The case of the Warehouse with a Manual ASRS1
“We have come a long way,” remarked the warehouse manager Alvin.
Company S was started about 30 years ago. It was established to provide warehousing to
the various subsidiaries of the parent organization. Buying for these subsidiaries was
centralized at this warehouse. But recently when the subsidiaries became organized as
independent business units, buying became decentralized. Since then, S has reduced its
staff strength from over a hundred to just 45, not a small achievement for a warehouse
whose operations are largely manual.
Still, Alvin felt that there was room for more improvement. “As the saying goes, garbage
in garbage out”, Alvin continued, “data entry errors are our constant bug. For us, if a
wrong quantity is entered, it would cause a string of errors, which may not be detected
until the cycle count or until the last piece was needed. If it were a critically needed item,
we would be in deep trouble not being able to provide the item.”
Migration to the new information system SAP took place sometime in 1999, with minor
glitches here and there; otherwise the information system has been quite effective and
useful.
To cap everything, the company is evaluated on EVA2, which is compared across all the
subsidiaries. Alvin thus has to be constantly on his toes to make sure his subsidiary’s
EVA improved; if not, at least maintained. With EVA, there are fair grounds for
comparison across all subsidiaries, as the cost of capital was also taken into account.
After a kaizen master specially flown in from Japan helped streamline their processes to
the present state, the challenge for Alvin is to make greater improvements on a process
that seemed to have reached its optimal level. The question before him is: What else can
be done in this warehouse where the activities are mainly manual to further lower their
cycle time and improve performance?
1.
Description of the firm
Company S has three warehouses located in proximity to one another. They are, (i) the
main warehouse (about 40,000-50,000 square feet), (ii) the civil store (5000 square feet)
and (iii) the air-conditioned store (6000 square feet). The latter two are air-conditioned.
The main warehouse stored the bulk of the items, the civil store housed items belonging
to a special group of customers and the air-conditioned store is used for storing products
with rubber or metal parts.
The firm processes 3 kinds of items – small, semi-bulk and bulk items and has around
200,000 line items in stock. Small items formed the majority of the receipts. Hence, the
1
This case was prepared for class discussion in the Department of Decision Sciences, National University
of Singapore. The case does not reflect ……
2
EVA- Economic Valued Added, this is a financial management tool to evaluate the profitability of the
company’s operations after taking the cost of capital in account.
structures of the warehouses are designed to accommodate mainly the storage of small
items.
The storage mode in all the warehouses is racks. The main warehouse has three tiers of
racks while the air-conditioned store has two tiers to make full use of the space bestowed
by the high ceiling. The racks contain the bins. Small and semi-bulk items are put away
in small and semi-bulk bins respectively. The small item bins, occupy the majority of the
racks with the bottom row reserved for semi-bulk bins. Bulk items are put away in special
racks or just on designated floor areas. Since the small item bins formed the greater part
of the warehouse, they would just be referred to as bins.
The matter of concern to the manager is the air-conditioned warehouse. Space seems
limited for the high demand being experienced. One option for the management to
augment air-conditioned warehouse space is to air-condition the main warehouse. The
management feels that it not justified due to economic reasons. This decision leaves the
manager with no choice but to find ways to manage the limited air-conditioned
warehouse space better.
2.
Description of the process
“It’s like a manual ASRS,” explained Alvin. It is a paradoxical statement but that
reflected their process well. This is a new system implemented in early 1999. Empty
bins are brought upfront to the receiving department. At the receiving, the bins get filled
with receipts. The bins are then put away in the racks.
Each bin has a permanent
location in the warehouse as stated in the address label affixed to it. This is akin to a
ASRS. What was special in this case is that the bins are moved manually from its
location on the rack to the receiving department and back.
2.1
Goods receipt
The company received about 6000 line items per month, all ordered by the subsidiaries.
