Logistics Management Prof Marco Melacini

lOMoARcPSD|4792658
Logistics Management - Prof. Marco Melacini
Logistics management (Politecnico di Milano)
StuDocu non è sponsorizzato o supportato da nessuna università o ateneo.

Scaricato da Andrea Aglietti (aglio99@hotmail.it)
lOMoARcPSD|4792658
LOGISTICS MANAGEMENT

lOMoARcPSD|4792658
Summary
Introduction to Logistics and SC ....................................................................................................................... 3

Logistics Management and Strategy ................................................................................................................ 7
Warehouses – General Overview ................................................................................................................... 15
Warehouse Management ............................................................................................................................... 21
Automated Warehouses ................................................................................................................................ 34
Order Picking and Assembly – systems and design principles ........................................................................ 45
Order Picking and Assembly – Management policies ..................................................................................... 58
Transportation – general overview ................................................................................................................ 72
Road transportation management ................................................................................................................. 82
Network Design .............................................................................................................................................. 86
Distribution Network Design – Part 1 ............................................................................................................. 93
Distribution Network Design – Part 2 ........................................................................................................... 100
Inventory Management ................................................................................................................................ 104
Logistics & B2C e-Commerce ........................................................................................................................ 109
Logistics Outsourcing.................................................................................................................................... 115

lOMoARcPSD|4792658
Introduction to Logistics and SC
L&SCM
The origin of logistics can be found in military context, as NATO defined it in an official way:
Science of planning and carrying out the movement and maintenance of forces.
In the business context we use another definition:
Part of SCM that plans, implements, controls the effective and efficient forward and reverse flow and
storage of goods, services and related information between the point of origin and the one of consumption
in order to meet customers’ requirements.
This is only the last meaning we gave to logistics, as in the past it evolved many times since its creation in
1963. Talking about distribution – first step of Logistics evolution – it was said that logistics concerned with
efficient movement of finished products form the end of the production line to consumer.
• Efficient → Cost reduction

• Movement of finished products → Material handling / transportation
In 1976 another meaning was given to logistics, as it became the integration of 2 or more activities for the
purpose of planning, implementing and controlling the efficient flow of raw materials, in-process inventory
and finished goods from the point of origin to the point of consumption.
• Integration → value of global optimization (vs. local optimization)

• Plan, implement, control → logistics as a business management discipline
• P.o.o. to p.o.c. → internal SC perspective
In 1985 another definition was given: logistics is the process of planning, implementing and controlling the
efficient, cost-effective flow and storage of RM, finished goods, and related information from p.o.o. to p.o.c.
for the purpose of conforming to customer requirements.
• Process → logistics as a process

• Related information → not only flow of goods but also information
• Conforming to customer requirements → the ultimate objective of logistics
In 1992 this definition was slightly adjusted, including effectiveness not only at a cost level, but tout court,
and services as logistics management applies also to the provisions of services (healthcare, aftersales,
contracting…).
The focus moved from the outbound logistics to the inbound logistics and eventually to the integrated
logistics as the union between the previous two.
We can finally talk about Supply Chain and SC Management:
Supply Chain includes the different members, infrastructures and resources, processes and activities that
allow the replenishment of RM, their transformation in components and products and the distribution of
products to end customers.
3

lOMoARcPSD|4792658
SCM is an integrating function with primary responsibility for linking major business function and business
processes within and across companies into a cohesive and performing business model. It includes all of the
logistics management activities as well as manufacturing operations, and it drives coordination of all
processes and activities with and across marketing, sales, product design, finance and IT.
The ultimate definition of Logistics was given in 2009: part of the SCM that plans, implements, and controls
the efficient, effective forward and reverse flow and storage of goods, services and related information
between the p.o.o. and the p.o.c. in order to meet customers’ requirements.
• Part of SCM
• Reverse flow
Competitiveness is impacted by the
actions of the other member of the SC
We can apply a strategic approach where
Competitiveness is between different SCs and
not between companies of the same SC
→ major focusing on the interface processes with the other SC members (integration/collaboration)
1960/70 1970/90 2000 to nowadays

Activity Transportation Planning & Execution Planning & Execution
Products, Info, Services,
Object Finished Products Products, Info, Services
Reverse Flow
KPI Performance Cost Minimizing Cost & Service Level Cost & SL
Scope Distribution Internal SC Extended SC

lOMoARcPSD|4792658
The 3 stacks of Logistics Management
1) Logistic Execution: it includes the design and management of the processes that support the flow
of materials and data along the SC. It represents the basics a good logistician must know;
2) SC Planning: it is the process that plans for the adjustment of the operational capacity and for the
execution of the operational activities, linking the supply side of the SC to the demand side;
It should be an integrated process.
3) SC Design and Strategy: it defines the logistics network structure, the transportation models and
the “make or buy” policies. These decisions must be strongly aligned with the overall company
strategy!

lOMoARcPSD|4792658
The importance of Logistics

L&SCM are non-discretionary activities that must be accomplished to deliver the right value to the
customer. These activities are costly, on average between 5 and 15% of revenues and more if we take a SC
perspective. They have a substantial impact on the company’s assets (inventory, manufacturing plants,
transports vehicles…), and also L&SCM affects the top line of the P&L ( →revenues).
Logistics have an impact on Price and Place as Customer Service.
Globally talking, international SCs grew and nowadays the growth of world GDP is associated with an even
higher growth in international trade.
Transportation costs are the same for basically all the objects, what changes is their incidence:
𝑉𝑎𝑙𝑢𝑒
Value Density = [€/Kg]
𝑊𝑒𝑖𝑔ℎ𝑡
𝑇𝑟𝑎𝑛𝑠𝑝𝑜𝑟𝑡𝑎𝑡𝑖𝑜𝑛 𝐶𝑜𝑠𝑡
Incidence of Transportation cost = %
𝑉𝑎𝑙𝑢𝑒 𝐷𝑒𝑛𝑠𝑖𝑡𝑦
Customer Service is strongly affected by the logistics process and should be considered as a KPI of the
process itself. Already 20 years ago the importance of Customer Service was in line with the importance of
more traditional Product Mix variables such as Price and Product.
KPI examples:
• Order-delivery cycle time

• Delivery accuracy
• Order fill rate
• Tracking information
from order to delivery

lOMoARcPSD|4792658
Logistics Management and Strategy
Logistics and the sources of Value
Revenues → better customer service
Costs → lower logistics costs
Current assets → lower inventories + faster

payments
Fixed assets → less resources and infrastructures
How can we reduce transportation costs?
• By improving the efficiency of transportation, handling, storage, use of packaging etc…

• By increasing the productivity of the entire logistics process by integrating the individual activities
→ total cost analysis / trade-off analysis
• By improving the quality of the logistic activities and thus reducing the non-conformity
management costs
How can we increase the revenues?
• By improving customer service:

o Getting a premium price for the better service
o Increasing customer retention
o Increasing number of customers
o Entering new markets
• By “active outsourcing” that is providing logistic services to other companies. Usually suppliers
have economy of scale on logistics services, so for the companies it is more convenient to rely on
them than to use their own logistics processes.

lOMoARcPSD|4792658
Example: a company transfers the products from the p.o.o. to the warehouse, and then the logistic supplier
transfers the products from the warehouse to the p.o.s.
How can we reduce the current assets?
• By reducing inventories
o Removing “dead” inventories
o Right-sizing of safety stocks
o Right-sizing the cycle stocks
• By reducing/controlling the “Cash to Cash” cycle time
Cash to Cash: the average days required to turn a dollar invested in RM into a dollar collected from a
customer. It can be calculated as:
𝐶2𝐶 = 𝐷𝑆𝑂 + 𝐷𝐼𝐻 − 𝐷𝑃𝑂
Where:
• DSO = days of sales outstanding. Average days required to collect account receivable form
customers;
𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
𝐷𝑆𝑂 =
𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑠
• DIH = average days of inventory holding;
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠
𝐷𝐼𝐻 =
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑 (𝐶𝑂𝐺𝑆)
• DPO = days of payables outstanding. Average days allowed by suppliers to settle account payable.
𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑃𝑎𝑦𝑎𝑏𝑙𝑒
𝐷𝑃𝑂 =
𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑠
Another formulation considers the Working Capital:

𝑊𝐶 = 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 + 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠 − 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑃𝑎𝑦𝑎𝑏𝑙𝑒
→ logistics doesn’t affect only the time of delivery, but also the time of payments

lOMoARcPSD|4792658
How can we reduce the fixed assets?
• By better logistics/SC Planning → Reducing variability and unpredictability

o Reducing manufacturing and warehouse capacity
o Reducing the transport assets
o Reducing staff
• By outsourcing logistic activities
How can we manage the trade-off between the different sources of value? (increasing ROA)
• By improving productivity through investments in Fixed Capital

• By improving the efficiency of the logistics activities accepting an increase in the inventory level
• By improving customer service and revenues, accepting a less than proportional increase in the
logistics costs
• By reducing the fixed capital through outsourcing, accepting an increase in the logistics costs.
Customer Service – classes of indicator:
• Product Range: related to both products families and the number of items per each family
→ width and depth
• Fill Rate: it measures the capability of the supplier to satisfy the requests of the customers through
the inventory available in the WH;
o Order Fill Rate: it depends on the Fill Rate measured on both the order lines and the single
pieces;
o Item Fill Rate: Fill Rate measured at the SKU level; it can be calculated with reference to
different units, such as lines, cases, pieces.
o Stockout: the opposite of the Fill Rate.
• Time-Related: indicators that concern about speed and punctuality in relation to what the
customer expects.
o Order Cycle Time [see picture below]: time elapsed between the order issuing and its
delivery; it depends on the time required to carry out all the activities (orders mgmt,
fulfilment and delivery);
o Punctuality: ability of the supplier to deliver in compliance with the time window arranged
with the customer. In case there is no specific agreement, P. is the ability to be compliant
to the OCT;
o Delivery Frequency: number of deliveries planned in a reference time window
(day/week/month). It is affected by the shelf-life of products, storage capability of the
customer and the incidence of transportation costs. Usually, increasing the delivery
frequency means reducing the drop size [dimensione consegna]. Also drop size is an
acceptable approximation for the cost of transportation.
• Accuracy: it includes the indicators which measures the capacity of the supplier to be accurate with
the request of the customer.
o Order Compliance: the ability of the supplier to deliver goods that are compliant with the
order specifications, in terms of items and quantity; it can be measured on different levels
(order, order lines, units)
o Document Compliance: the ability of the supplier to create and send documents consistent
with customer specifications and the goods delivered;
o Packaging Compliance: it is the ability of the supplier to use packaging compliant with
customer expectation (i.e. customer storage system and protection of the goods)
9

lOMoARcPSD|4792658
The margin-service relationship:
• Cost-to-Serve approach: we need to

know the logistic costs to provide a
determined SL and we have to evaluate if
they are justified or not, in terms of
impact on the revenues;
→ cost to reach the customer
• Segmentation: the margin-service
relationship strongly depends on the
customer features. They should be
clustered according to the different
weights of the SL and the costs to provide
them.
The best solution will never be found at the ends of both the cost function and the SL function
→ we have to apply a trade-off strategy, defining the SL which maximizes our margins.
10

lOMoARcPSD|4792658
Logistics Strategies – Lee’s model

Strategy: high level plan to reach one or more goals.
A well-built logistics strategy is consistent with the general strategy of the company, and also it is consistent
with the different parts of the logistic process.
→ The best strategy doesn’t exist! There are strategies more convenient than others, depending on SC
uncertainty and the general company strategy
We can classify the main logistic strategies in two different classes:
A – Lean vs. Agile SC Strategies
B – Time-based, Asset-based, Technology-based, Relationship-based SC Strategies
We have to deal with two different types of uncertainties: the one concerning the Demand-side and the
second concerning the Supply-side.
Demand-side uncertainty – main factors: Supply-side uncertainty – main factors:
• Products variety • Number of items, localization of suppliers

