (rejected products), due to the
exists an opportunity to minimize the activities of the
following causes: orders arriving outside the established
reception time window (50.71%), incomplete orders (30.57%) warehouse that do not add value, through the identification
and orders arriving in poor condition (18.72 %). of waste, in order to increase the overall efficiency of the
Lean Warehousing techniques were used as a practical system.
tool to introduce good and efficient practices in the company. In the field of Lean Warehousing, some academic work
As a standardized framework, the company introduced three has been carried out, with different combinations of Lean
stages for the implementation of Lean Warehousing: “create tools, which has seen success in achieving its expected
stability,” “create flow,” and ‘make flow,” in the warehouse. results. Table I shows a summary of these cases applying
The implementation was carried out for the three stages by the Lean Warehousing concept.
means of a pilot, taking as a baseline the following indicators
identified by the VSM tool: picking time (5 hours), percentage
of orders left unattended due to lack of stock (28.64%) and the TABLE I
EFFECTS OF THE LEAN WAREHOUSING IMPLEMENTATION
percentage of non-conforming orders due to expiration
(25.5%). Investi
At the end of the implementation, the picking time was Lean tools Result
gation
reduced to three hours, the percentage of orders left Value Stream Mapping and - Increase in the free area
unattended due to lack of stock to 22%, and the percentage of [11] the Gemba Shikumi available in the warehouse to
non-conforming orders due to expiration fell to 20%. In this technique. 13%.
way, the level of rejections was reduced to 5.5% by improving - Increase of warehouse
Balance Scorecard, 5S,
the gross margin of the company. The result will be used as a delivery reliability to
S&OP forecast,
99.97%.
baseline and example for future implementations to the rest of [12] ergonomics, process
- Reduction of cycle time for
the distributors of the sector. standardization, DMAIC,
new orders to 21 hours per
routing method.
month.
Keywords - lean warehousing, distributors, 5S, waste, - Reduction of the shift rate
SLP analysis to optimize
value stream mapping, muda-mura-muri of the executor of tasks in the
[13] storage location allocation
warehouse from 4.76% to
and material distribution.
2.80%.
I. INTRODUCTION Value Stream Mapping, - 90% reduction of defective
5S, principles of visual items.
For a long time, organizations have striven to adopt [14]
control, process - 50% reduction in transport
tools and management techniques for the efficient standardization, FIFO. and handling activities.
improvement of their operations. This has often been Value Stream Mapping, the
- Increase of 26% in picking
[15] 5S methodology, FEFO
achieved using Lean ideas and tools. Lean thinking has and warehouse design.
productivity.
been one of the most powerful managerial philosophies in
Value Stream Mapping to - 57% reduction in delivery
recent history [1], [2], [3], [4]. At the center of the [16]
shorten the delivery time. time.
successful implementation of the Lean philosophy is the
concept of “waste,” which refers to non-value-added
II. PROBLEM
activities in a system. The reduction of waste within
logistics is a research topic to which considerable attention Currently, distribution companies in the mass
has been paid. However, the coordination of warehouse consumption sector have recorded decreases in their profits
operations from a Lean perspective has received as a result of the high levels of return of orders to be
significantly less attention [3], [5], [6]. The advantage of dispatched, due to poor handling of their inventories and
studying Lean methods in the operations that occur within operations in their warehouse. This is detrimental to the
a warehouse is that any improvement in the performance of distribution business, since the inventories represent
the operations will be reflected in the last instance in the between 50% and 70% of the assets of the companies. In
logistic performance of the intermediate retailers [7], [8] Peru, a considerable number of commercial companies of
and the entire distribution channel [9]. The warehouses can