When the goods arrived, Tay, who was in charge of goods receipt, would check the
airway bill, sign and stamp on the documents to be returned to the courier. Normally
each incoming shipment would consist of a big box that contained many smaller boxes
inside. Thus one arrival from the courier would mean an assortment of items received,
depending on what was ordered at the subsidiaries. Next, Tay would open the boxes and
tally them with the documents he received from the courier. He would then put the
relevant document with the item and place it in a queue for the next process, which is
inspection. Inspection is done on a First-In-First-Out (FIFO) basis.
Figure 1 – G/R area
The goods receipt (G/R) area is divided into four lanes. (Refer to figure 1). Items
received would be placed on these lanes from lanes 1 to 3 in the order of the date and
time of arrival. The last lane is reserved for bigger items; hence its area is bigger than the
first three. As seen from Figure 1, each arrival would be placed on a pallet. This
facilitates moving them near the inspection area.. Frequently, Tay would move up the
remaining arrivals once the earlier items were cleared. He does this by using a simple
forklift to lift up the pallet and bring it forward.
2.1.1 Inspection
Figure 2 shows the quality inspectors doing their work. Just before each inspector’s desk,
a few employees are seated to check that the certificates issued for the items are correct
They also verify the quantity by counting or weighing before passing it to the quality
inspectors. This could be quite time consuming as some items come in large quantities
and manual counting is what is done. Before actual inspection, the inspectors firstr key in
the item purchase order number into the computer to check that it is the correct part and
is in the right quantity ordered. This verification differed from the earlier checking at the
receiving lane in that the quality inspectors look into the system to confirm, while the
workers in the earlier stage only make sure that the documents corresponded to what they
received. After making sure that the quantity and part is correct, they then inspect the
items. The degree of inspection varied among the items.
Figure 2 - Inspection
Certain items need only general eyeball inspection while others go through more detailed
inspection. There are very few samplings, as the less critical items would be just looked
through while the critical items need to be individually inspected regardless of quantity.
This often resulted in bottlenecks when the receipts are many.
Figure 3 – labeling
When the item passes the quality test, the inspector then keys in the relevant details and a
label is automatically printed. As the empty bins are placed in proximity to the
inspectors’ work area, they would have decided beforehand which bin to put the item into
and scan in the address so that the label would include the storage address of the item.
The current policy is to clear the items for binning within a day of receipt. Hence if there
are many arrivals on a particular day, workers would do overtime to clear them as soon as
possible. Nevertheless, they are doing it well ahead of their set target as officially, they
have a time limit of 3 days to process them.
2.1.2 Allocating storage
Figure 3 – awaiting binning
After inspection, the items are packed, labeled and placed onto empty bins near the
inspection area. When a substantial number of bins are filled up, another employee, Lim,
puts away the bins into their respective locations on the warehouse racks. Figure 3 above
illustrates the filled bins waiting to be put into the warehouse.
Figure 4 – small item bins and semi-bulk bins.
Figure 4 shows the 2 types of bins used in the warehouse – small item bins and semi-bulk
bins. The small item bins each have three compartments and regulations dictated that a
maximum of only five line items could be stored in each compartment. Hence
theoretically, each bin could take up to fifteen small items.
Figure 5 – bulk items awaiting storage
After inspection, bulky items are moved to an area in front of the inspectors (figure 5).
As they are not put into bins, they do not have permanent address. Lim is responsible for
allocating space to them. He just follows a random allocation policy. He carts the items
on a trolley into the warehouse. Upon finding a suitable location, he puts away the item
there and writes down its address on the box and the document. After doing so for all the
bulky items, he would then update the permanent address of the bulk items in the system.