• Consumer demand volatility → MAPE • Stability of the supplier base
• Sales% inducted by promotions • Duration of supply contracts
• Price fluctuation • Level of dependency on the supplier
• Product life cycle • Number of echelons in the upstream SC
• Introduction of new products • Financial performance of suppliers
• Obsolescence risk • Country risk of suppliers
• Characteristics of the market segment • Maturity level of processes/technology
• Competition in the market • Product complexity
• Number of echelons in the downstream SC • Number of components
• Importance of time-to-market • Quality level required
• Penetration of new markets • Evolution of raw material
11

lOMoARcPSD|4792658
Lean vs. Agile SC Strategies

1. Lean (efficient) SC
2. Responsive SC Intermediate cases
3. Risk hedging SC
4. Agile SC
Lean SC Strategy Agile SC Strategy
• Objective: • Objective:
to maximise the expected ROA creating to reduce risks on both the supply and
both cost and value competitive demand side
advantages
• Policies:
• Policies: o Short LT
o Eliminate non-value adding o Short TTM
activities o Postponement
o Economies of scale o SC visibility
o Stock control o SC collaboration
o Distribution optimization o Sharing inventory with partners
o Client to supplier info sharing to face stockout
automation o Alternative suppliers
→ Supply-side and Demand-side should be → combination of Responsive and Risk-Hedging

stable to use this approach SC management
12

lOMoARcPSD|4792658
Risk Hedging SC Strategy Responsive SC Strategy
• Objective: • Objective:
reducing risks on the supply-side. mitigating risks related to the changes of
the needs of the customers on the
demand-side.
• Policies:
o Risk management orientation
o Inventories of RM/components • Policies:
o Back up suppliers o Built-to-order and mass
o Resource sharing inside the SC customization approach
o ICT adoption o Postponement
▪ Real time inventory flow o Extra capacity
▪ Dynamic allocation of o Short LT
inventory and demand o Reduction of TTM
Example:
The CW presents a demand profile

characterized by a lower and
predictable flow during the first 3 weeks
of each month, and a higher and more
variable flow during the last week.
→ during the first 3 weeks the company aims at using its resources efficiently
→ in the last week the company is able to create extra capacity thanks to the outsourcing of the logistics
activites
13

lOMoARcPSD|4792658
Time-based, Asset-based, Technology-based, Relationship-based SC Strategies
Time-based SC Strategy Asset productivity SC Strategy
• Cycle time reduction • Inventory reduction

o Reducing logistics processes time o Collaborative planning allows
o ICT to be faster and accurate inventory reduction for both the
o Faster decision making partners
• Time reduction initiative o Cross docking
o Cross docking (no storage) • Equipment utilization
o Collaborative planning as Vendor o Reduction of logistic facilities
Managed Inventory – VMI to o Use of technology
reduce the order cycle time o Direct delivery when possible
• Pull approach • 3rd party/contract logistics services
o Fast manufacturing systems to o Outsourcing for transportation
reduce cycle time for ATO o Outsourcing of the whole logistic
o postponement process
Technology-based SC Strategy Relationship-based SC Strategy

• e-Commerce B2B • Integration of SC processes
o e-procurement o Digitalisation and integration of
o e-SC the order-to-payment cycle
• Automatic identification projects o Standardisation of industrial
o RFID-enabled processes labels and packaging
• Automation of WHing and materials • Collaboration
o Automated WH o Exchange of SC planning
o Automated picking and sorting information
systems o Collaborative plans (VMI etc)
o Wireless technology o Rebuilding of the logistics
network to streamline the flow
of goods and reducing the
number of facilities
14

lOMoARcPSD|4792658
Warehouses – General Overview
Role of Warehouses
The logistic channel includes the distribution network – plants, warehouses, point of sale – and the
transportation system.
When designing a distribution centre, we have to keep in mind the requirements:
• Warehouse functions
• Location
• Performance → capacity
The output of the design phase should be:
• Functional areas
o Capacity
o Technology/level of automation
o Layout
o Management policies
• Flow chart diagrams
The basic functions of a warehouse are 2:
• Storage → keep the inventories

o Guarantee a determined SS coverage
o Decouple asynchronous processes
o Keep the goods safe
• Flow management and materials handling
o From full pallet loads to customer order
o From unpacked products to packed product
Depending on their function, we can define 2 types of warehouses:

• Warehouses/distribution centre: Storage + flow management
• Transit points: only flow management
Warehouses: orders from downstream are fulfilled by using inventories. Upstream orders aim at
replenishing the inventories in the warehouse
Transit point: orders from downstream are sent straight to upstream. Orders are fulfilled upstream, but
they are delivered and sorted through the transit point.
→ cross docking activity: a vehicle coming from the central warehouse is unloaded and smaller vehicles
deliver the goods to the end customer. This is what happens in a transit point.
15

lOMoARcPSD|4792658
Warehouse Operations
We can define two flows within a WH: an inbound flow and an outbound flow. In the middle of these two
activities we find the storage.
There are 5 main activities that characterize a warehouse:
1) Receiving
Inbound flow
2) Put-away
3) Storage
4) Order fulfilment
Outbound flow
5) Shipping
Receiving
The carrier is scheduled to deliver the goods at a specific time in order to improve the WH productivity;
the goods are unloaded from the vehicle and moved to the receiving dock, where they are inspected for
damage. Then the received goods are compared to the purchased order to check if those items are the
correct ones.
Put-away
This operations moves the goods from the docks to the storage area. Both the product and the storage
location are identified, then the product is moved to the location and the inventory record are updated to
reflect the receipt of the item and its position.
Order fulfilment
Based on order size, orders can be fulfilled by means of full pallet retrieval or picking activity: when picking
is needed, the order information is provided to the personnel on a picking list.
The items on the picking list are arranged to minimize the distance the picker has to walk, and once they
arrive to the shipping preparation area, the items are placed in a shipping package where a the shipping
label is attached.
16

lOMoARcPSD|4792658
Shipping
The carrier is scheduled to pick up the goods at a specific time. The goods are moved from the staging area
to the loading dock and loaded on the vehicle. The carrier signs a bill of lading and the WH management
system is updated to reflect the removal of the products.
An important area of the WH is the service area where – for example – electric forklifts are kept in charge.
When projecting the receiving/shipping areas we must have clear the different models of trucks that
carriers could possibly use, as not to be caught unprepared in front of very big trucks or very small ones.
The Warehouse Management System enables the accurate management of these activities including
workflow planning and analysis.
More advanced WMS are integrated to the materials handling equipment/picking/sorting systems.
→ The WMS increases the efficiency of workflow planning.
WHs of new conception have new value-adding activities such as:
• Customization
o By marketing area
o By sales channel
o On a customer base
Customization allows to meet in a more precise and effective way market needs, and it postpones as much
as possible the personalization of goods thus reducing the number of SKUs managed.
• Technical support
o Repairing or replacing activities
• Return management
o Collection of the returned/expired products
o Collection of the pallets
17

lOMoARcPSD|4792658
Storage systems
There are 2 parameters we have to consider: Storage Capacity (SC) and Throughput Capacity (TC).
SC: number of unit load locations (a x b x h with a determined weight capacity – in EU a/b = 1,2/0,8m)
TC: flow of units loads [UL/h]. It concerns input capacity and output capacity.
Other descriptive parameters:

𝑆𝐶
AUR: Area Utilization Rate 𝐴𝑈𝑅 = [UL/m2]
𝑆𝑢𝑟𝑓𝑎𝑐𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑆𝑡𝑜𝑟𝑎𝑔𝑒 𝐴𝑟𝑒𝑎
𝑆𝐶
CUR: Cube Utilization Rate 𝐶𝑈𝑅 = [UL/m3]
𝑉𝑜𝑙𝑢𝑚𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑆𝑡𝑜𝑟𝑎𝑔𝑒 𝐴𝑟𝑒𝑎
𝐷𝑖𝑟𝑒𝑐𝑡𝑙𝑦 𝑎𝑐𝑐𝑒𝑠𝑠𝑖𝑏𝑙𝑒 𝑈𝐿 𝑙𝑜𝑐𝑎𝑡𝑖𝑜𝑛𝑠

Selectivity: 𝑆𝐸𝐿 = [<=1]
𝑆𝐶
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑈𝐿 𝑠𝑡𝑜𝑟𝑒𝑑
SC Saturation: 𝑆𝐴𝑇 = [<=1]
𝑆𝐶
Cost indicators:
𝑆𝑡𝑜𝑟𝑎𝑔𝑒 𝐶𝑜𝑠𝑡
: Annual cost of building/facility services and racks. Part of the annual cost related
𝑈𝐿 𝑙𝑜𝑐𝑎𝑡𝑖𝑜𝑛
to facility services. [€/UL x Year]
𝐻𝑎𝑛𝑑𝑙𝑖𝑛𝑔 𝐶𝑜𝑠𝑡
: annual cost of materials handling systems, labour, energy consumption related to handling
𝑈𝐿 ℎ𝑎𝑛𝑑𝑙𝑒𝑑
and equipment maintenance. [€/UL]
Example: we want to increase the AUR by increasing the height of the WH. By doing this, we will affect the
cost of handling system as we will need forklifts with longer arms.
18

lOMoARcPSD|4792658
The solution for the storage of goods can be classified into two, depending on the size of the UL.
• Storage systems for big size UL:
o Block stacking
▪ Cheap, they do not require any equipment
▪ Low selectivity, low AUR (stock limited to 3 or 4 levels)
▪ System useful for items with high inventory level
▪ LIFO or FIFO depending on the number of lanes per article
▪ Products with long shelf-life and non-fragile
ULs are piled in lanes one on each other without the use of any infrastructure. The only layout’s constraint
is given by the width of lanes, which have to be large enough to let the forklift trucks in.
o Drive-in racks
▪ Higher exploitation in height, higher AUR
▪ One item per lane, low selectivity (lanes are accessible from 1
side)
▪ Special trucks are required to enter the lanes
▪ LIFO or FIFO depending on the number of accesses to the
lanes
Similar to block stacking but provided with racks to carry the ULs.
o Selective pallet racks

▪ Racks are made by joining uprights and beams
▪ Selectivity is equal to 1: every item can be directly accessed
▪ Low cost, around 20-30 €/UL
▪ Each bay can hold more than one UL
▪ Both picking activity and full pallet retrieval can be done →
high flexibility
Each rack consists in some level of bays, generally PL are stored with their width on the aisle.
o Flow racks
▪ High cost (almost 200€/UL vs. average 50€/UL)
▪ Conveyors are inclined to enable gravity-based movement
▪ Each channel is dedicated to one article
▪ Low selectivity, FIFO policy is required
Storage system made by uprights sustaining slightly inclined roll conveyors.
19

lOMoARcPSD|4792658
• Storage systems for small size UL:

o Mini-load
o Carousels
o Vertical AS/RS system
Usually in a warehouse we can find 4 types of forklifts:
• Walkie stackers: they move the pallets load horizontally, they are used to load/unload the trucks;
they require an operator walking behind. The two main models are the counterbalance truck and
the pallet jack.
• Front-loading forklift trucks: they move the pallets both horizontally and vertically; this solution is
characterized by the presence of a counterbalance. The minimum width between the aisles must
be 3/3.5m in order to let the forklifts turn and load/unload the pallets.
• Straddle reach trucks: characterized by a horizontal movement of the forklift. They need a
narrower aisle to work (2.5m) and they can reach a maximum height of 10m.
• Side-loading forklift trucks: they move pallets in both directions, usually in the aisles. They are more
expensive than the front-loading type. They need less space, around 1.5m to work between two
aisles. It moves slowly when not working in an aisle → it reduces productivity
20

lOMoARcPSD|4792658
Warehouse Management
Management policies
There are 2 main policies:
• Management of the operative cycles (storing/retrieving)

o Single command cycle to store or retrieve → half of the travel without the UL
o Dual command cycle to store and retrieve → both the travels with the UL
• Criteria to allocate the UL to the locations of the storage system
o Criteria to decide where to place the UL of an article
o Space subdivision criteria
21

lOMoARcPSD|4792658
We can write the Cycle Time as the sum a Variable Cycle Time and a Fixed Cycle Time.
𝐶𝑇 = 𝑉𝐶𝑇 + 𝐹𝐶𝑇
Variable cycle time → it depends on the forklift travels: it is related to the position of the UL to retrieve or
store
Fixed cycle time → loading/unloading activity – positioning (time spent to put the forklift exactly in front of
the UL) – manoeuvres – waiting for data transfer: it is related to the standard operative cycle
The dual command cycle is in general more efficient than the single one, due to:
• Possibility to move 2 UL per cycle

• The average time of the dual command cycle is shorter than two times the average time of a single
command cycle.
→ To perform a dual command cycle it is required that storage and retrieval activities are concurrent.
→ To perform a dual command cycle it is required a WMS
Retrieving and Access index
𝑅𝐼 − 𝑅𝐸𝑇𝑅𝐼𝐸𝑉𝐼𝑁𝐺 𝐼𝑁𝐷𝐸𝑋 (𝑖, 𝑡) = 𝑁° 𝑜𝑓 𝑈𝐿 𝑜𝑓 𝑡ℎ𝑒 𝑖𝑡𝑒𝑚 (𝑖) 𝑟𝑒𝑡𝑟𝑖𝑒𝑣𝑒𝑑 𝑓𝑟𝑜𝑚 𝑡ℎ𝑒 𝑠𝑡𝑜𝑟𝑎𝑔𝑒 𝑠𝑦𝑠𝑡𝑒𝑚 (𝑡)
𝑅𝐼 (𝑖, 𝑡)
𝐴𝐼 − 𝐴𝐶𝐶𝐸𝑆𝑆 𝐼𝑁𝐷𝐸𝑋 (𝑖, 𝑡) =
𝑁° 𝑜𝑓 𝑙𝑜𝑐𝑎𝑡𝑖𝑜𝑛𝑠 𝑎𝑠𝑠𝑖𝑔𝑛𝑒𝑑 (𝑡)
Examples:
22

lOMoARcPSD|4792658
In order to minimize the operative cycle time, it is possible to store the articles with higher AI in the
locations where they are most easily retrievable.
Allocation policies:
• Randomized storage: the UL can be stored in each pallet location, if available;