978-1-7281-3804-6/19/$31.00 ©2019 IEEE886 886

 Proceedings of the 2019 IEEE IEEM

great size and prestige that are dedicated to the distribution products during the years 2017 - 2018, which were found
of products of mass consumption (example: Digalimenta, in percentage units.
Codijisac, Gumisac, Alicorp, Dicobelsac, Aidisa) present With this analysis, we reach the conclusion that the
specific problems in the management of their inventories company under study has an average percentage of
and warehouses, which are mainly related to inadequate rejection of 12.45%, exceeding the 5% rejection policy of
planning for demand, inefficient physical distribution of the the leading companies in the sector. For this reason, we
warehouse, and non-existent control of the stock. These proceeded to a survey of the company's information
cause high financial costs that affect the profitability of the through a Value Stream Mapping (VSM) tool. Figure 1
businesses and immobilize capital, but also problems of shows the current situation of the company through the
service to their customers, thus incurring costs to both VSM.
parties. The current VSM shows the main critical points of the
To expose the problem in detail, the company AT was present state of the company, which are:
chosen, dedicated to the commercialization and distribution
• Inadequate physical distribution of products in the
of mass consumption products. This company carries out
warehouse.
the following processes with the objective of distributing
• Inefficient planning of the supply system.
merchandize: first, the provisioning process is carried out,
in which the requirements of each product are planned to • Absence of a FEFO inventory control for the
meet customer demand; second, the reception process, products that enter the warehouse.
which is to receive the merchandise from the different
suppliers and store it in the warehouse; third, the sales Next, we have an analysis of the main indicators related
process, wherein the sellers sell the products to the various to the problem.
stores within the North zone of Lima; fourth, product
dispatch, which is the delivery of the merchandise to each
customer at the place and time agreed through the
distributors; finally, the collection process, which is the
collection of money from customers who have received the
merchandise under the credit modality.
AT maintains a progressive growth since it started its
activities. However, it has reported high levels of returns by Fig. 2. Indicators related to critical points.
winemakers at the time of making the shipments. To
address this, information was analyzed regarding rejected

Fig. 1. Current VSM of the company under study.

978-1-7281-3804-6/19/$31.00 ©2019 IEEE887 887

 Proceedings of the 2019 IEEE IEEM
III. METHODOLOGY
From a bibliographic review [11] [12] [13] [14] [15]
[16], the storage philosophy tools to be used were defined
for each of the identified causes that contribute to the
problem of high levels of returns.
Fig. 3. Definition of Tools.
It is worth mentioning that the proposal developed is
based on the study “Lean implementation in traditional
distributor warehouse - a case study in an FMCG company
in Indonesia” [15], which has not yet been implemented in
its entirety. Therefore, the model proposed as a contribution
will be fully implemented in this case. The design of the
proposed model (Fig. 4) contemplates the following stages:
create stability, as well as basic requirements for all types
of distributors, which cover the quality and safety of the
product and workers. “Create Flow” is the stage dedicated
to aligning the subprocesses to increase productivity.
“Make Flow” focuses on two areas of improvement: reduce
inventory and manage customer demand.
Fig. 4. Proposed Model.
The purpose of the proposed model is to reduce the rate
of returns. The following section explains how each tool
presented within the consolidated design will be
implemented.
A. 5S Methodology
Before beginning with the implementation of the 5S
methodology, it is important to know the current situation
regarding the storage of the mass consumption products of
978-1-7281-3804-6/19/$31.00 ©2019 IEEE888
the company under study. This will be carried out through
an initial diagnostic assessment by 5S.
After this evaluation, it was concluded that the total
compliance to 5S was 41%. This represents a strong need
to implement the 5S methodology.
For the development of the implementation of the 5S
methodology, first the identification of the total articles of
the warehouse was made, as well as of the unnecessary
articles, by the use of red cards. Once finished, the cards
were registered to measure and control improvement
actions. The next step was to mark the racks and floors by
means of colored labels and ribbons. Likewise, we
proceeded to label the products of the warehouse and define
the cleaning policy of the warehouse, in order to obtain an
orderly and clean workplace. To do this, reference states
were used as a tool. Finally, the last step was to instill order