Semi-bulk bins are used to store larger items or those that come in greater quantities and
are then contained in a bigger box. There is no restriction on the number of items that
could go into a semi-bulk bin, but if too many items are placed inside, the order picker
will take a longer time to locate the item. There are not many semi-bulk bins as the
company started using them only recently. Hence, most of the semi-bulk items are put
away to the racks in a random manner similar to bulk item storage allocation
2.2
Relocation
The team of order pickers is in charge of replenishing empty bins to the receiving
department. If the order pickers seem to run out of empty bins, the warehouse supervisor
has to print out a report on the addresses of the empty and almost empty bins. Besides
listing these bins, the system can also printout the items that are in a bin. An employee
would then be dispatched to retrieve the empty bins during overtime. If there are not
enough empty bins, the items remaining in the almost empty bins would be taken out and
placed elsewhere. As the worker took out these items for relocation, he would make a
record of it in the logbook and update into the system when he was done. The leftover
items are not randomly allocated, but put into the first bin of that row. Thus, the first bin
is normally not brought to the receiving area. This shifting of items is known as
relocation. Statistics collected for relocation showed an increasing trend. This is because
of the fact that demand for space in the civil and air-conditioned stores have been
increasing, but supply remains fixed. The air-conditioned store in particular, is found to
be 80% filled with slow3 or non-moving items. To worsen the situation, the random
binning and the legacy system cause the fast moving items to be mixed with the rest. As
a consequence the majority of the relocation is done in the air-conditioned store. The
table below exhibits the relocation figures.
No. of line items
binned
June 1999
84
July 1999
150
August 1999
310
September 1999
142
October 1999
152
November 1999
211
December 1999
197
January 2000
291
February 2000
569
March 2000
551
April 2000
1175
May 2000
1759
June 2000
1370
Table 1 – relocation figures4
Month
No. of line items
relocated
3113
5432
5652
5065
5635
6175
5641
1257
1149
1563
1526
1204
657
% relocation
2.70
2.76
5.48
2.80
2.70
3.42
3.49
23.15
49.52
35.25
77.00
68.45
47.96
Explanation of figures
 Initially, as new bins were bought in large quantities for the new system, there was
availability of empty bins; hence there was less need for relocation.
 As the bins started to run out, more relocation had to be done (especially for the civil
and air-conditioned stores).
 Past centralized purchasing resulted in greater safety stock; the change to
decentralized purchasing meant less safety stock and movement of past stocks.
 In Jan 2000, many workers were on holiday and so there were fewer people doing
the work.
2.3
Order picking & shipping
The warehouse follows zone picking. The orders are consolidated every morning and a
pick list is generated. The warehouse handles two types of orders, namely normal orders
and expedited orders. Normal orders can be shipped within 1.5 days but the expedited
orders must be shipped as soon as possible. The warehouse uses two separate computers
for generating the pick lists for the normal and expedited orders. Sometimes the orders
need to be picked from G/R. These are called “offline issues.”
3
Slow moving items are defined as having less than 3 issues in the past 2 years
Relocation figures – records of earlier relocation were unavailable due to different reporting,
accountabilities and process. These were the numbers for all 3 warehouses, but aircon store formed the
majority.
4
The warehouse team is in charge of order picking and dispatch. There are 7 order pickers
with 5 allocated to the main warehouse, 1 to the civil and aircon store and another to
fulfill all emergency orders. The workers are rotated every month among the different
locations to pick items. Every morning, each worker will be given a pick list that has
been sorted by location. They also help one other if they have finished picking from their
own area. If there are too many orders for that day, some of the workers will do overtime
to finish picking the items.
After the items have been picked, the picker brings them to the dispatch area and scans
the items into the system before sorting into trays according to the customer. Normal
orders are dispatched once a day, while the expedited orders have more frequent
deliveries. Sometimes the subsidiaries send their own employees down to the warehouse
to collect the item if the order is very urgent.
1.2.1 Issues of concern
As pointed out earlier, the company is very much concerned about the frequent shortage
of empty bins to be brought out to G/R for binning. There has been an increasing trend in
the number of relocation activity by the warehouse team resulting in lower productivity.
The company considers that the relocation activity is not a value-adding activity and so
needs to be minimized, if not altogether eliminated. This company wishes to address the
following questions:



Will a class-based storage policy be beneficial?
Will a division of 2 to 3 classes (ABC classification) based on the popularity of the
parts, with a random storage policy in each class be better?
Will implementing such policies lead to less partially filled bins and fewer stock outs
of empty bins, thereby reducing the number of relocations needed?