• Dedicated storage: the UL of a specific item must be stored in a specific et of pallet locations,
usually on the basis of the AI;
• Class-based storage: the UL of a specific family of items must be stored in a specific set of pallet
locations usually on the basis of AI. Items are clustered in classes (→ ABC Matrix) depending on
their AI, and classes are allocated to a fixed storage zone according to the AI of the class. In each
zone there is a randomized storage.
The boundary curves between a zone and the following are equal time curves starting from the I/O point of
the storage system.
The marginal advantage in reducing the average operative cycle times coming from the increasing of the
number of classes (and zones) is decreasing (significantly with more than 3 zones).
In the meanwhile, the marginal disadvantage in terms of storage capacity and complexity is increasing with
the number of classes.
23

lOMoARcPSD|4792658
Pros and cons of the subdivision of the space:
• Randomized storage
o Pros: better use of the storage capacity that can be sized in order to store the maximum
overall stock
o Cons: limitations in the applicability of the UL allocation criteria depending on the location
• Dedicated storage
o Pros: possibility to use the UL allocation criteria → AI Index
o Cons: higher storage capacity required, at least equal to the sum of the maximum storage
capacity required for each item
• Class-based storage
o Good trade-off as it is possible to allocate the items using the AI Index, but with a good
utilization of the storage capacity. It can be possible to reduce the handling costs.
→ References to Storage Capacity Assessment (page 24) – see the exercise on the book
24

lOMoARcPSD|4792658
Storage System Design Principles

1. Clustering the items according to the storage system
2. Required performance for each storage system (storage and throughput capacity)
3. Constraints (urban, technical, economical…)
4. Storage system selection
5. Storage area pre-design
6. Modelling & simulation
7. Technical-economical checks and assessment
a. If not good, process restarts from bullet 4.
8. Design
1: Criteria to cluster the items
• Technical features (dimensions, weight, fragility)

• Environmental requirements (temperature, humidity)
• Safety requirements (fire prevention, hazardous goods)
3: Design constraints
• Urban (maximum heights, distances)

• Technical (surface and shape of the ground, integration with other activities)
• Safety (escape routes, fire loads)
• Economical (available resources)
4: Storage system selection
25

lOMoARcPSD|4792658
Storage System Design method

1. Identification of the design parameters – storage and throughput
2. Layout design to have a given SC
3. Throughput capacity assessment to reach a given TC
There can be connections between the phases 2 and 3 → layout that minimizes the expected path
Here the method for designing a “conventional” manual storage system is illustrated, but first we have to
make some assumptions:
• The system does already exist, and historical data are available
• The storage area is made of single deep selective pallet racks
• Storage of full pallet loads, no mixed pallets
• Handling systems consist in counterweight forklifts trucks or straddle reach trucks
• There are no picking activities in the storage area
• The number of trucks is not connected to the number of aisles
1: Determination of the design parameters

Analyses to determine the storage and the throughput capacity
• Physical flow → throughput analysis

• Inventory analysis → storage capacity
26

lOMoARcPSD|4792658
It takes into account the values of the flows (per hour/day) coming from the historical data related to a
representative period of time.
Inbound flow forecasting Outbound flow forecasting
1. Historical data on the inbound flows 1. Historical data on the outbound flows
2. Adjustment due to the new 2. Adjustment due to the new
requirements (UL features → double requirements (order dispatching,
height of the pallet, less UL flow) outbound flow quantities)
3. Management of the storage activities 3. Management of the retrieving activities
4. Inbound flow forecasting → evolution 4. Outbound flow forecasting → evolution
of the business of the company of the business of the company
Throughput capacity assessment: do they use the same handling systems for both storing and retrieving
activities?
→ Yes – throughput capacity on the basis on Fin + Fout (we overlap the two curves)
→ No – input capacity on the basis of Fin and output capacity on the basis of Fout
27

lOMoARcPSD|4792658
Storage capacity assessment:

1. Historical data on the inventories of the items and of the clusters of items
2. Evolution due to the new requirements (product range, future inventories per each item)
3. Typology of space allocation policy
a. Randomized: 𝑆𝐶 = 𝑚𝑎𝑥𝑗 {𝑁𝑆𝐽 } ∗ 𝐹𝐹 where

NSj= number of units stocked in a period j
FF = forecasting factor
b. Dedicated: 𝑆𝐶 = ∑ 𝑖 (𝑚𝑎𝑥𝑗 {𝑁𝑆𝑖,𝐽 } ∗ 𝐹𝐹𝑖 ) where

i = index of the item
FFi = forecasting factor of the i-item
c. Class-based: 𝑆𝐶 = ∑ 𝑘 (𝑚𝑎𝑥𝑗 {𝑁𝑆𝑘,𝐽 } ∗ 𝐹𝐹𝑘 ) where

k = index of the cluster of the items (ABC)
FFk = forecasting factor of the k-cluster of items
The FF takes into account the expected evolution of the average stock of the items (or cluster
of items) with reference to a short-medium time horizon.
4. Storage capacity
28

lOMoARcPSD|4792658
2: Layout Design
1. The choice of both the layout typology and the location of the I/O points
2. Determination of the storage area
a. Bay design
b. Number of levels
c. Module design
d. Determination of required area
3. Determination of the optimal shape → it may depend on the constraints of the
environment/company
4. Storage area design
a. Number of aisles
b. Number of bay columns
c. Real storage capacity
Constraints can be imposed by material handling equipment (height of the forks, width of the aisles), by
the building structure (height of the building, position of the pillars, load admitted) or by the law.
Layout typology: longitudinal → less interference of the means of transport in the access aisles
transversal → less area required by the access aisles
if we consider the same number of aisles.
I/O location: entrance and exit in the same point
I/O points are distributed all along one side of the storage area
Bay design:
29

lOMoARcPSD|4792658
Arrangement of the UL in the bays:
Example:
→ Configuration A is more used
Module design: if we replicate the module we get the entire storage area.
30

lOMoARcPSD|4792658
Example: 2 pallet loads per bay, served by straddle reach trucks
Number of storage levels: the maximum number depends on the maximum height that can be reached by
the forks, and the net height of the building.
→ To calculate the AUR it is sufficient to calculate it only for a module, as the module is representative of
the whole storage area.
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑝𝑎𝑙𝑙𝑒𝑡 𝑙𝑜𝑎𝑑𝑠 𝑖𝑛 𝑎 𝑚𝑜𝑑𝑢𝑙𝑒
𝐴𝑈𝑅 = [UL/m2]
𝑀𝑜𝑑𝑢𝑙𝑒 𝑎𝑟𝑒𝑎
Example: WH with single deep selective racks, served by straddle reach trucks
31

lOMoARcPSD|4792658
Shape of the storage area: we can get the optimal rate between the width and the depth of the storage
area through the minimization of the expected path, assuming that:
• There are only single command cycles

• Each location has the same P to be visited
• Rectilinear paths
• Racks as a continuous area → bays are close one to the other
The expected length of the path depends from the position of the I/O point:
The minimum length of the path (from the average location and back) from the I/O point can be got
deriving the expected path:
𝑈 𝑉
𝑃 = 2 ∗ (𝑎 + 2 ) where 𝑎 = 2,3,4 depending on the location of the I/O point.
𝑑𝑃⁄ 𝑎
→ 𝑑𝑈 = 0 → 𝑈𝑜𝑝𝑡 = 2 ∗ 𝑉𝑜𝑝𝑡
Optimal rate between the two sides of the storage area:
• I/O in the middle → Uopt = 2Vopt

• I/O in a vertex of the front → Uopt = Vopt
• I/O distributed along the front → Uopt = 1,5Vopt
32

lOMoARcPSD|4792658
3: Throughput capacity assessment

Determination of the number of trucks:
1. Determination of the average operative cycle time and of the single truck throughput capacity
2. Determination of the number of trucks to satisfy the planned TC
3. Determination of the real TC
33

lOMoARcPSD|4792658
Automated Warehouses
Technical features
An automated WH is a warehouse where the goods are not moved by the forklifts, but they are moved by
the storage and retrieval machines. The movement is performed without human involvement.
The main differences with a traditional WH systems are:
• Racks are longer and higher (up to 150m and 40m vs. 30m and 12m)
• Aisles are narrower
• Higher requirements in terms of construction accuracy → higher cost for PL
• Automatic I/O system required → S/R machine
• Human intervention is allowed only for maintenance and supervision
The goods are moved at the beginning of the storage area, where the S/R machine take them.
The S/R machine can move the pallet load horizontally and vertically at the same time: the forklifts trucks
cannot do this for safety reason and can make only one movement at a time.
The S/R machines have telescopic forks, so as it possible to work within a very narrow aisle.
AUR example:
34

lOMoARcPSD|4792658
Performances of S/R machines

assumption: selective
pallet racks.
Throughput capacity of this system is way higher than the previous ones as it has a lower cycle time and it
has a smarter way of working. The minimum cost for this machines is around 150K€.
Racks representation
We can represent the racks using spatial coordinates or time coordinates:
Spatial coordinates Time coordinates
The time we need to move from the I/O

point to a generic “A” point is the
maximum between TV and TH, as the
S/R machine moves vertically and
horizontally at the same time.
35

lOMoARcPSD|4792658
We can define the Shape Factor:
𝑇𝑉
→ 𝑆𝐹 =
𝑇𝐻
The best ratio between height and length of the racks for minimizing the cycle time is equal to 1.
→ squared storage area.
System configuration
• Structure
o Standard building
o Sunk building (a part of the building is underground) →height exploitation when there are
environmental constraints)
o Rack supported building [autoportante] → racks are used to build the WH → most
common
• Ratio between S/R machines and aisles
o Less than 1 → low TC, we don’t need to move the pallets frequently
o Equal to 1 → >1 when we have at least 2 I/O points at the opposite sides of the storage
area
If a failure happens in an automated WH, the risk is not to move the goods anymore.
We can solve this problem by adopting two S/R machines per aisle → increases the availability
• Rack depth
o Single deep: one pallet per PL
o Double deep: two pallets per PL → SC higher than TC → low selectivity
• N° of forks per each S/R machine
o 1
o 2 → side by side configuration vs. one below the other → higher TC
Investment costs
• Equipment costs → S/R machines, racks, I/O station, information system (NOT the WMS!)
• Additional costs → floor levelling
• Fire protection costs → sprinklers and pumping system
36

lOMoARcPSD|4792658
Management Policies
There are two main policies:
1) Management of the operative cycle times:
a. Single command cycle to store OR retrieve
b. Dual command cycle to store AND retrieve
i. Optimization: No Cost Zone (NCZ) and Minimum Travel Between (MTB)
2) Class-based storage
DCCs are in general more efficient than SCCs because it is possible to move 2 UL per cycle and the average
time to complete the DCC is shorter than two times the average time for a SCC.
→ prerequisite: S/R activities have to be concurrent.
Operative CT:
DCC can be designed in order to maximize the throughput capacity, by choosing the best place to store and
retrieve ULs. There are 2 criteria to optimize the DCC:
1) MTB – Minimum Travel Between: the idea is to couple a S/R in a specific pallet location with a R/S in
the closest pallet location → minimize the interleave without load.
2) NCZ – No Cost Zone: the idea is to couple a S/R in a specific pallet location without increasing the VT of
the cycle → NCZ is the area made by all the points Q that satisfy the following relationship:
𝑉𝑇 (𝐼 → 𝑃) = 𝑉𝑇 (𝐼 → 𝑄) + 𝑉𝑇 (𝑄 → 𝑃)
37

lOMoARcPSD|4792658
Class-based storage
38

lOMoARcPSD|4792658
Application Fields
The automated WHs are favourable when:
• A high SC is required (SC > 5000 UL)

• There is low availability or high cost of the ground
• A high TC is required (25/35 UL/h per S/R machine)
• Need to protect goods
• Need to control environmental conditions (pharmaceutical or frozen products)
Main Drawbacks
• Outsourcing of logistic process → problem of setting the relationship between the logistic provider
and the client. Usually the logistic provider takes the risk.
• Another problem is the length of the contract: it is profitable to build an automated WH on the
specifics of the client’s goods? → at least 5Y of contract the logistic provider can introduce a similar
solution and have benefits from its implementation.
• Low flexibility to changes of TC, SC, UL size
• High investment required
• High dependability on the system reliability → if R/S machines have a problem, the activities of the
WH would be partly or completely shut down.
39

lOMoARcPSD|4792658
Design methodology
Basic case: 1 S/R machine per aisle – single deep racks – 1 couple of forks per each S/R machine
→ cost minimization requires the minimization of the number of aisles
Phase 1: identification of the design parameters (SC and TC)