and cleanliness as a habit in the workplace. For this, it is
proposed to carry out internal audits on a monthly basis.
B. System Layout Planning (SLP)
For the development of the implementation of the tool,
first we proceeded to collect information based on the stock
in the warehouse, elucidating the quantities, locations, and
routes of the products. In the initial layout of the
warehouse, there was no criterion on the part of the
company to locate the products. This caused the picking
time to increase, as well as the workload on the warehouse
assistants. Therefore, the effort matrix was carried out for
each level of the warehouse in order to identify which floors
were most inefficient.
On the first floor, the “effort” score was found to be
16,487 kg-m; on the second floor it was 37,018 kg-m, and
on the third floor it was 252,425 kg-m.
Obtaining and analyzing these results, we proceeded to
carry out a redistribution of the products based on an ABC
analysis, in order to identify the products with the highest
turnovers.
C. Minimum and Maximum Provisioning Model
It was decided the Minimum - Maximum provisioning
model would be implemented, since the demand of the
clients of the company under study was variable and the
capacity of the warehouse was not appropriate for large
quantities of safety stock.
For the application of the Minimum - Maximum
model, the annual sales history must be considered, with
which the necessary information can be obtained for the
supply formulas. Likewise, it should focus on the type A
products of the ABC analysis and those of the Kraljic
matrix for the development of the model.
The implementation of the Minimum - Maximum
provisioning model is intended to reduce the number of
times the company does not have stock in order to satisfy
customer orders.
D. FEFO System
The objective of FEFO implementation is for the
warehouse to have an inventory plan, which reduces the
number of non-conforming orders for perishable products.
888
 Proceedings of the 2019 IEEE IEEM
In order to verify the entrances and exits, the use of
FEFO signalized cards was proposed, means by which the
control of the perishable products was carried out in an
appropriate way. The use of traffic lights was based on the
due dates: red for products with a maturity date of less than
6 months, yellow for products with an expiration date
between 6 and 12 months, and, finally, green for products
with a date greater than 12 months.
IV. VALIDATION
Validation of the Lean Warehousing tools was carried
out using the proposed model. Below, each stage of the
implementation in the pilot distributor is detailed:
A. Stage 1: Create stability
“Create stability” groups the following Lean tools in
warehouse operations:
• 5S, which is based on keeping everything in order
and distinguishing what is necessary from what is
not.
• Visual management to track KPI and inventory
management of “First Expired, First Out” (FEFO).
• KIT 5S as documentation, auditing and
communication tools.
Table II shows what was implemented in the pilot
warehouse in this stage of the model.
TABLE II
SUMMARY OF THE ACTIVITIES TO “CREATE STABILITY”
5S: Put everything in a good Visual management of first
order expired, first out (FEFO) and KPI
Before implementation Visual management FEFO
After the implementation
Visual management KPI
Training of warehouse personnel with KIT 5S
978-1-7281-3804-6/19/$31.00 ©2019 IEEE889
B. Stage 2: Create flow
After creating stability within the warehouse, the next
step is to “create flow,” with the purpose of ordering the
subprocesses to increase productivity. For the validation of
this phase, two areas for improvement of the operation are
addressed:
Execution of warehouse design
The first step in the “create flow” stage is to ensure that
the distributor has a good warehouse design.
Fig. 5. Warehouse layout after redesign
Based on the analysis, a new warehouse design was
proposed, as shown in Figure 5. The new design helped
reduce the effort and time taken by the warehouse assistants
during picking.
VSM in internal movements of the warehouse
To eliminate more types of waste in the movement of
its internal warehouse, the Mapping of the Value Chain
allows visualizing the entire process, detailing and
understanding the flow of information as well as the
products necessary for the service to reach the customer.
The result of the improvement of the productivity in the
pilot distributor was the reduction of the picking time.
C. Stage 3: Make flow
The final stage of the implementation is to “make
flow,” where not only 3M are minimized or eliminated, but
also the process is made to flow according to customers’
desires.
This last stage of the implementation framework was
developed based on the Minimum - Maximum Provisioning
model, which was made by means of a simulation within a
macro developed in Excel.
The result of the improvement in the simulation was
the reduction of the indicator of non-compliant orders due
to lack of stock.
889
 Proceedings of the 2019 IEEE IEEM