The method to determine the design parameters is the same as the one in the traditional warehouse.
Analysis of the physical flows → TC Inventory analysis → SC
Phase 2: layout design

1. Bay design
2. Determination of the maximum number of storage levels, given, RH max
3. Determination of the maximum number of columns of bays, given RL max
4. Determination of the minimum number of aisles, given SC
40

lOMoARcPSD|4792658
Phase 3: TC assessment
41

lOMoARcPSD|4792658
Assessment of the operative cycle time – F.E.M. 9851 rule:

CT = VT + FT → AVG CT?
We have to estimate the average variable time → ACT = AVT + FT
Assumptions:
• Each bay has the same probability to be visited → randomized storage approach
• Racks are described as a continuous domain → every point can be reached by the S/R machine
• Shape factor ≈ 1 (usually between 0.5 and 2)
In case of Single Command Cycle (AVTSC):

𝐴𝑉𝑇𝑆𝐶(𝑝1) + 𝐴𝑉𝑇𝑆𝐶(𝑝2)
𝐴𝑉𝑇𝑆𝐶 =
2
𝐴𝑉𝑇𝑆𝐶 (𝑝1) = 𝑡(𝐼 → 𝑝1) + 𝑡(𝑝1 →𝑂) = 2𝑡(𝐼 →𝑝1)
𝐴𝑉𝑇𝑆𝐶 (𝑝2) = 𝑡(𝐼 → 𝑝2) + 𝑡(𝑝2 →𝑂) = 2𝑡 (𝐼 → 𝑝2)
→ 𝐴𝑉𝑇𝑆𝐶 = 𝑡(𝐼 →𝑝1) + 𝑡(𝐼 → 𝑝2)
42

lOMoARcPSD|4792658
In case of Dual Command Cycle (AVTDC):
𝑡(𝑃1 → 𝑃2) = max{|𝑋𝑝1 − 𝑋𝑝2| ; |𝑌𝑝1 − 𝑌𝑝2|}
43

lOMoARcPSD|4792658
New automated solutions
Autonomous vehicle S/R system
• Based on decoupling of the vertical and horizontal movements

• Lifts to perform the vertical movement
• Autonomous vehicle to perform the horizontal movements
→ scalability of the TC over the time (very difficult in case of traditional automated WH)
→ high availability and reliability of the system (backup vehicles)
→ performance way better than a traditional automated WH (600 cycle/h vs 150 cycle/h)
→ lower energy consumption
Automated forklifts
They not only transfer UL among different warehousing areas but also perform S/R cycles.
→ saving in labour costs

→ saving in terms of TC
44

lOMoARcPSD|4792658
Order Picking and Assembly – systems and design principles
Picking process
Picking: selective retrieval of UL from high-level UL or single pieces from racks or plastic crates in order to
fulfil customer purchase order.
As far as picking is concerned, a Customer Order is a collection of several Order Lines, each one requesting
a defined quantity of a specific SKU/item.
Picking list: it is a list of pick locations, items to be picked and quantities to be picked. It may correspond to
one customer order or a part of it, or many customer orders (warehouse order → batch picking).
The sequence on the picking list is chosen in order to optimize the picking activities in terms of efficiency
and effectiveness.
The picking list may be on-paper or electronic, transmitted via mobile devices or headphones.
Sorting: process through which the goods are divided according to their destination, it is required ONLY IF
the goods have been picked in batch. It can be manual or automated by means of a sorting machine.
Packaging: process by which single pieces are assembled in boxes (→ secondary packaging), boxes are
weighted and labelled, and they are assembled into UL (→ tertiary packaging).
Transport load consolidation: process through which the Uls are assembled into a transport load, including
the final check and the matching with the shipping note.
45

lOMoARcPSD|4792658
Picking/order assembly usually accounts for more than 50% of the Warehousing costs, due to its high
complexity and labour intensity (→ difficult to automate).
The key point to

develop new picking
system is reducing the
picking travel and its
impact on time/costs.
• Order Assembly Time is a relevant part of the Order Cycle Time;

• Order Picking Accuracy is substantial to achieve Delivery Accuracy;
• Order Picking Flexibility is principal to achieve Delivery Flexibility.
There are 2 main trends that are enhancing the importance of picking:
• Enlargement of the products assortment

• Increase in the delivery frequency
→ Average quantity per order decreases
→ Increase in the complexity and costs of picking/order assembly activities
46

lOMoARcPSD|4792658
Picking systems
Classification of Order Picking System – OPS
* Pick by item = batch picking
47

lOMoARcPSD|4792658
Picker-to-parts systems
The picker carries out a picking mission within the picking area, visiting in sequence all the locations which
are detailed in the picking list.
Batch picking is more efficient than the single order picking as it increases the number of locations to be
visited in a single mission thus increasing the picking density. Batch picking requires the sorting of items.
In addition, it is possible to create a forward area, enhancing the picking productivity.
“Picker to parts” systems are used in order to pick items from palletized UL stored in single deep selective
racks. The specific truck is called order picker truck (manual-driven or motor-driven).
The capacity for the single picking mission corresponds to the capacity of the truck.
As to increase the dimension of the picking area is to use the first level of racks
together with the ground level.
This solution needs a platform in order to be implemented and it has safety issues
and strongly reduces the picking productivity. We can use this solutions only when
dealing when very slow-moving items.
Picking density: number of picks per square meter of picking surface.
• Flow racks:
+ Short picking path
+ High picking density
- Problem of replenishment
→ used for C-class items (slow rotating)
Picker to parts systems are characterized by high labour costs due especially to the persasive impact of
travel time on the overall picking cycle time. In additon, this solution is affected by high space costs since
they require a single location for each SKU stored in the WH.
On the other hand, they require low investments since their most relevant cost item is related to the
generally scarce automation of handling system.
Also they are characterized by high flexibility since theit lack of automation allows changes in storage
capacity (adding more locations) and throughput capacity (increasing the number of pickers). The scarce
automation affects the reliability of the system of human workers, leading to possible low accuracy.
48

lOMoARcPSD|4792658
Parts-to-picker systems
The parts to picker system are an improvement of picker to parts and they are based on the assumption
that moving parts directly towards pickers avoids the time wasted to travel and hence increases the picking
efficiency.
The pickers work in one or more picking stations. The ULs of the items detailed in the picking list are
retrieved from the storage area and carried in sequence to the pickers, who pick only the quantity required
in the picking list. Then, the ULs are put to store again unless finished.
Advantages are the low labour costs and the low space requirements. Pickers have only to pick items and
do not waste time in travelling. In addition, in these systems it is possible to adopt automated storage
solutions characterized by a high AUR. These systems are characterized by a great accuracy and speed.
Disadvantages are the high investment costs and the low flexibility, stemming from the use of automated
systems.
Large Unit Loads → picking from automated warehouses to

picking bays
Small Unit Loads:
• miniload AS/RS (automated storage and retrieval system)

picking systems that exploit the same logic of the automated
WH with AS/RS machines but endowed with telescopic forks
that can move small items. They have a high TC (200
cycles/h) but they have to be continuously replenished.
• AVS/RS (autonomous vehicle storage and retrieval system)

same as before, they have telescopic forks that can move only
horizontally. These systems are provided with elevators positioned along
the perimeter of the racks that are allowed to move vertically.
• Automatic vertical storing system: optimal solution for few items and average
picking activity. Characterized by an elevator.
49

lOMoARcPSD|4792658
Pick-to-box
Pick-to-box system divides the picking area into picking
stations, each of which is normally dedicated to one or more
pickers. The picking stations are connected by a conveyor on
which bins are placed. Bins are filled with picked items. Each
bin corresponds (partially or completely) to a customer order.
Advantages are the reduction of pickers travel time and thus
lower labour costs. These system are quite flexible since they
mix automation and human labour.
Disadvantages are the high space costs and great
investments due to automation. In addition, these
systems require the correct balancing of workload
among the picking zones, increasing the managerial
complexity.
Pick and sort
Pickers retrieve the quantity of each single item resulting from the batching of multiple orders and place
them onto a takeaway conveyor connecting the picking area to the sorting system. In some cases, takeaway
conveyor is not implemented.
Different technologies are available for automated sorting systems. The choice between the different
discharge mechanism is based on the amount of goods to be sorted and the physical dimension of the
items to be sorted, and is influenced by factors such as weight, size and fragility.
In pick and sort systems there are low labour costs since pickers work in a single portion of the forward
area and thus the travel is minimized. On the other hand, they are affected by high space costs since they
involve a forward area, and high investment costs due to the great level of automation.
Throughput capacity is on the hands of pickers and storage capacity is easy adjustable. As a result, pick and
sort systems are characterized by a good flexibility. Automation increases accuracy and speed.
50

lOMoARcPSD|4792658
Automation of manual picking
Automatic identification of the items:
• Bar code scanning

• RFID
Radio frequency communication between the WMS and the pickers:
• Mobile devices aboard the pickers’ trucks

• Hand-held mobile devices (smartphones...)
• Voice headsets
Display and light on the picking locations (→ put-to-light)
Automated picking
Automatic dispenser – “A” Frame or “V” frame: small, regular, non-

fragile, high rotating items.
→ high retrieving capacity, up to 3000 pcs/h
51

lOMoARcPSD|4792658
Picking System design: main principles
1) Selection of the picking system

a. Segmentation of the picking problem in sub-problems (clusters of homogeneous items)
b. Identification of the eligible picking solutions
2) Picking system capacity and design
a. Picking system storage capacity → solution of the Forward-Reserve Problem (FRP)
b. Picking system configuration
3) Management policies
a. Space allocation for each item (by product of the FRP)
b. Batching policies
c. Sequencing policies
d. Location or storage policies
KPI: picking-related costs
• Picking costs = people, equipment, software and space

• Sorting costs
• Replenishment costs
KPI: customer service
• Accuracy
• Order picking cycle time
• Flexibility
Key data → order profile based on volumes or lines per order

Depending on the volume of the order or on the lines per order, there are different approaches that better
fits our needs.
52

lOMoARcPSD|4792658
1 – selection of the available picking system
53

lOMoARcPSD|4792658
2 – design parameters
Storage capacity → number of UL locations, with dimensions a x b x h, and a determined weight capacity
Throughput capacity → number of orders per h/d – lines per h/d – pieces per h/d – volume flow per h/d
The forward-reserve problem (FRP): how to split the overall inventory within the warehouse into a reserve
stock and a forward stock (= inventories dedicated to picking)
• The output of the FRP is the storage capacity of the picking system
• A sub-problem, which is embedded by the main problem, is the allocation of the capacity of the
item classes or single items
• The basic trade-off is between cost of space and handling costs (for instance, replenishment cost
vs. picking costs and effectiveness)
3 – management policies
Batching
The basic decision is about the relationship between warehouse orders (picking mission) and customer
orders (final output of the process).
The main options are:
• Order picking: one order at a time

• Batch picking + sorting: several orders in a warehouse order that must be sorted into single
customer orders before the end of the process
The main trade-off is between picking costs (they decrease with the increasing of picking density) and
sorting costs (needed in batching option).
Routing
The basic decision is about the sequencing of picks in the warehouse order (or picking list).
It is a sort of TSP (traveling salesman problem) with many variants in function of the travelling constraints,
so that in some case it is mono-dimensional (→ low-level picker to parts, miniload AS/RS) or tri-dimensional
(high-level picker to parts). The main trade-off is between picking costs and software costs + operational
complexity.
Location
The basic decision is about the allocation of single items or classes of items to the available picking
locations. The idea is to dedicate the most easily accessible locations to the high-rotating items, mainly in
the picker-to-parts systems, and to locate in proximity items that are often requested in the same order.
The main trade-off is between picking costs and SW costs + operational complexity.
54

lOMoARcPSD|4792658
FRP – Forward Reserve Problem
There are 2 main options in terms of integrations between the storage and the picking functions:
1) The 2 functions share the same stock → items are picked from the general stock
2) The 2 functions have different stocks → reserve stock + forward stock (picking)
a. The picking stock is allocated to different storage system with respect to the general one
b. Picking and storage stocks are in different sections of the same storage systems → picking
stock in the lower levels and general stocks in upper levels of the same racks
Picking from forward stock:
+ Smaller working areas

+ Less picking costs
+ Better working condition
+ Easier picking activity
+ High effectiveness
− Replenishment from the general stock
FRP determine the value of picking stock (in terms of storage capacity of picking area), in order to reduce
the sum of the picking costs and the picking area replenishment costs. The FRP decisions requires to:
1) Determine the SC of the picking area
a. Forward area: yes or no?
b. Identify the items to be located in the picking area: all or a part?
c. Choose the replenishment frequency if there is a forward area separated from the reserve
area
2) Embedded problem: allocate the picking storage capacity to the items → space allocation
The space allocation problem is about the repetition of the overall space to single items in order to reduce
the number of total replenishments from the reserve area to the forward area.
Variables:
Fi = volume flows for the i-item [m3/t bucket]
SCi = picking storage capacity for the i-item [m3]
ri = replenishment frequency for the i-item [cycles/t bucket]
Smax = total picking storage capacity [m3]
Rtot = total replenishment frequency [cycles/t bucket]
n = number of items
55

lOMoARcPSD|4792658
Equal time supply

All the items are replenished at the same time frequency.
The overall SC depends on the chosen replenishment frequency (less frequent → larger SC of picking area)
→ the SC is the ratio between the Daily Volume Flow and the Replenishment Frequency
𝐹𝑖 (𝑑𝑎𝑦)
𝑆𝐶𝑖 =
𝑟𝑖 (𝑑𝑎𝑦)
The overall picking capacity is allocated to items according to their volume flow
+ Easy replenishment planning → defined time window

− Replenishment quantities vary, and they are often different from a UL multiple
− If the locations are of the same size, the space saturation could be low
Equal space supply

Each item is assigned the same volume in the picking area.
The overall SC of picking area is the volume assigned to each items, times the number of items.
𝑆𝐶𝑖 = 𝑉𝑜𝑙𝑢𝑚𝑒 𝑎𝑠𝑠𝑖𝑔𝑛𝑒𝑑 ∗ 𝑛

The replenishment frequency is different for each item and it is the ratio between the item volume flow
and the volume assigned.
𝐹𝑖
𝑟𝑖 =
𝑉𝑜𝑙𝑢𝑚𝑒 𝑎𝑠𝑠𝑖𝑔𝑛𝑒𝑑
+ High space saturation in picking area, since the same location can be used to keep different items
− Replenishment is more complex and is concurrent with the picking activities
With both policies, the total replenishment policy is as follows:
𝑛
𝑅𝑡𝑜𝑡 = ∗ ∑ 𝐹𝑖
𝑆𝑚𝑎𝑥
𝑖
Demonstration of equal space supply

case:
56

lOMoARcPSD|4792658
Optimal allocation policy

The optimal policy is to allocate the total capacity in proportion to the square root of the volume flows.
The resulting total replenishment frequency is as follows:
An estimation of the benefit gained thanks to the application of FRP instead of heuristics can be obtained
through the calculation of an efficiency index.
57

lOMoARcPSD|4792658
Order Picking and Assembly – Management policies
Reference case:
• Picker-to-parts picking system
• Picking from the “forward” stock
• Multi-aisles low level configuration → the time
required for the horizontal transfer between each
picking position and the next one is more relevant
than the vertical transfer time
Batching policies
The operator has to fulfil more than one order (a batch of orders) per mission
→ picking list = n customer orders = warehouse order
Optimal solution when dealing with small orders (in volume)
+ Increasing in picking density → decrease of the distance between two consecutive picking locations
+ Reduction in the average number of lines on the picking list (overlapping), and therefore reduction in
picking stops and picking time if more pieces can be extracted together
+ Reduction in number of missions and hence reduction in the fixed set-up times
− Sorting is required
− Information-intensive approach, batching is required (i.e. the formation of batches)
Sorting: it is a process through which a batch of orders is sorted into single customer orders
There are two ways of sorting:
• Sorting concurrent to the picking: picked goods are immediately sorted to different sections of the
picking cart depending on the customer order
• Sorting following the picking: picked goods ae transferred to a sorting area which could be sorted
manually or automatically.
Automated sorting: it is based on a sorting machine, fed by the pieces
coming from the batch picking. The machine sorts out the pieces according
to the original customer orders
58

lOMoARcPSD|4792658
Routing policies
Routing policy: the sequence according to which the items
are picked
Objective: to minimize the travel of the picking mission.
This problem is an instance of the traveling salesman
problem, with the constraint that the picker has to move
within the aisles.
There are 2 possible approaches:
• Order by order: analyze each order and choose the best picking tour in order to get the minimum
travel (→ solving the TSP)
+ The travel is minimized
− A specific picking tour has to be determined per each order
• Pre-defined policies: a pattern is chosen once for all and is used for all the others irrespectively of the
specific travel-minimizing path
+ The routing policy is more stable and easier to memorize
+ Easier to apply the storage policies
− The travel is not minimized
Traversal policy: the picker enters the aisle, walks through all its
length stopping when requested and gets out of the other side.
This policy avoids padlock problems along aisles, but forces pickers to
cover the maximum path
Return policy: the picker enters the aisle, picks on one side first,
reaches the farthest requested pick location, them comes back
picking on the other side, getting out of the same side he entered
Mid-term return policy: the picking area is divided into two parts. In
each area the picker adopts a return policy. The picking mission is
completed by two traversal paths (one in the first and one in the last
aisle to be visited)
59

lOMoARcPSD|4792658
Largest-gap return policy: for each aisle to be visited the “largest

gap” is determined. The largest gap is defined as the maximum
distance between the following distances:
• From the beginning of the aisle to the first picking location

• Between each picking location and the next one
• Between the last picking location and the end of the aisle
→ The objective is to avoid the largest gap
Assessment of the different routing policies:

the number of picks per aisle is connected to the
number of lines per order!
Assumptions:
1) 1 narrow aisle
2) Random storage within the aisle
1) 1 narrow aisle
2) 70% of the picks are in the first 20% of the
aisle
1) 1 wide aisle
2) Random storage within the aisle
The selection of the most appropriate pre-defined

policy is driven by the chosen storage policy and the
number of picks per aisle and the aisle width.
60

lOMoARcPSD|4792658
Storage policies
The storage policies can be divided into 3 main classes:
• Policies aiming at reducing the picking travel:

o Access Index based storage
• Policies aiming at reducing the picking time:
o Correlated storage
• Policies driven by operational needs:
o PoS storage needs
o Compatibility between different products
o Specific needs for the preparation of the ULs
Random allocation → same probability to visit the different areas of the picking system
Access Index in the picking system
where:
• Picking frequency: order lines requiring the specific item in a specific period
• Dedicated space: outcome of the Forward Reserve Problem, it is related to the volume dedicated to the
item within the picking system
→ the items with a high AI are located closer to the I/O point.
+ Reduction in the expected picking time (most of the picks are close to the I/O)
− It could cause congestion and interference with the picking system as all most requested items are
stored in a few aisles
− Information-intensive approach: AI is a dynamic parameter and allocation should be updated
accordingly → ABC curve (picking frequency x space)
61

lOMoARcPSD|4792658
The implementation of AI-based storage depends on the routing policies:
• Traversal policy: allocation

based on AI aims at reducing the
number of aisles to be visited.
Hence, the items with high AI
are located to the aisles closer
to the I/O.
• Return policy: allocation based on

AI aims at reducing the expected
travel within each aisle. The
items with high AI are located
near the I/O point of each aisle.
Correlated storage: the items that are likely to be picked together (correlated items) should be grouped
into clusters. The clusters of the correlated items are allocated on the basis of the average AI.
+ It reduces the pick stops and therefore the picking time
− Information-intensive approach: a complex correlation analysis is required.
62

lOMoARcPSD|4792658
Assessment of the picking time – the main components
• Set-up time:
o Time to get and read the picking list
o Time to carry the empty picking box and deliver the loaded picking box
• Travel time → most significant and difficult to assess
• Retrieval time
o Read and check the picking list
o Position in front of the picking location
o Pick the items from the racks and put them into the box
• Waiting time (congestion, stock-out…)
63

lOMoARcPSD|4792658
Assessment of the picking time – travel time and travel distance
In a narrow aisle configuration, the extra-travel to cross the working aisles (in order to pick the goods in
front of the racks) is negligible with respect to the travel distance measured along the centreline of the
aisle.
The within aisles travel distance depends on the number of aisles to enter, and the routing policy within
the aisle.
64

lOMoARcPSD|4792658
The across aisles travel distance depends on the farthest aisle to enter, measured from the I/O.
It is equal to twice the distance of the farthest aisle from the I/O.
[example on the exercise book]
65

lOMoARcPSD|4792658
Assessment of the picking time – the expected travel time and distance
Case A
Assumptions:
• Layout type →
• Routing policy: traversal
• All aisles have the same P to be visited
• Narrow aisles
• 1 picking list = 1 picking tour
System configuration:
66

lOMoARcPSD|4792658
Expected within aisles travel distance:
Expected number of visited aisles:
The higher the number of picks, the higher the expected number of
aisles to be visited.
67

lOMoARcPSD|4792658
The expected across aisles travel distance:
68

lOMoARcPSD|4792658
Case B
Assumptions:
• Layout type as before

• Routing policy: return
• All aisles have the same P to be visited (typical of random storage)
• Narrow aisles
• 1 picking list = 1 picking tour (the amount of material picked is less than the box capacity)
Differences with case A:
• Expected within the aisle travel distance

o Expected travel distance within one aisle → it changes because of the changing of the routing
policy
Expected travel distance in a pick tour:
69

lOMoARcPSD|4792658
Case C
• Layout type as before

• Routing policy: traversal
• Each aisle has a specific P to be visited, depending on the storage policy
• Narrow aisle
• 1 picking list = 1 picking tour
Differences with case A:
• Expected across aisles travel distance

• Expected within aisles travel distance
o Number of aisles to be visited
→ they change since the “non-random” storage policy makes the probability to enter the aisles different
aisle per aisle
Probability to enter the aisles:

The item allocation to the aisles gives the probability to enter each aisle.
Pi = picks within the i-aisle / overall picks within the system
Expected number of visited aisles:
70

lOMoARcPSD|4792658
Expected farthest couple of aisles to enter
71

lOMoARcPSD|4792658
Transportation – general overview
Main features
The logistic channel includes the distribution network (nodes) and the transportations systems
(connections).
Transportation has a major impact on costs and therefore on the financial performance of a business.
Transportation is a very complex process. It is possible to define:
• Several modes of transportation

• A number of solutions for each mode of transportation
• Many types of transportation providers
• Different solutions based on the product’s features
• Different legislation among the countries (example: weight capacity)
→ factors not related to the company may affect transportation performance
Transportation design is strictly related to SC Configuration (→ total cost approach) → several trade-offs
should be solved between transportation and related activities.
Example: retailers can hold lower inventory level if the cost of more frequent and faster deliveries does not
exceed the inventory carrying cost savings.
Transportation: It includes all the services for the physical movements of a certain quantity of goods
between a point of origin to a desired point of destination at a required time, using different modes of
transportation, using load units or vehicles, infrastructures, being complaint with the legislations.
72

lOMoARcPSD|4792658
Variables related to the customers demand:
• Type of goods → impact on mode of transportation and vehicle type

o Density: high-volume products vs. heavy products
o Perishability: frozen, fresh, temperature-controlled, room temperature products
o State: solid, liquid or gaseous state products
o Value: €/kg, €/m3
o Packaging: bulk, pallet, parcel, hung clothes
o Dangerousness: flammable, explosive, toxic
• Service level
o Lead time: from 24/48h to weeks
o Punctuality and reliability: ability to meet the time constraints
o Service regularity: ability to meet the required delivery frequency
o Traceability: tracking (goods location) and tracing (shipment routing)
o Safety and security of goods
o Freight management: monitoring of goods conditions during transportations
• Shipment characteristics
• Type of transportation
Variables related to the logistics service market:
• Mode of transportation: road, railroad, sea freight

• Vehicle type
• Type of transportation service
• Outsourcing decision (transportation outsourcing vs. in-house)
• Specialization by industry, production and SC
Intermodal transportation:
• Road → intra-EU most used

o Full Truck Loads – FTL
o Less than Truck Loads – LTL
• Rail → medium distance, raw
materials
• Water → extra-EU most used
• Air → connecting far countries
73

lOMoARcPSD|4792658
Mode of transportation: Road
General characteristics:
• Door to door delivery

• Quick loading/unloading
• Low transit time and good reliability
• Low impact of weather conditions
• High accessibility in terms of roads and supply
• Limited risk of damage (goods are handled only at the beginning and at the end of the delivery)
FTL – Full Truck Load

Definition: transportation in which a semi-trailer (or a trailer) is dedicated to a shipper who fills it with
freight for one destination. The shipment is usually picked up from one point of origin and delivered to one
point of destination. Once loaded, the goods are not handled anymore until they reach their destination.
Transportation unit load: trailer or semi-trailer
Handling equipment: normal forklift trucks and loading platforms
Application field: FTL shipment is usually for medium-long haulage.
• Plant warehouse → central warehouse

• Central warehouse → regional warehouse → transit point
• Supplier warehouse → production plant
for medium-high quantities in order to reach the full saturation of the truck, in terms of cube or weight
saturation.
Managerial issues: saturation of the truck in the direct-haul and especially in the back-haul.
Saturation: the transportation unit load has a maximum
capacity in terms of weight and volume. The ratio between the
maximum weight capacity and the maximum cube capacity
gives the optimal freight density, i.e. the density which
saturates both the weight and the volume. The transportation
rates depend on both the distance to be travelled and the
weight to be transported.
74

lOMoARcPSD|4792658
LTL – Less than Truck Load

Definition: transportation for quantities lower than a truck load, where goods are carried from the point of
origin to the point of destination through a carrier’s network (consolidation with other shipments). The
transportation means are usually a combination of small trucks (for pick-up and delivery) and large trucks
(for the line haul). Goods may be handled multiple times before reaching the final destination.
Main phases:
Transportation unit load: pallet loads or cases aboard a small truck.