V. ANALYSIS OF RESULTS Simposium Iberoamericano en Educacion, Cibernetica e

Informatica, SIECI 2018 – Memorias, 1, pp. 46-51.
In each of the stages of the implemented model, [2] B. Villarreal, J. A. Garza-Reyes, and V. Kumar, “Lean road
favorable results were obtained within the ranges presented transportation – a systematic method for the improvement of
in the scoreboard (Fig. 2). Likewise, an analysis of the road transport operations,” Prod. Plan. Control, vol. 27, no.
stress situation or high load condition was made, which is 11, pp. 865–877, Aug. 2016.
[3] B. Shah and V. Khanzode, “Storage allocation framework for
shown in Table III below.
designing lean buffers in forward-reserve model: a test case,”
Int. J. Retail Distrib. Manag., vol. 45, no. 1, pp. 90–118,
TABLE III 2017.
COMPARATIVE INDICATORS - BEFORE AND AFTER [4] Y. Bellido, Rosa A.L., C. Torres, G. Quispe, C. Raymundo,
Stage of the “Waste optimization model based on Lean Manufacturing to
Indicator Unidad Before After increase productivity in micro- and small-medium
model
Create enterprises of the textile sector”, CICIC 2018 - Octava
Non-compliant orders % 25.5% 20% Conferencia Iberoamericana de Complejidad, Informatica y
stability
Create flow Picking time hours 5 hours
3 Cibernetica, Memorias. 1, pp. 148-153
hours [5] J. Gu, M. Goetschalckx, and L. F. McGinnis, “Research on
Orders left to attend warehouse design and performance evaluation: A
Make flow % 28.64% 22%
due to lack of stock comprehensive review,” European Journal of Operational
Research, vol. 203, no. 3. pp. 539–549, 16-Jun-2010.
The results before and after the implementation are [6] S. Sharma and B. Shah, “A proposed hybrid storage
presented in Table IV. assignment framework: A case study,” Int. J. Product.
Perform. Manag., vol. 64, no. 6, pp. 870–892, Jul. 2015.
TABLE IV [7] M. Pires, J. Pratas, J. Liz, and P. Amorim, “A framework for
COMPARATIVE OF EFFORT INDICATOR - BEFORE AND AFTER designing backroom areas in grocery stores,” Int. J. Retail
Distrib. Manag., vol. 45, no. 3, pp. 230–252, 2017.
Floor Unit Before After [8] A. Hübner, H. Kuhn, and J. Wollenburg, “Last mile
3 252,425 111,515 fulfilment and distribution in omni-channel grocery retailing:
A strategic planning framework,” Int. J. Retail Distrib.
2 kg - m 37,018 17,770
Manag., vol. 44, no. 3, pp. 228–247, Mar. 2016.
1 16,487 133,704 [9] Satyam, R. K. Aithal, and H. Maurya, “Exploring channel
conflict in an emerging economy: the small retailer’s
Finally, the percentage of products rejected before perspective,” Int. J. Retail Distrib. Manag., vol. 45, no. 10,
pp. 1061–1078, 2017.
implementation was 12.45%, which fell to 5.5% after
[10] C. Battista, A. Fumi, L. Laura, and M. M. Schiraldi,
implementation. “Multiproduct slot allocation heuristic to minimize storage
space,” Int. J. Retail Distrib. Manag., vol. 42, no. 3, pp. 172–
VI. CONCLUSIONS 186, Mar. 2014.
[11] M. Dotoli, N. Epicoco, M. Falagario, N. Costantino, and B.
Lean tools, although they originated in the production Turchiano, “An integrated approach for warehouse analysis
environment, are suitable for the warehouse environment and optimization: A case study,” Comput. Ind., vol. 70, no.
as well. For distribution companies with limited knowledge 1, pp. 56–69, Jun. 2015.
and resources, the Lean concept is even more effective due [12] L. Valchkov and N. Valchkova, “Methodology for efficiency
to its simplicity, methodology, and accessibility. improvement in warehouses: A case study from the Winter
For the introduction of the Lean Warehousing concept Sports Equipment Industry,” Proc. Manuf. Syst., vol. 13, no.
within the company under study, a model obtained during 3, pp. 95–102, 2018.
the literature review was adapted and improved upon, [13] L. Yafei, W. Qingming, and G. Peng, “Research on
simulation and optimization of warehouse logistics based on
which consisted in dividing the implementation into three
flexsim-take C company as an example,” in 2018 7th
stages: “create stability,” “create flow,” and “make flow.” International Conference on Industrial Technology and
The implementation of the stages guaranteed a more Management, ICITM 2018, 2018, vol. 2018-January, pp.
systematic transfer of knowledge and the sustainability of 288–293.
process improvement. Within this adaptation of the model, [14] G. Carmignani and F. Zammori, “Lean thinking in the
all stages were implemented in a pilot distributor, and luxury-fashion market,” Int. J. Retail Distrib. Manag., vol.
demonstrated significant improvements compared to the 43, no. 10/11, pp. 988–1012, Oct. 2015.
initial indicators. [15] M. Nofrimurti and E. Oey, “Lean implementation in
traditional distributor warehouse - a case study in an FMCG
company in Indonesia,” Int. J. Process Manag.
REFERENCES
Benchmarking, vol. 8, no. 1, p. 1, Nov. 2017.
[16] M. x. Pan, G.q., Feng, D.z., and Jiang, “Application research
[1] Paredes, M., Villa, J., Quispe, G., (...), Raymundo, C., of shortening delivery time through Value Stream Mapping
Moguerza, J.M., “Lean Manufacturing model for the Analysis,” in 2010 17th International Conference on
improvement of manufacturing processes in small and Industrial Engineering and Engineering Management, 2010,
medium-sized companies in the furniture industrial sector”, pp. 733–736.
CISCI 2018 - Decima Septima Conferencia Iberoamericana
en Sistemas, Cibernetica e Informatica, Decimo Quinto

978-1-7281-3804-6/19/$31.00 ©2019 IEEE890 890