Handling equipment: normal forklift trucks, a network of transit point/platforms is needed to carry out the
consolidation/sorting activities. Both processes and system have to be automated as to have short lead
times.
Local distribution
• Distribution in urban or small geographical areas:

o Central warehouse → big point of sales (supermarkets)
o Regional warehouse/transit point → traditional point of sales
• The trucks stop more than once in a delivery trip
• The trucks are smaller than those used in FTL
• The fixed times are comparable with the variable times of a delivery trip
Application fields: shipment of small-medium volumes from a single point of origin to the points of delivery
Managerial issues: maximization of the deliveries per trip, minimization of local distribution distances
through routing algorithms (TIME is the critical resource, how many pick-ups and deliveries can be done in
the time window?)
75

lOMoARcPSD|4792658
Service providers
The road transportation can be carried out according to two main options:
1. Private transportation → the carrier is also the owner of the goods shipped
2. For-hire services:
a. Low fixed costs and high variable costs → low capital expenditure to enter the market (in
particular in the FTL service)
→ there are plenty of small carriers in Italy (100K), they usually work as subcontractors of large logistic
service providers offering LTL/FTL services.
Chargeable weight
Rates based only on the weight make lightweight and low-density packages unprofitable for freight carriers
due to the amount of space required in the vehicle in proportion to their actual weight.
→ transportation rates in LTL are calculated based on the chargeable weight instead of the real weight.
76

lOMoARcPSD|4792658
Mode of transportation: Rail

Definition: in the railroad traditional service, the carrier
rents space on a train.
• Unit train: the shipper rents a whole train going

from one point of origin to one point of destination.
It is similar, from the managerial point of view, to
the FTL road transportation
• A full car loads
For car loads there are consolidation points (like LTL in road
transportation) in which the trains are formed by joining
cars going to the same direction, and sorting points in which train is split and the cars go forming other
trains.
Main characteristics:
• Low cost: in particular for long distances and large shipment quantities
• Low accessibility: loading/unloading points must be on the railroad
• Slow speed/high transit times and low reliability: due to the high and variable handling times at the
consolidation stations
• Damage risk depending on the type of service
Main application fields:
• Transportation of bulk raw material and generally low-value goods for large quantities and long
distances
• When time performances are not critical
The efficiency of rail mainly depends on infrastructure.
77

lOMoARcPSD|4792658
Mode of transportation: Water
• Low cost compared to the other transportation modes

• Only option (with air) in intercontinental shipments
• Very low accessibility: loading/unloading must take
place in sea-ports
• Low speed/high transit times due to limited haul
speed
• Acceptable reliability: dependability on weather conditions and time variability of port handling
operations
Main application fields: thanks to its low cost, water transport is advantageous for commodities with a low
value-to-weight relationship, or for commodities in which transportation cost is a significant portion of the
selling price (crude oil, coal, grain, sand, chemicals).
Mode of transportation: Air
• Very expensive compared to the other

• Low accessibility: loading/unloading must take place in
an airport
• High speed/low transit time, mainly dependent on the speed of the airport-based handling
operations
• Good reliability, even though transit times are affected by weather conditions
Main application fields:
• Long distance transportation of high-value products, and when time is critical

• Goods with high value-to-weight relationship
• Perishable goods
• Short life cycle products
• Emergency transportation
Air transportation higher costs should be traded-off with lower inventory carrying costs.
78

lOMoARcPSD|4792658
Intermodal transportation
Intermodal transportation services refer to the use of two ore more carriers of different modes in the
movement of a shipment, without changing the transport UL, known as Intermodal Transportation Unit
(ITU).
It requires Intermodal Terminals, dedicated facilities where the ITU are transferred from one mode to the
other.
→ It leverages the best features of each transportation mode.
There are 2 main intermodal transportation modes:
1. Road + rail → Piggyback
2. Road + water → Fishyback
Inland terminals allow shifting from a transportation mode to another and storing containers. It is also
possible to transfer containers from a train to another (→ terminal functions as gateway)
Piggyback
Part of the route is made by truck, part by rail.
• door-to-door service
• low costs, higher than only rail but lower than only road especially for long distances
• high transit times, dependent on railroad transit times and handling times in the intermodal
terminals
• low reliability
• low damage risk, ITUs are never opened during transportation
The best option is the swap body.
79

lOMoARcPSD|4792658
→ the more the distance by rail, the more the cost saving of the intermodal transportation
The application area of intermodal transportation is wider, if the origin point is located in an inland
terminal.
The cost structure illustrated is only valid if the
forward and return flows are balanced!
The slope of the curves heavily depends on
external factors, especially in road case (tolls,
labour, fuel costs, speed limits, number of
operating hours).
80

lOMoARcPSD|4792658
Fishyback
Part of the route is made by truck, part by ship.
• door-to-door service
• low costs, higher than only water but lower than only road, especially for long distances
• high transit times, depending on the water transit time and handing times in the sea-ports
• low damage risk as ITU are never opened during transportation
81

lOMoARcPSD|4792658
Road transportation management
Cost structure of road transportation

Transportation costs are affected by:
• Economies of scale: they exist when an increase in the fleet capacity leads to a reduction in the
unit transportation cost. Also, the increase in the company size allows a reduction in the unit
transportation cost. The adoption of bigger trucks generates economies of scale only if they are
saturated.
• Economies of density: they exist when the transportation capacity (means and facilities) remains
the same, despite an increase of the flow, thus reducing the unit transportation cost.
In order to understand how to optimize transportation costs, it should be noted that they heavily depend
on the cost/truck*trip.
• truck must be considered as a production system, in which the efficiency increases with the truck
saturation
• the main KPIs of efficiency are the total number of kilometres travelled and the operating hours.
→ the total number of kilometres travelled, and the operating hours are the parameters to be maximized
in order to have a correct planning
Optimization of road transportation

The key variables to optimize road transportation are:
• Annual travel distance per truck

o Total number of operating hours per driver
o Working load of the truck
o Loading/unloading time (including waiting time) compared to the total time per trip
o % of empty backhaul trips
o Average travel speed (related to the limits of the country)
• Truck capacity utilization
Causes of empty backhaul: outbound and inbound flows are not balanced. This can be due to different
concentration of point of origin (industrial districts) and to the difficulty in sharing trucks among companies
(for incompatibility of goods or strategic reasons)
Truck capacity utilization: standard pallets do not allow to achieve the best truck capacity utilization. The
utilization of the weight and volume depends on products density and pallet height. In some cases, the
truck utilization can be low due to the products features (for instance, non-palletized ULs), hence it is
necessary to define a target level that takes into account these features. The truck utilization can be
improved by changing the dimension of the ULs.
In local distribution – when order size is small – the truck utilization is affected by the maximum number of
stops in a trip.
The ways to optimize the costs per truck can be summarized:
82

lOMoARcPSD|4792658
Solutions that affect the annual travel distance per truck
• Reduction of loading/unloading time

• Triangulation
• Continuous movement
• Balancing forward and return flows
• ITS – intelligent Transport System (trip planning)
Reduction of waiting time for trucks: the truck with the loaded swap body leaves the swap body to the
customer and takes the empty one immediately: in this case the loading/unloading time is not perceived by
the trucks. Another solution is the adoption of despatch advise which is the list of the goods on the truck so
as the customer will be prepared to receive such items.
→ solution popular among e-commerce logistics providers (Amazon)
Reduction of loading/unloading time: use of conveyors inside the container and in the loading/unloading
area. This solution allows to save a lot of minutes (from 40/60 minutes to only a few) and the return time of
investment is very short.
→ solution optimal when there is a short distance between point of origin and destination (40km max), and
there is a massive flow of goods (more times a day)
Triangulation: traditionally inbound and outbound flows
are managed separately, including trucks.
When we deal with limited distances and short travels, we
can manage inbound and outbound flows as a single entity,
where the same truck is in charge of the replenishment of
the WH and of the distribution to the customers. In this
way the travel distance grows and cost per kilometres
drops.
Continuous movement: the drivers need to rest after a
couple of hours. If we decouple the driver from the truck,
the driver can rest while the truck can continue its travel. It is possible to work with two drivers. Usually this
solution is used when dealing with long distances.
Balancing the flows and ITS: we can use an ITS – Intelligent Transportation System to achieve this goal.
Usually only 1 of the 2 travels between the factory and the WH is saturated, the other is empty. With a
tender it is possible to identify 3 or 4 carriers that can offer the best prices for both the travels, and we
assign these carriers to one ark. The TMS – Transportation Management System receives the purchase
orders and translate them into a routing sent to the carriers of the selected ark. The carrier can decide
whether to accept or refuse the freight order.
→ negotiation helps reducing costs, especially when our bargaining power is high (lot of travels per year)
83

lOMoARcPSD|4792658
Solutions that affect the truck capacity utilization
• Division of the trailer in compartments

• Reduction of the height/volume of tertiary packaging
• Merging orders (time and space optimization)
• Multi-client warehouses
Compartmentation of trucks: introduction of beams when dealing with fragile items (example: yogurts).
This solution doubles the quantity of pallets in a single travel.
Reduction of tertiary packaging: slip-sheets are only used for
transportation, not when storing goods. We use this solution
when covering long distances (benefits in terms of
transportation costs are greater than the investment). Slip-
sheets can increase the saturation from 5 to 7 %. The main
drawbacks are the use of dedicated forklifts and the
loading/unloading time longer than the traditional pallet
solution.
Merging orders: multi-drop (based on the delivery date in terms
of time)
There are 2 types of orders: open orders characterized by a wide time window and orders to deliver in a
specific day. If we want to implement the merging of orders it is necessary to set an agreement between
the customers and the supplier. Multi-drop can be assessed only if customers have implemented a solution
to reduce the loading/unloading time of the truck, and we must analyse the orders to group those point of
sales with similar delivery frequency and orders which, once assembled, can saturate the trucks. For
instance, if our customers have two WHs near one to the other, we can decide to delivery the goods in the
same day offering a discount on the cost of the service.
→ sharing of benefits: SC management example
Merging orders: multi-pick (optimization in terms of space)
Implementing a multi-pick solution means saturating the truck by loading PLs from different points and
make a single delivery to the final destination. The sum of the loaded items makes it a FTL instead of
dealing the single deliveries as LTL.
Multi-client warehouse: multi-producer/retail warehouse implies the complete integration of different
producers/retailers with respect to warehousing and distribution. Through these models, benefits and
economies of scale can be achieved thanks to the reduction of operative costs and the common
management of the distribution activities.
Multi-client warehouses need 3 conditions
to be implemented:
1. Destination point must be similar
(pharmacies vs distribution centres)
2. WH is managed by a 3rd party
logistic service provider
3. Manufacturers are willing to share
their flows with competitors
84

lOMoARcPSD|4792658
85

lOMoARcPSD|4792658
Network Design
Distribution system
Definition: all the resources (inter- and extra-company) and structures involved in the transportation and
sale of the goods and the associated services to the end customers.
The management and the design of the logistic channel must depend on the management and design of
the trade channel.
Some specific logistic choices are linked to specific trade choices:
• Configuration of the trade channel

o Length
o Number and typology of intermediaries
• Organization of the trade function
o Responsibility
o Division in different Bus
→ different logistic channels for different trade channels
The logistic channel has the following functions:
• Consolidation/sorting/transportation optimization: collection from upstream of large lots and

preparation of the materials required downstream
• Product mixing: gathering together all the different product lines which are manufactured In
different plants
• Customer service: reduce the order cycle time and increase the reliability
• Efficient inventory holding: keep safety and cycle stocks which are deemed necessary within the
supply chain
86

lOMoARcPSD|4792658
Distribution Networks – manufacturer perspective

Distribution networks can be classified on the basis of:
• Number of echelons
o Direct shipment
o 1-echelon
o 2-echelon
o 3-echelon
• Number of WHs in each echelon
o Narrow distribution network (1,2, a few)
o Wide distribution network (many)
• Type of WHs in each echelon
o WHs with inventories
o TPs without inventories
Direct Shipment
Goods are delivered from suppliers straight
to customers. Direct shipment avoid
inventory-related costs and it implies only
transportation costs.
Direct shipment is advantageous when
production of a certain goods is
concentrated on a single plant. It is not
possible to optimize transportation costs and
difficult to provide the required SL.
1-echelon distribution network

With respect to a direct delivery distribution
network, the 1-echelon network (the fist tier of
WHs in a distribution network) provides the
following functions:
• Product mixing if suppliers focus on a

small part of the product range
• Reduction of the order cycle time as WHs are nearer to the market than the suppliers
• Optimization of transport from plants to delivery points thanks to reduction of connections and
the resultant increase in truck utilization
• Centralization of safety stock
• The number of central WHs depends on:
o The order-delivery cycle time accepted by the customer
→ the shorter the delivery time, the higher the number of CWHs
o The trade-off between transportation and inventory costs
→ the higher the relevance of transportation costs with respect to the inventory costs, the
higher the number of CWHs
87

lOMoARcPSD|4792658
The second tier of WHs in a 2-echelon

distribution network provides the following
supplementary functions
• Higher SL in terms of both cycle time

and punctuality
→ inventory in regional WHs
→ stock closer to the market
• Optimization of transport to the end
customers, in particular it increases
trucks saturation. Crucial when a
company has to serve multiple
small point of destination which
frequently place small-sized orders
2-echelon + TP distribution network

The transit point does not keep the stock of
goods. The customer orders are started to
fulfil from the central warehouse and not
from the 2nd level of warehouses. The
picking activity is performed in the central
warehouse. Transit points have
consolidation and sorting function.
Regional warehouses: the orders are
fulfilled by using inventories.
Transit point: the customer order is sent directly to the central warehouse, which performs the picking
activity and deliver the goods to the transit point. Then the goods are sorted and delivered to the customer
through the transit point.
→ optimization of transportation costs by reducing inventory carrying costs
→ service level does not improve (cycle time is 1-2 days longer)
TP adopts at least 2 different operative models:
• Pure cross-docking model: only sorting of transport units which have been completely picked
upstream
• Massive model: aggregation of different customer order, picking and consolidation of transport
units for each customer
88

lOMoARcPSD|4792658
Mixed distribution network – up to 2 echelons
Mixed networks permit to tailor the

management of goods flow according to:
• Order/delivery profile
• Service level
• Demand distribution (time and
space)
According to the demand, transit points
can become regional warehouses.
→ they give the flexibility that allows the management of more than one distribution problem at the same
time

Galbani is the only company in Italy to
adopt this type of network. Why?
→ They work with “attempted sale”.
Typical system of southern Europe.
89

lOMoARcPSD|4792658
Logistic network – retailer perspective

Direct shipment
The retailer owns the point of sales. The supplier is in charge of the distribution until the point of sale.
Retailers only have the costs related to the point of sales → NO WAREHOUSES (example: furniture)

The supplier ships the goods from the factory to the central WH of the suppliers.
The retailer is in charge of the management of the WH and the distribution from the WH to the point of
sales. The shipping frequency increases and the cycle stocks decrease consequently.
The cost of space is different (smaller point of sales, smaller costs of WH space)
→ the expensive area is used to sell the goods and not to stock them.
Retailers can get logistics discount depending on the shipment size.
→ logistics costs raise
→ improvements in SL
Supply Chain perspective

The combination of the manufacturer
and retailer networks lead to different
types of configurations to deliver goods
to the point of sales.
90

lOMoARcPSD|4792658
Optimization function and decision variables

Objective: identification of the network structure and the management policies to achieve the service level
objectives with the minimum overall distribution costs
Main variables:
Distribution costs:
• Transportation costs:
o Primary transportation: from suppliers to the CWHs, and from CWHs to regional WHs or TP
o Secondary transportation or local distribution
• Inventory carrying costs (storage, capital and depreciation costs)
o Cycle stocks
o Safety stocks
• Handling costs (in handling activities in WHs and TPs)
• Other costs (order management, packaging, reverse logistics)
Customer Service:
• Order cycle time: time elapsed between the order issue and the delivery of goods
• Delivery frequency: numbers of deliveries scheduled in the reference time window
• Delivery punctuality: delivering the order in the time window arranged with the customer
• Delivery completeness: all the goods included in the order are delivered in a single delivery
• Delivery flexibility: satisfy urgent or unexpected needs of the customer
91

lOMoARcPSD|4792658
Optimization function
There are 3 approaches:
1) Identification of the network structure capable to achieve the SL objectives with the minimum
overall costs → cost optimization
2) Identification of the network structure capable to get the maximum SL with a determined overall
cost → service optimization
3) Identification of the network structure capable to get the maximum profit. Most difficult to
implement → profit optimization
Constraints
It is rather unusual that the distribution network design process starts from “green field”. More often the
design consists of a re-configuration of the network due to threats/opportunities in the external
environment and/or within the company, concerning for instance the following:
• Market requests (new service levels, new markets, …)

• Points of sale needs
• Product/packaging features
• External conditions (Trade and custom barriers, Transportation
• infrastructures, Evolutions of the logistic services, New Technologies, …)
92

lOMoARcPSD|4792658
Distribution Network Design – Part 1
Methodology
• Strategic planning:
o Objective: identification of the most promising configuration of the distribution network
(3-5 alternatives)
o Methodologies: strategic and qualitative methods
o Data required: limited number of aggregate data
• Operative planning:
o Objective: best alternative selection and fine tuning
o Methodologies: quantitative methods
o Data required: huge amount of detailed data
Models:
• Strategic models
o Network selection matrixes
o Qualitative trade-off analysis of distribution costs
• Quantitative cost models
o Quantitative trade-off analysis of distribution costs (optimization)
o Cost analysis of different network designs (simulation)
• Location/allocation models
o Centre of gravity
o Linear programming
• Specific optimization models
o Sizing and allocation of safety stocks
o Local distribution optimization
93

lOMoARcPSD|4792658
Selection matrixes
The network selection matrix aims at finding a rough distribution network structure that fits the specific
distribution problem.
Phases:
1. Data collection: a determined set of data has to be collected per each distribution problem
2. Distribution problem representation: it has to be compact but comprehensive of all the drivers
3. Positioning on the matrix: depending of the values of the different drivers
4. Macro-decision of the network structure: the matrix gives some recommendation about the
number of echelons and WHs per each echelon
1 – Data collection
94

lOMoARcPSD|4792658
2,3 – Distribution problem representation and positioning on the matrix
In order to compare the different drivers

defining a distribution problem, they
should be represented on the same scale.
Then we get a unique value per each driver (product, supply, demand, service) through a simple average.
Examples: Ferrero (left) and Artsana (right)
4 – Macro-decisions on the network structure

production side more complex than market
side → 1-echelon
market side more complex than production
side → 2-echelons with RW
equal complexity → 2-echelons with RW or
TP
95

lOMoARcPSD|4792658
Cost models – number of WHs
Assuming that the number of echelons has already been chosen, we want to determine the number of WHs
that minimizes the overall distribution cost, for a given SL.
→ how do the main costs vary by increasing the number of WHs?
Objective: determine the curves that show how the distribution costs change by varying the number of
regional WHs
Considered costs:
• FTL transportation costs

• Local distribution transportation costs
• Inventory carrying costs
o Cycle stocks
o Safety stocks
• Handling costs
Assumption: the replenishment frequency does not change, and so the time between two consecutive
orders
FTL transportation costs

What happens if the number of regional WHs
increases?
→ FTL transportation costs hold steady until
transport are FTL
→ after a determined n, transportation costs
will increase because the transport will not be
FTL anymore.
As a consequence: → the #shipment size will
decrease → the #shipment per year will
increase
→ transportation costs increase
Local distribution costs
96

lOMoARcPSD|4792658
The same delivery area can be served

more than once during the day.
What happens if the number of RWHs
increases?
→ dRWi→Ak will start increasing
→ Ak will start increasing (vehicles can
spend more time to serve the areas,
and each vehicle can serve more
customers) → delivery area grows,
and number of vehicles decreases
→ #del will increase therefore
This process will keep until the distances
between RWHs and delivery areas is
irrelevant compared to the distances
travelled in the delivery area.
Length of trip estimation:
97

lOMoARcPSD|4792658
Inventory costs
If the replenishment frequency does
not vary, the cycle stocks will not
change by varying the number of
RHWs.
Safety stocks in a system depend on

different factors:
• SL
• Demand seen by each WH and
its standard deviation
• Geographical correlation of
the demand
• Replenishment LT and its
std.dev.
• Inventory policy
→ safety stocks deal with the

unpredictability of both demand and LT
The more the demand is split among WHs,
the more the safety stocks in the system.
Reorder point model: 𝑆𝑆 = 𝑘 ∗ 𝜎𝐷,𝐿𝑇 = 𝑘 ∗ √𝐸𝐿𝑇 ∗ 𝜎𝐷2 + 𝜎𝐿𝑇

2
∗ 𝐸𝐷 2
Periodic review model: 𝑆𝑆 = 𝑘 ∗ 𝜎𝐷,𝐿𝑇+𝑇 = 𝑘 ∗ √(𝐸𝐿𝑇 + 𝑇) ∗ 𝜎𝐷2 + 𝜎𝐿𝑇

2
∗ 𝐸𝐷 2
→ safety stocks are proportional to the square root of the number of WHs
The inventory costs per unit (icu) is subject to economies of scale.
The higher the number of
WHs, the higher the cost per
unit.
98

lOMoARcPSD|4792658
Handling costs
The handling cost per unit is subject to
economies of scale → automated WHs only for
high flows
Handling refers to loading/unloading the
vehicles, handling, picking…
Total distribution costs
99

lOMoARcPSD|4792658
Distribution Network Design – Part 2
Definition of the location/allocation problem

Location: assuming that the number of echelons and WHs for each echelon have already been decided, we
have to roughly determine the location of each WH (→ WH location), and the to find its exact position (→
site selection).
Allocation: assuming that the number of echelons and WHs for each echelon, and the location of the WHs
have already been decided, we have to determine: the flow to be allocated to each WH and the customer
allocation to the WHs.
The WH location process is based on 2 main steps:

1) Single-WH location
a. Centre of gravity
2) Multi-WH location
a. Heuristic method
b. Linear programming
c. Simulation
Single-WH: the only issue is where to locate

the WH. The most relevant costs are
transportation costs.
Multi-WH: it’s a problem both of location
and allocation. A multi-WH location model
has to deal with the following issues: multi-
WH location, product and production
capacity allocation to both plants and WHs,
customer allocation to the WHs.
100

lOMoARcPSD|4792658
Single-WH problem
Centre of gravity – model parameters:
• (Xi, Yi) = coordinates of both the point of origin and destination

• Fi = inbound and outbound flows
• Ri = transportation rate per unit [€/km*t]
Objective function: minimization of the transportation costs by finding the coordinates of the centre of
gravity
In order to find the centre of gravity al least two steps have to be made:
1) A first approximation of the real position of the centre of gravity has to be found (→ “centroid”). It
is an approximation because the real fares are not known at the beginning as they depend on the
distance to be travelled.
2) Starting from the position of the centroid, we have to proceed with a further calculation of the
position of the centre of gravity, according to the following:
di = distance
between the point
(Xi, Yi) and the
centre of gravity
3) We have an iterative procedure: the more the number of iterations the more precise the solution
(often the 2nd step is enough).
4) The distanced di can be got as Euclidean distances (outside urban areas) or as rectilinear distances
(in the cities)
101

lOMoARcPSD|4792658
Another option is to calculate di through the following equation, starting from the node coordinates and
the centre of gravity coordinates:
Key messages:
• The result does not depend on the origin (0,0)

• In the fist step, it is strongly recommended to use a constant Ri = 1
• It is a very useful method to find a rough location, even if it does not include some costs
• It can be used also to find iso-cost curves in order to assess the trade-off with the other costs
After the calculation of the centre of gravity, the meeting of the service level should be verified. This can
be done for instance using the software “Microsoft map-point” using the function “create drivetime zone”.
102

lOMoARcPSD|4792658
Allocation problem
Linear programming problems are typically solved by using the simplex algorithm.
Objective function: minimize the transportation costs by determining the optimal flows from the plants to
the WHs and from the WHs to the customers.
Constraints: related to the production capacity of the plants, the operative capacity of the WHs and the
demand of each customer.
Multi-WH location
• Heuristic algorithms/clustering methods: WHs are located as centres of gravity of each cluster in
which the distribution problem has been split
• Optimization criteria: they aim at determining the optimal solution, by assessing both the optimal
location and the distribution plan at the same time
• Simulation (what-if analysis): it evaluates the impact of the different network alternatives on the
objective function. It is a DSS – Decision Support System that allows the designer to make a few
preliminary decisions and to dynamically evaluate the efficiency of each solution
103

lOMoARcPSD|4792658
Inventory Management
Safety Stock allocation

Allocation: assuming that the number of echelons, the number and the capacity of the WHs, the location of
the plants etc have already been defined, we can take into account the different stock allocation strategies
that allow the minimization of the overall costs and the achievement of the established SL.
→ where should we place the safety stocks?
Coupled
system: SS is allocated to the RWs (stock depends on the production system)
Independent system: SS is allocated both to RWs and the CWs (stock does not depend on the production
system)
Assumptions:
104

lOMoARcPSD|4792658
Coupled system:
If safety stock is allocated to the RWs only, it faces:
• The demand variability (downstream variability)

o During the replenishment LT of the CW
o During the replenishment LT of the RW
• The Lead Time variability (upstream variability)
o The RLT of the CW
o The RLT of the RW
Independent system:
If SS is allocated both to RWs and CWs, it faces:
• In the CW the variability of

o The downstream demand during the LTc
o The upstream replenishment LTc
• In the RWs the variability of
o The downstream demand during LTRW
o The upstream replenishment LTRW
→ all the terms in formulas above must be referred to the SAME PERIOD OF TIME (days, weeks…)
105

lOMoARcPSD|4792658
Particular case:
Independent and identically distributed demands seen by the RWs.
106

lOMoARcPSD|4792658
Safety Stock and Order Cycle
OFR – Order Fill Rate: fractions of orders that are filled from the available inventory
Cycle Time of the CWH: time to fill a RWH reorder by the CWH/production
Cycle time of the RWH: time to fill a customer order by the RWH, assuming that the items required are in
stock
In order to estimate OFR – and then to size SS in

a WH – we have to:
• Decide what items have to be stored

• Set the SL per each item → IFR – Item Fill
Rate
107

lOMoARcPSD|4792658
Service Level – Item Fill Rate

We can define the SS level for a specific item through the following formula:
D,LT: standard deviation of the demand during the LT.

K: coefficient that takes into account the desired SL
Assuming that the demand and the LT are independent: D  (ED, D) and LT  (ELT, LT)
We can define the SL as:
• The probability to avoid the stockout during the LT: 𝑃(𝑆𝑂) = ℙ {𝐷𝐿𝑇 ≤ 𝑅𝑂𝑃}
𝑈𝑆𝑂
• IFR – Item Fill Rate: demanded quantity – available quantity ratio: 𝐼𝐹𝑅 = 1 −
𝐷𝑌
USO = expected annual stockout

DY = expected value of the annual demand
Assumption: the demand during the LT can be represented

through a normal distribution with average EDLT and standard
deviation D,LT.
The steps to get the Safety Stock Level are:
1) Set the probability to avoid the stockout
2) Find K in the standard normal distribution table
3) Put K in the formula to calculate the SS
The IFR can be computed as:
The steps to get the SS level are:

1) Set the IFR
2) Compute I(k)
3) Read k from the table of the normal loss integral
4) Put k in the formula to calculate the SS
108

lOMoARcPSD|4792658
Logistics & B2C e-Commerce
B2C e-Commerce refers to sales of products and services via internet to end consumers.
[online games, online banking and downloading of digital documents are not included]
Outbound logistics for B2C e-commerce entails a higher complexity and costs compared to the traditional
offline channel due to different reasons:
• The small size of units handled → logistics activities are related to single orders
• Some activities are carried out by the merchants and not by customers (last mile delivery, picking
and packaging)
• The high expectation of customers in terms of SL (lower cycle time)
Points of delivery impact on optimisation of delivery trips.
The main factors that influence the customer service in B2C e-commerce are:
• Order cycle time

• Convenience of delivery
o Depending on the industries, customer can choose the delivery date and/or even the time
window.
o The reduction of the time window increases the costs related to the last mile delivery
o Time windows agreed in advance leads to a reduction of the number of unsuccessful
deliveries due to the absence of the customer
• Delivery timeliness
• Delivery accuracy
• Information about the availability of products and
delivery times
• Availability of prompt information about order tracking
• Quality of post-transaction processes (after-sales, return management, unsuccessful deliveries)
o Return management refers to the merchant capability to adequately support customers in
case of returns. The merchant has to provide this service quickly, easily, without additional
costs (if the return happens for non-conformity reasons) and a very low cost in all the other
cases.
109

lOMoARcPSD|4792658
Design of logistics strategies

System configuration:
• Inventory ownership
• Distribution network configuration
• Outsourcing decisions
Logistic activities:
• Picking and packaging

• Deliveries to end customers
• Stock-out management
• After-sales activities
Inventory could be placed at the merchant or supplier WH.

Merchant w/o inventories:
• Inventories are located at the suppliers WH

• Orders are received by the merchant and then split and forwarded to the different suppliers
• Picking activities are performed by suppliers and in most of cases boxes are directly sent to the end
customers
• Outbound flows are outsourced to door-to-door service providers
Merchant w/ inventories:
• Inventories are located at the merchant WH

• Products are delivered using the merchant distribution network (direct shipment by the merchant /
through hubs by outsourcing to logistics providers)
• Inbound WH flows are typically characterized by a high product quantity per shipping
Distribution network design

Four main systems can be identified. These solutions differ in terms of costs and service and can be
implemented alone or combined together.
110

lOMoARcPSD|4792658
• Industry: consumer electronics.

• The company has a WH dedicated to online commerce.
• WHing is accomplished by employees.
• Home delivery is outsourced to couriers (express or specialized depending on the weight and
dimension of items)
• Industry: beauty
• Company has an area within the WH dedicated to stocking and picking of products of the e-
commerce channel
• WH is managed by the same supplier of the traditional channel
• Home delivery is carried out by couriers
111

lOMoARcPSD|4792658
• Industry: grocery
• Online orders can be prepared in local distribution centres, frequently replenished by a CWH
• Delivery is carried out by 3rd parties through customized transportation means
112

lOMoARcPSD|4792658
Omnichannel strategies for traditional retailers

Omnichannel strategy is a competitive strategy:
• Based on customer needs

• Based on the integration between
different sales channels
• Aiming at providing a seamless
experience
Four different integration levels between online and offline channels can be identified:
1) Infocommerce
2) Infostore
113

lOMoARcPSD|4792658
3) Click and collect
4) Instore support
5) Pick and pay
114

lOMoARcPSD|4792658
Logistics Outsourcing
Definitions
Outsourcing: the action or practice to obtain goods or services by contract from an outside source.
Logistic outsourcing usually entails:
• Fixed costs → variable / semi-variable costs

• Fund raising and tied-up capital reduction
• Flexibility increase
Outsourcing allows the company to focus on its core competencies
In order to have a core competence in any given area, 3 things are necessary:
1) Ability to invest
2) Expertise
3) Strategic fit
Contract logistics industry is not a perfect market → provider selection could be source of comp.adv.
The contract logistics industry is the set of players offering logistics services. (red arrows = revenues flow)
115

lOMoARcPSD|4792658
Profile of logistics outsourcing activities

Two main types of logistics outsourcing can be identified:
• Commodity outsourcing: tactical decisions about outsourcing (execution of “traditional” logistics

activities)
→ Short/medium-term reversibility, process innovation levers inside the company.
o FTL shipments
o Material handling activities
o Local distribution in a certain geographic area
• Strategic outsourcing: strategic decisions about outsourcing the whole logistics process or a large
part of it, including transportation and WHing activities.
→ Co-management of innovation levers but short/medium irreversibility.
o Outsourcing of the entire outbound/inbound logistics to a single provider
o Outsourcing of the entire WH management
Beyond the commodity or strategic outsourcing, other hybrid outsourcing strategies could be pursued:
• Spin off: creation of a separate company from a part of an existing firm

o To dispose of non-core activities
o To face business difficulties
o To develop new business areas
o To transform cost centre activities into profit centre activities by providing logistics services
to other shippers
• Joint venture: creation of a new company in which 2 or more companies enter a temporary
partnership
o To co-manage logistics activities
o To share benefits and risks
116

lOMoARcPSD|4792658
Value Creation
Change of the trade-off cost/service: in the AS-IS case the only way to raise the SL is to increase the logistic
costs. Exploiting the outsourcing we can move to another curve, allowing us to increase the SL while not
raising the logistic costs, or vice versa.
A 3rd party logistic provider can create value through 4 different factors:
1) Economies of scale → increase of volumes
a. Pecuniary: the increase of volumes reduces the price of the “factors of production”
→ higher bargaining power
b. Real: the increase of volumes entails an increase of the productivity of the “factors of
production” to provide a service (example: multiclient WHs, higher level of saturation)
2) Learning economies → increase of knowledge of logistic processes
a. First-copy economies: service cost reduction is related to the replication of an activity for
different shippers (industry specific focus)
b. Economies of experience: service cost reduction is related to the experience gained over
time
3) Ability to introduce innovation → opportunity to work with different shippers
a. Process innovation: developing a higher ability of process re-engineering
b. Asset innovation: developing a higher ability to assess innovative solutions (example: RFID,
handling systems, automation)
4) Flow management capabilities → higher skills and volumes allow a provider to develop flow
management capabilities
→ the combination of these 4 factors allows the

changing of the trade-off curve between cost and
value
117

lOMoARcPSD|4792658
Strategic approaches
It is unlikely that a logistic provider is very strong at all these 4 points.
We can classify the logistic providers in 3 categories:
1) Volume-oriented: they build their comp.adv. on a combination of operational strategies that allow
the company to manage significant volumes and can get benefits in WHs management and
transportation costs
2) Process-oriented: continuously searching for synergies and keeping monitored the KPIs
3) Innovation-oriented: they build their comp.adv. on the expertise achieved by means of re-
engineering teams, characterized by a strong capability in innovation transfer: they identify the
best practises in the industry, and they apply them to their specific case.
Conclusions
Nowadays, logistics outsourcing is a key competitive strategy, whose success depends, not only on the
providers selection, but also on the relationship setting and management.
A company must assess how the logistics outsourcing can create value and then adapt the possible
solutions to its own reality.
Choice can change over time depending on the strategy adopted.
118

lOMoARcPSD|4792658
119

Logistics Management Prof Marco Melacini

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Logistics Management Prof Marco Melacini

Uploaded by

Copyright:

Available Formats

lOMoARcPSD|4792658

Logistics Management - Prof. Marco Melacini

Logistics management (Politecnico di Milano)

StuDocu non è sponsorizzato o supportato da nessuna università o ateneo.

Scaricato da Andrea Aglietti (aglio99@hotmail.it)

Introduction to Logistics and SC ....................................................................................................................... 3

Scaricato da Andrea Aglietti (aglio99@hotmail.it)

Introduction to Logistics and SC

• Efficient → Cost reduction

• Integration → value of global optimization (vs. local optimization)

• Process → logistics as a process

We can finally talk about Supply Chain and SC Management:

Scaricato da Andrea Aglietti (aglio99@hotmail.it)

1960/70 1970/90 2000 to nowadays

Scaricato da Andrea Aglietti (aglio99@hotmail.it)

The 3 stacks of Logistics Management

Scaricato da Andrea Aglietti (aglio99@hotmail.it)

The importance of Logistics

• Order-delivery cycle time

Scaricato da Andrea Aglietti (aglio99@hotmail.it)

Logistics Management and Strategy

Logistics and the sources of Value

Revenues → better customer service

Costs → lower logistics costs

Current assets → lower inventories + faster

Fixed assets → less resources and infrastructures

How can we reduce transportation costs?

• By improving the efficiency of transportation, handling, storage, use of packaging etc…

How can we increase the revenues?

• By improving customer service:

Scaricato da Andrea Aglietti (aglio99@hotmail.it)

How can we reduce the current assets?

• DIH = average days of inventory holding;

Another formulation considers the Working Capital:

Scaricato da Andrea Aglietti (aglio99@hotmail.it)

How can we reduce the fixed assets?

• By better logistics/SC Planning → Reducing variability and unpredictability

• By improving productivity through investments in Fixed Capital

Customer Service – classes of indicator:

Scaricato da Andrea Aglietti (aglio99@hotmail.it)

The margin-service relationship:

• Cost-to-Serve approach: we need to

Scaricato da Andrea Aglietti (aglio99@hotmail.it)

Logistics Strategies – Lee’s model

Demand-side uncertainty – main factors: Supply-side uncertainty – main factors:

• Products variety • Number of items, localization of suppliers

Scaricato da Andrea Aglietti (aglio99@hotmail.it)

Lean vs. Agile SC Strategies

Lean SC Strategy Agile SC Strategy

→ Supply-side and Demand-side should be → combination of Responsive and Risk-Hedging

Scaricato da Andrea Aglietti (aglio99@hotmail.it)

Risk Hedging SC Strategy Responsive SC Strategy

The CW presents a demand profile

Scaricato da Andrea Aglietti (aglio99@hotmail.it)

Time-based, Asset-based, Technology-based, Relationship-based SC Strategies

Time-based SC Strategy Asset productivity SC Strategy

• Cycle time reduction • Inventory reduction

Technology-based SC Strategy Relationship-based SC Strategy

Scaricato da Andrea Aglietti (aglio99@hotmail.it)

Warehouses – General Overview

When designing a distribution centre, we have to keep in mind the requirements:

The output of the design phase should be:

The basic functions of a warehouse are 2: