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EXECUTIVE PUBLISHER Jayaram Nair jayaram.nair@scmp.in EDITORIAL Consulting Editor Dr. Rakesh Singh rakesh.singh@scmp.in Executive Editor Girish V S girish.vs@scmp.in Advertising Soney Mathew soney.mathew@scmp.in Director Rashid Iqbal rashid.iqbal@scmp.in Media Group 211/1, Sona Udyog, Parsi Panchayat Road, Andheri (East), Mumbai - 400069 INDIA. Tel: +91 22 600 20121/122 www.scmp.in Printed and published by Jayaram Nair on behalf of B2B Media Group. Printed at SAP Print Solutions PVt. Ltd, 28 Laxmi Ind. Estate, Lower Parel, Mumbai - 400705, India and published at 211/1, Sona Udyog, Parshi Panchayat Rd., Andheri (E), Mumbai - 400069.
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FOR E WOR D DR. RAKESH SINGH, Consulting Editor, Chairman ISCM
W
arehousing is often dismissed as the lowtech, low-innovation, plain Jane ‘workhorse’ of the supply chain industry. But, in fact, warehousing is pivotal in enabling logistics industry to keep up with fast pace of change. Add to it the fact that supply chains are moving from small isolated chains to multi-chain networks, and that delivery times are getting compressed, we have our work cut out for us. In earlier times, the standard process for a warehouse was very simple – receive goods, dispatch goods, and track returns. But the dynamics of multi-channel environment makes it increasingly complex. Today a warehouse is a strategic component of the supply chain – delivering value added services and reducing the inefficiencies of the supply chain. SCMPro wishes to celebrate the humble warehouse with a special “Warehouse Compendium-2014” – a series of articles that look at various aspects of a warehouse. The attempt is to create a set of articles and case studies that will help warehousing personnel get a better understanding of the business of warehousing. As supply chains transform into demand chains, we will see warehouses rise in importance. Issues like flow segmentation and demand management will take up our attention. Another significant trend we see is the convergence of IT and robotics to create an efficient, value added warehousing offering. All this while we look at reducing the carbon footprint of the warehouses! We hope you like the coverage. Happy Reading ! Warehouse Compendium 2014
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TRENDS
COLUMNS
Driving Performance Management...................... 14 Sustainability in Warehousing.............................. 20 Future Of Warehousing......................................... 28
Dynamic Systems by Ashok Kumar K............................................. 26 Data Driven Decisions by Sudipto Sen............................................ 58 Building Next-Gen Warehouses by S M Mohan.............................. 82 Warehouse Goals by Dr. Larry Lapide........................................... 103
3 Supply Chain Trends......................................... 08
HUMAN RESOURCE
PROCESS
Labour Challenge........................................................... 96 Manpower Productivity............................................... 100
Application of TOC...................................... 38 Warehouse Operation Matrics...................... 44 Exponential Smoothning.............................. 48
INTERVIEWS Srinivas Sattiraju, CEO, DELEX.................................. 86
AUTOMATION
PROFILES
Warehouse Automation................................. 50 Battle Of BOTS............................................ 70
Schaefer Systems India.................................................. 78 Voltas Material Handling............................................... 94
TECHNOLOGY
CASE STUDIES
Impact of e-Commerce................................. 64
Greenfield Warehouse Design..................................34 Material Flow & Operations Design........................56 Challenge of design in retail DC..............................62 Technology Evolution...............................................68 Yale and Maini... a perfect Chemistry......................76 Armes Maini a Sought Partner.................................88
LEGAL Warehouse Reciepts...................................... 90
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TRENDS
3 Supply Chain Trends that will Change WAREHOUSING
THE INDIAN WAREHOUSING SECTOR HAS BEEN CONSTRAINED BY A NUMBER OF FACTORS – legal status being just one of them. Indian warehouses are emerging from the dark ages – where they were considered a place for the producers to dump their products – to a slightly improved status of service provider. Te producers do not yet see warehouses as a specialized service that can add real value to their opera tions. However, we can learn from the experience of global players, who have today become a core part of a complex supply chain. SCMPro looks at three Trends in supply chain that will affect warehousing and try to analyze the impact.
W
hile researching on areas to focus on for your magazine, we came upon an interesting area – how major supply chain trends will affect warehousing. We felt it would be interesting to bring to you a brief, thought provoking article on the impact of some of these trends. We restricted ourselves to just three such trends.
1. SUPPLY CHAIN NETWORK DESIGN A firm’s supply chain allows it to move product from the source to the final point of consumption. Network design involves building a mathematical model of the supply chain. This model is then solved using optimization techniques and then analyzed to identify the best solution. Specifically, firms focus on modeling the supply chain to determine the optimal location of facilities - warehouses, plants, lines within the plants, and suppliers - and the best flow of products through this network structure. The typical strategic logistics network design problem considers the number of warehouses required, customer service delivery requirements, the inventory investment required under alternative network configurations, inbound and outbound freight costs, and facility costs. Facility costs include labor, land, construction, taxes, and other regional location variables. When the firm develops the optimal network design, it needs to evaluate appropriate trade-offs between all relevant costs and 8
Warehouse Compendium 2014
variables. For example, the location and number of warehouses in a network will impact the cost of inbound freight versus outbound freight. Typically, a network with many warehouses will have lower outbound customer delivery freight costs than will a network with one or a few warehouses. To add to the complexity, the products handled too create their own constraints. The requirements for an Ultra Fast Moving Consumer Goods wil be quite different from that of a food product. During the design process, some firms first determine the basic facility layout, capacity and technology that represent their “standard” configuration for each warehouse and then decide the optimal number and locations of warehouses for their network. A few firms the sequence is reversed. First the firm performs its evaluation of freight, warehouse location and other logistics costs, and then the warehouse layout, technology and automation planning. Both these approaches have their merits. However, a far better alternative would be to go in for an iterative process, with both the network design and warehouse design start off together, and after each step, the teams exchange notes, incorporate the design changes based on the feedback. This approach enables a holistic view and balances total logistic network annual operating costs, investment costs and service levels with opportunity to use technology to control variable rates, such as Warehouse Compendium 2014
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the amount of labor and utilities required within the warehouse. 2. DEMAND SYNCHRONIZATION Both producers and sellers face a unique problem – either they run out of stock or they hold excess inventory. For most firms, manufacturers or a retailer, having the right product at the right place at the right time and at the right price continues to pose a challenge. Managers have to perform a delicate balancing act every day - balancing transportation costs against fulfillment speed, inventory costs against the cost of stock-outs, customer satisfaction against cost to serve, new capabilities against profitability. To make matters worse, supply chains are now going global – companies are now sourcing their requirements from the best fit supplier across the globe. On the other hand, big buyers in the retail sector are forcing the suppliers for items that can be straight away put on to their shelves. Demand synchronization is the process, through which the supply and demand are accurately matched. Using a combination of actual data and forecasting techniques, the manager can identify potential out of Stock or excess inventory scenarios and proactively intervene. It is difficult to scale the manufacturing process, unless it is for custom made goods, based o customer demand. The plant has to produce at economically viable batch sizes. The producer will not individually pack and label goods as per each customer’s requirement. And if the supplier is located overseas, there is a time and customs formality element that needs to be factored in. A good warehouse can step up to meet these challenges. The first set of people who will come to know about changing demand patterns is the warehouse managers. They are aware of the ebb and tide of demand and have the metrics to be able to analyze it. Instead of looking at the warehouse as a dumping yard, business would do well to 10
Warehouse Compendium 2014
s hed ilable s PEB /s ava t s se ge Lar ehou bai r ICS Wa r Mum IST G LO nea OF
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Antariksh Logistics Leasing Services
integrate the inputs from the warehouse into their production planning. A networked warehouse will be able to source product from across the network, and move it to the customer to minimize stock outs. The warehouse will be able to monitor the demand of goods and route the dispatches. And having an idea of potential demand will enable the warehouse to stack them ready to dispatch, during the lean hours, thereby maximizing the labor thru put. At the same time, the warehouse can extend the value added services like labeling and packing the units so that they are shelf ready. Once the warehouse evolves into a supply –demand synchronization unit, it will be able to realize higher revenues from the existing flow of goods. It ceases to be a dumping yard pricing itself on area used for storing.
ONCE THE WAREHOUSE EVOLVES INTO A SUPPLY -DEMAND SYNCHRONIZATION UNIT, IT WILL BE ABLE TO REALIZE HIGHER REVENUES FROM THE FLOW OF GOODS
3. MULTI CHANNEL FULFILLMENT In today’s networked world, customer touch points have risen exponentially. Companies are constantly looking at new ways to reach their customers or develop new market segments for their products. They are forced to distribute their products using multiple channels. These channels could be the traditional stores, mail order, phone, TV stores, Malls, internet and mobile medi-
ums. Companies are demanding that their distribution networks be able to serve these additional markets and at the same time, continue exceeding customer satisfaction without adding real estate. The concept of Multi-Channel Distribution under one roof is not new. But the additional demand that they meet and exceed customer service levels is straining even the best of networks. One of the challenges of developing a multiple channel distribution network is aligning both the external and internal elements of the Supply Chain with the customer service expectations. Traditionally, the warehouse or distribution center operations have been the most overlooked and least understood link in the Supply Chain. Most warehouses are designed to support retail and distributor deliveries. They receive full pallets, store them and send full pallets out. But all that is changing. Today, warehouses are required to handle both low volumes, high number of items from the stores and distribution channel as well as the high volume low number items from e-channels. And the same set of people, process and equipments has to be able to handle both. Again, this is an area where the warehouse can add value and realize higher revenue. n
MULTI CHANNEL FULFILLMENT CHART SALES CHANNELS FULFILMENT METHOD PRODUCT FLOW WHOLESALE
Cross Dock
RETAIL Pool Point
SHIPPED OUT AS MHE OPTIONS
Immidiately Shipped Pallet
Lift Trucks
Product Sorted to Pallet Outbound Pallets
Potential for Automated sortation
DISTIBUTOR Full case out Product Store / Pallet and LTL Full Case Picks
Pick modules and Automated sortation
DIRECT TO Split Case Product Store / Pallet, LTL or CONSUMER Each Picks from Parcel Case / Packed
Pick modules / Pack Stations / Automated Manifesting / Sortation / Truck Loaders Source: Trifactor
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Warehouse Compendium 2014
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TRENDS
TOUGH TIMES NEVER LAST, BUT TOUGH PEOPLE DO. But for the tough people to outlast the tough times, they need to be able to conserve their cash burn rate, reduce costs and boost revenue from every quarter. This is easier said than done. We have had a long series of cost optimization drives in our corporate entities. Almost every paisa that could be saved, as saved. Process efficiency and manufacturing efficiency have been the buzz words. And we have scraped the bottom of the barrel as far as costs are concerned. The one function where inefficiencies still exist is in the supply chains. SCMPro takes a look at the performance management possibilities at the warehouses.
DRIVING Performance Management in Warehouse
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Warehouse Compendium 2014
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he Supply chain cost to the Indian companies is around 14 to 15% of the total costs. This is against a 8 to 10% range for developed economies. Studies in the US and Europe show that warehousing accounts for 20% of this cost. (Unfortunately, no such figure can be estimated for India, given that warehousing income is still considered as income from house property!) This leaves a potential savings of around 5% to be tapped into. Companies today are targeting the logistics and supply chain areas for gaining cost advantage. The reduction of warehousing costs reduces the total cost of goods sold and helps companies have improve their profit margin or at the most basic level, derive a cost advantage in comparison to their competitors. In this article we examine the possibility of companies gaining cost advantage through efficient Warehouse Management. The goal of this article is to expose the next best practices that can be used in warehouse performance measurement which will lead to performance improvements and as a consequence attain cost reduction. Warehouse performance measurement is commonly defied as the measurement of: how the warehouse uses its storage space, the customer relationship management, quality level, assets usage and cost structures of the warehouse. We take a look at the warehouse performance
indicators, common methods of their calculation and interpretation, and the uses of the metrics to improve the warehouse performance. Under normal circumstances, we would be able to quantify the efficiency and effectiveness of an action or activity in the warehouse, identify if the work is performed in the right way, (or if not what is going wrong) and identify the causes of poor performance and its correction. However, given the nascent stage of the Indian warehousing sector (Though officially it is yet to get the status of a sector) it will be difficult to create an empirically tested performance management system. What we can do is to extrapolate the results from other sectors and derive a plausible performance management system. And refine the system as we go along. The normal process of performance measurement is defining a set of performance indicators, also called key performance indicators (KPI). KPI’s are specific characteristics of the process which are measured to identify if the process are being delivered as per the accepted norms. The best way to use KPI’s are to compare process values with normal, standard values. As is usual with any metric, specifically a KPI, there is a profusion of indicators – variously defined at over 130 individual processes. However, for the sake of sanity Warehouse Compendium 2014
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and pan of control, there are a few indicators that are globally accepted KPI’s for warehouse performance management. They are stor age surface, storage volume; storage racks, number and characteristics of docks, pallets per hour, pallets per square meter, opening hours; dangerous items; possibility for temperature control; separation of storage areas; geographical distance to highway
connection, train, waterways; certification; opening hours; assistance with customs; use of technology; handling equipment; assistance with customs. These indicators can be grouped under three broad heads order fulfillment, inventory management and warehouse performance. Such grouping helps the warehouse manager in identifying the core issues and areas f non-performance
ONE EASY TYPE OF GROUPING UNDER THE INVENTORY MANAGEMENT CAN BE: MEASURE
CALCULATION
Damaged Inventory (Min)
Total Damage / Inventory Value
Days on Hand (min.)
Avg. Month Inventory) / Avg. Daily Sales/Month
Storage Utilization (Max)
Avg. Occupied Sq. m. / Total Storage Capacity
Dock to Stock Time (min.)
Total Dock to Stock Hrs. / Total Receipts
SIMILARLY FOR THE WAREHOUSE PERFORMANCE INDICATORS WE CAN USE: MEASURE
CALCULATION
Orders per Hour (max.)
Orders Picked or Packed / Total Warehouse Labour
Items per Hour (max.)
Items Picked/Packed / Total Warehouse Labour Hrs
Cost per Order (min.)
Total Warehouse Cost / Total Orders Shipped
Cost as % of Sales (min.)
Total Warehouse Cost / Overall Sales
AND FOR THE ODER FULFILLMENT GROUP WE CAN USE: MEASURE
CALCULATION
On-Time Delivery (max.)
Orders On-Time / Total Orders Shipped
Order Fill Rate (max.)
Orders Filled Complete / Total Orders Shipped
Order Accuracy (max.) Error
Free Orders / Total Orders Shipped
Order Cycle Time (min.)
Actual Ship Date – Customer Order Date
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Warehouse Compendium 2014
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or poor performance easily. All the manager has to do is to pick the relevant metric she wants to measure and add it to the group it belongs to. The bigger issue here is to develop the standard or industry benchmark for these indicators. Is an On time delivery rate of 98% acceptable or do we have it at 99.99%? Is 5 orders per hour processed adequate or should it be 10. These are issues that the warehouse manager needs to grapple with. And develop acceptable benchmarks for each process in the warehouse. An easy way to identify the issues in the warehouse is to generate a Warehouse process heat map. The heat map essentially is a visual tool to identify subpar performances and brings it up to the notice of the warehouse manager. The underlying assumption here is that the warehouse has a technology solution in place – either as a warehouse management system or some form of enterprise systems. If the warehouse has a WMS, it will be easy for the manager to collect performance metrics – it can be delivered to the manager via a dashboard. The message for warehouse performance management is simple. There are two pillars of the performance management sys18
Warehouse Compendium 2014
tem - performance indicators and process mapping. These two pillars complement each other. It is easier to establish key performance indicators for a warehouse after a process map was drawn, considering any other indicators used globally. The process map on the other hand provides a 60,000 feet view needed for establishing relevant performance indicators. Performance indicators are useful for identifying the problems – abnormal values of the indicators act as a control system for a warehouse. This is the easier part. The difficult part is to use the metrics to solve problems. There is a very simple and effective way - identify the causes of the problems and then try to diminish their impact or just eliminate the causes. It is a cause-effect approach, easy to be applied by any manager. Warehouse performance measurement means discovering the problems of the warehouse and solving them before it becomes a larger issue leading to loss of business. It is a way to reduce costs by improving operations that take place in a warehouse, and having low costs is an essential feature of differentiating logistics firms. These key performance indicators can be equally applied to a small warehouse as well as a large warehouse. n
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TRENDS
S SUSTAINABILITY IN WAREHOUSING
SUSTAINABILITY IS THE MANTRA FOR THE CHIEFS OF CORPORATE HOUSES.
Sustainability is a core part of any government, board or NGOs. However, world over, warehousing has been a very reluctant adopter of sustainable practices. Green initiatives are beginning to take rot in warehouses in developed parts of the world. The scene in India is the opposite. Sustainability and green initiatives are by and large absent from the Indian warehousing sector. Sure there are the rare exceptions. But they still are rare. This article takes a look at the business compulsions in sustainability and asks – does it really make business sense?
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Warehouse Compendium 2014
ustainable management is a concept for integrating and balancing economic, environmental and social dimensions, commonly termed as TBL or triple bottom line, into decision making. It is usually believed that sustainability and green initiatives are a luxury developing countries cannot afford. China is a prime example. However, the developed world has a different view. In a survey conducted by The Material Handling Industry of America, 92% say their companies believe that sustainable initiatives have the potential to save money and resources. Other benefits of sustainability are bringing greater awareness to the market, tax incentives, utility rebates, and a competitive edge. There are a few basic sustainable parameters in warehousing that can reduce energy consumption and thereby reduce the carbon foot print of the warehouse. Environmental Responsibilities – this cover the green aspects of sustainability such as electrical use, fuel and water consumption, and recycling. There a number of initiatives that can be listed as environmental responsibilities. These include solar photovoltaic roof panels for the generation of energy, thus minimizing the need for fossil fuels and reducing the dependency on the electrical grid distribution system. Additionally the energy produced is free of carbon emissions. Another aspect is the architecture of the warehouse itself which will reduce the dependence of electric lights and rely more on natural light. Warehouses can use energy efficient light systems equipped with motion sensors to reduce the wastage of electricity. Other uses could be Rainwater harvesting, Low water use appliances, Sustainable building materials Social Responsibilities – This includes safety and community activity measure-
ments. A tour of the average warehouse is a nightmare. Electric cables strung across storage sections, rats and other pest infestations, lack of fire safety audits and drills, the list could go on and on. Coupled to the fact that most warehouses are either located in remote locations or in old city centers, destruction by fire is a real and omni-present danger. God forbid, in case of a calamity, the chances of loss of goods stored and lives are very real. Safety track record of a warehouse will be assessed by MNC customers before they outsource their needs. And warehouses that do not make the cut will lose out. Profit Responsibilities – touches upon the cost savings sustainability will bring in through increased efficiencies and improved operational excellence. Socio-Economics Indicators
Sustainability Dimesions Economic
EnvironmentalEconomics Indicators
Economics-Social Environmental Indicators
Social
Environmental
Socio-Environmental Indicators
Inter-relationship among the sustainability dimensions of the business
Most warehouses in India have little regard to sustainability or concern for the environment nor do they understand the consequences of their actions on the society at large. They are solely driven by cost reduction, customer satisfaction and profits. Time has come for us to take a look at the impact of our actions of not only the environment, but on the legacy we bequeath to our future generations. In order for the company to move towards sustainability, they have to conWarehouse Compendium 2014
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sider and balance the tradeoffs between minimizing costs as well as being both environmentally and socially responsible. A sustainable warehouse would have to balance the economic factors, like as rent and operations costs, with the social and environmental effects that occur within the warehouse compound as well as its surrounding vicinity. A simple but effective measure of sustainability is the concept of Net Zero Energy User – firms who produce (or buy) at least as much energy as it uses (from renewable sources). It also produces zero greenhouse gas emissions as a by-product of that use. To achieve this, the warehouse must be as energy efficient as possible and should produce as much renewable energy as possible. Given the large areas that a warehouse occupies, and the climate of India, a warehouse could move very close to the net zero energy user concept easily. It is quite easy to break up sustainable warehouse management process into sim-
pler and manageable parts for modeling. However, modeling cannot be done in isolation - it is the interaction and relationship between the parts that are important. Sustainability models need to be developed in such a manner that this helps in shifting the focus from individual effects to interconnected systems. Therefore sustainable warehouse management models need to address the inter-relationships of economic objectives, employee welfare and minimization of environmental impacts in an integrated fashion. It helps the firm get maximum benefit from the sustainable warehouse, and establish a win-win proposition for the triple bottom lines. As a first step, a causal diagram has to be constructed, which will help the managers link cause to effect. The cause-effect diagram created should identify the interdependence among various issues and present an influence diagram. This will help the managers understand the impact of their decisions on the sustainability dimensions.
SOME OF THE MAJOR DECISION PARAMETERS IN A SUSTAINABILITY MODEL SHOULD INCLUDE:
LogiMat® - your ideal storage and picking solution for small parts Working according to the convenient principle of “goods to man”, this automated storage and order picking solution can efficiently reduces the proportion of travel time by more than 70% and increases the commissioning speed by 6 to 10 times. LogiMat® provides efficient space utilisation that helps reduce energy and storage costs, thanks to its extremely compact design. Contact us today for more information.
Investment that is necessary to improve staff efficiency and reduce labor Optimum numbers of employees to ensure employees are not overworked Employee Training to ensure high employee productivity and effectiveness and continuous up skilling Reducing carbon footprint by planting trees and air filtering
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Choosing the right transportation as various modes of transport have significant differences in carbon emissions.
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The next step to modeling a sustainable warehouse is creation of a sustainability scorecard. The scorecard will be used to monitor the status of various key sustainability performance indicators. A few examples of sustainability tracking parameters include Cash flow, Warehouse utilization, Carbon emissions, order processing time, environmental impacts on surrounding areas etc. Sustainable warehouse management and operations are a pre-requisite for the transformation of existing warehouses into sustainable ones. This involves the development of sustainable policies, identifying the problems, assessing options for addressing the problems, considering inter-connected issues, and taking into account the long-term pros and cons. But to be able to explore such issues, an environment that enables managers to simulate the complex interdependencies between the social, economic, and environmental dimensions is required. n
FIVE WAYS TO STIMULATE SUSTAINABLE WAREHOUSING ACCORDING TO EUROPEAN LOGISTICS HUB 1. AUTOMATION Automation of order picking can improve the efficiency of the warehousing and distribution process significantly. It consumes less energy (because you can use small areas that require less lighting and cooling), reduces the error rates and needs less manpower.
2. INSULATION A simple measure to make your warehouse logistics greener, is insulation. Good insulation saves energy: because the insulation makes you need less energy to heat a building. In this way you also save money.
3. OPTIMIZE TRUCK LOADINGS When it comes to truck loading, loads can be optimized to fill every space possible. In this way the amount of trucks is reduced and this has its immediate effect on emissions and carbon footprints.
4. PACKAGING Another important topic in logistics is packaging. Recycling packaging materials helps to save the environment. Also you could consider using less packaging materials or more sustainable types of packaging.
5. LIGHTING Lighting is one of the biggest facility costs in warehouses. Therefore it is important to think of more efficient ways to use light in warehouses. For example use energy saving lights, timers and motion detectors to light only the sections that are used.
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Warehouse Compendium 2014
COLUMN
COLUMN
DYNAMIC SYSTEMS
AN IMPERATIVE FOR INDIAN WAREHOUSING ? ASHOK KUMAR K, heads Logistics Infra Planning Solutions at Godrej Storage Solutions and can be reached at ashokk@godrej.com
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Warehouse Compendium 2014
T
o understand the context of this article, let us try to distinguish Static and Dynamic Systems. A Static System is one that operates on “Man to Goods” philosophy of material handling. Here, the various warehousing sub-systems such as Storage Racks/ Shelves, Material Handling Equipments, and Information Management Systems act independently, irrespective of their technology sophistication. Here, an activity cycle is longer with human intervention needed to “connect” the various sub-systems. For example, a demand to fulfil an order passes thru’ a chain of operators by way of instructions and decisions that they need to adhere to. While technology sophistication ensures error free instructions are given, the operator compliance and productivity are key to ensuring overall superior cycle time for order fulfilment. On the other hand, a Dynamic System is one that operates on “Goods to Man” philosophy where the Material Storage, Handling and Management systems are tightly integrated with each other. So an action on one of the sub-systems reflects in a reaction, either immediate or parallel, in other integrated sub-systems without any need for human intervention. For example, in a dynamic system such as Automated Storage & Retrieval System that is further integrated with conveyors, sorting, pack-
ing and Labelling systems, the movement of material happens from storage to dock happens without any human intervention, from the time the pick list is activated by either the system or thru’ the scanning of a Barcode. The selection of suitable handling accessories happen on pre-defined logics throughout the entire chain of events and productivity is not compromised. With the Indian Market space changing rapidly, in addition to handling higher volumes, challenges have emerged in the form of delivering value additions, handling larger shorter life items and responding within shorter time periods for smaller volumes etc. The cost of a “miss” has become significantly higher with clients having the luxury of multiple options and sales outlets. In such demanding market conditions, are Dynamic Systems the only way forward? It is imperative that we identify the scenarios where dynamic systems could deliver larger value and hence worth considering. Some such Scenarios are as follows: 1. HIGH VARIETY TRANSACTIONS In an operation that handles large number of varieties as well as orders on a daily basis, accuracy and speed are absolutely crucial to meet the desired service levels. Errors associated with human errors could
have huge “opportunity costs” as well as “remedy costs”. For example, Spare Parts, Retail businesses experience the above.
ing the best value for refrigeration expenditure becomes a challenge if the operations are manual and not integrated well.
2. HIGH TRANSACTION VOLUMES In an operation that manages bulk volumes of standard configuration items per transaction/ order, performing a repetitive activity without loss in productivity throughout the shift/ day is very important as often these products belong to High Volume – Low Margin categories. Some Personal Care and Home Care products go through this kind of demand.
6. NEED TO HAVE 100% OPERATIONS VISIBILITY When organizations attempt to manage with lower and lower inventory levels, real time visibility to every stage of its operation becomes necessary and in a loosely integrated operation, a challenge to overcome. With more and more organizations opting for Just-In-Time kind of supplies for some of the critical components, integration of other internal operations with external supplies is critical to meet order fulfilment needs comprehensively. Static systems are found to be wanting under such demanding situations. With availability of land and economical labour force, Dynamic systems have not found the desired acceptance in Indian Market yet. However, the perceptions of cheaper, economical labour is vanishing very quickly from the Indian market space with organizations realizing that meeting the diverse expectations of the Indian Consumers is the only USP to succeed. While the market for dynamic systems will become very promising in the near future, an investment in this direction requires planning and preparation of highest degree at higher management levels. With dynamic systems being perceived to be expensive, ability to establish a clear link between the Dynamic system investment needs and the resulting improvement in service levels, their impact on the business success is crucial for both the investors as well as the promoters of such systems. Since there will be a need to develop custom built dynamic solutions, it is time for the investors and sellers to move away from plain purchase transaction management to Collaborative Planning. n
3. SPECIALIZED PACKAGING NEEDS When customized kitting, labelling and packaging needed for higher number of transactions, the accuracy of such operations is crucial for an organization to demonstrate a high degree of customer sensitiveness and service levels. Consumer Electronics, E-Retail businesses encounter these challenges. 4. SPACE CONSTRAINED OPERATIONS Limited foot print imposes huge burden on both storage and transactions. Companies are often confronted with the challenge of handling large number of inbound and outbound vehicles in very short window for operating hours. In some cases, the need to operate from a place close to consumption points force organization to select premium priced locations where utilization of every little space available is critical. When going vertical, building taller warehouses is the only option available, the limitations of static systems become apparent. 5. CONTROLLED TEMPERATURE OPERATIONS When the need is to operate in Low or SubZero Temperatures, as in Cold Storages and Vaccine/Pharmaceuticals Storages, achiev-
Warehouse Compendium 2014
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TRENDS
THE FUTURE OF GIRISH V S, Executive Editor, SCMPro
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Warehouse Compendium 2014
Warehousing
THE LOGISTICS INDUSTRY HAS BEEN FACING MANY CHALLENGES. Among those, petrol price increases,
labour strikes, stricter trade regulations, a lack of infrastructure. Is there a solution to this? We take a look at the future of warehousing in India. The one thing that has ensured advancement in all fields and industries over the past few decades is Technology.
W
arehousing is a simple concept - storing materials or goods and filling orders as they come in across the supply chain. This very simplicity has caused it to be taken for granted. But warehousing is evolving very fast and becoming increasingly complex. Significant pressures are building up – both from internal and external sources. And as corporate tries to squeeze profits from its supply chains, warehousing will become the focus of attention. We look at a few trends in warehousing which we feel will define the coming decade. Agreed – these trends are more from the developed world. We believe the day is not far off when global trends will come to Indian shores. An inflexion point for the warehousing sector was the recession that followed the global financial crisis. This affected global industry in many ways. A significant change was in the way firms looked at inventory. In an effort to free up capital, inventory cuts were imposed. In addition, capacity augmentation was de-prioritized and expansion of existing or construction of new warehouses and distribution centres scaled back or halted altogether. This response did help the industry. But as green shoots of growth appear on the global economy, warehouse operations are once again coming to the centre stage. But as they do so, they are also being transformed by a number of issues that go well beyond simple increases in volume and
throughput. Changes in technology and warehousing operations procedures has seen significant changes in the way warehouses, distribution centres and the entire supply chain operate. From small distributed silos we are seeing more facilities and larger spaces. We are seeing the emergence of high-speed mobile communications virtually everywhere on or off the floor. This has enabled warehouses to offer real time automated services and data dissemination. A virtual across-the-board customer demand for personalization is driving an increase in the number of SKUs leading to increased inventory visibility, accuracy and efficiency needs. In most western economies, new regulations call for more accurate product tracking and tracing. (This is something we would like to see in India too) With supply chains becoming costlier, industries are tending to near shoring. This movement to near shoring is bringing manufacturing and other business closer to the customer, creating a need for more efficient and effective cost and labour management. Fuel cost volatility impacts logistics and even warehouses too. The growth of multi channel transactions creates the need for increased inventory control, flexibility and faster, more accurate fulfilment. All these factors contribute to the need to convert warehouses and distribution centres into assets for competitive differentiation. Warehouse Compendium 2014
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POWERING WAREHOUSING
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CREATING EFFICIENCIES DELIVERING VALUE GENERATING RETURNS
FROM COST CENTRE TO GROWTH CENTRE
Traditionally we view warehouse as a cost centre. And these warehouses are siloed entities whose operations exist as separate islands of information. The emerging vision for the future among many corporate entities is to link or integrate the Warehouse Management System (WMS) Enterprise Resource Planning (ERP), Yard Management System (YMS) and Transportation Management System (TMS) to create a seamless flow of data and information. It is expected that such integration will help remove inefficient information silos, promoting collaboration. This will provide improved visibility across the entire supply chain, and will enable the warehouse manager to visualize and anticipate how the changes in one process will affect other downstream and upstream processes. For example, changes in packing and staging can affect load plans, trailer drops, routes selection, rates and more. Anticipation of—and response to—these effects is crucial to not only improve warehouse efficiency and productivity, but also to create a more synchronized and agile supply chain. As firms embark on an effort to optimize their storage and distribution network, they need to evaluate and adjust storage and distribution networks to reduce total landed costs. And to meet the rising customer expectations, they will need to increase the number of warehouse facilities, expand existing warehouses; try and lower transportation costs, shorten delivery times and quickly respond to new partner locations and requirements. A trend we see emerging in the near future is the increase in automation of inbound and outbound goods. The increased efficiency in inbound and outbound handling processes will require 30
Warehouse Compendium 2014
implementation of bar coding and support for more automated processes. We will see an increase in the number of bar coded items. It is estimated that this will grow from the 67 percent today to 84 percent by 2018. To maximize warehouse productivity, operations and technology must be aligned in terms of systems and processes. We rarely see even a partial alignment between technology and operations today. We are yet to embrace technology in our warehouses. What we need to do is to start with an overall assessment of current capabilities and risk perspectives for the future. In most organizations, technology often pushes for higher levels of WMS integration with other systems than does operations. In addition, IT departments tend to be more aggressive in accepting new standards and deploying new tools to reduce technology risk—and to be more accepting of business risk—than operations, which is usually more risk-averse and focused on running the day-to-day operations of the warehouse with minimal technical disruption. Bringing the two departments together to share a common vision is one of the most crucial goals moving ahead in the next five years. To top it all, reverse logistics is gaining ground even in India. Even as the volume of returns grows— due in part to the rise of Internet retailing - retailers and wholesalers expect to reduce the orders resulting in returns. We do not have statistics for India. However, across the developed world, the percentage of organizations with reverse logistics programs is expected to almost double; from only 16.7 percent in 2013 to 30 percent by 2018. Redesigning returns management from one of the least automated processes in the warehouse into one in which automated reverse logistics enables faster receiving,
Your Delivery Partner N VE T O PR LIT Y MEN A QU NAGE MA
SE R S VE RE ISTIC G LO
& G LI N L G BE LA GIN G TA
G IN S OU H E
R ON I A T W D BU AN TRI S DI
DELEX CARGO INDIA PRIVATE LIMITED 401‐B WING, PRAMUKH PLAZA, CARDINAL GRACIAS ROAD CHAKALA, ANDHERI (EAST) ‐400099, MUMBAI, INDIA EMAIL ID : anil@delex.in ss@delex.in
ED T RA E G RI S F RE CK U TR
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return to inventory and customer credit issuance. In addition, reduce the volume of returns caused by internal warehouse problems by consistently operating outbound order fulfilment in a “no fault” mode. The above changes are positive. They provide management with an opportunity to benchmark current capabilities against what businesses, and customers are going to need in the next five years. This reshaped vision of warehouse operations as a fundamental driver of top-line and bottom-line business value points the way to achieving the ultimate objective of flawless fulfilment. n
A MOTOROLA SURVEY ON THE MAJOR CHANGES THAT WILL IMPACT YOUR WAREHOUSING OPERATIONS TODAY AND IN THE NEXT FIVE YEARS IDENTIFIED THE FOLLOWING: Make sure it and operations are on the same page Understand changing wireless needs and solutions. Plan for shifts in processes throughout the supply chain. Evaluate purpose-built and adaptable technology alternatives. Place renewed emphasis on risk management. Consider the ramifications of more and bigger warehouses Build an roi model encompassing top-line and bottom-line results.
Leading Manufacturers of Unit Handling, Bulk Material Handling Equipment and Storage Solutions Vinar SyStemS PVt. LtD. 8 32
Warehouse Compendium 2014
Registered Office & Head Office 9C, Lord Sinha Road, Kolkata – 700071, Phone: +91-2282-3661/3662, 3057-5000/01/02 Fax: 22823171, E-mail: vinar_vsa@vinar.in
e-mail Unit Handling Division : vinar_uhd@vinar.in Storage Solution Division : vinar_vsa@vinar.in Bulk Material Handling Division : vinar_mhp@vinar.in
CASE STUDY
CASE STUDY
“The Greenfield Warehouse Design” TATA MOTORS COMMERCIAL VEHICLE BUSINESS UNIT’S
spare parts division regional part warehouse near Howrah, West Bengal.
A
This Case Study is provided by Delex Cargo India Private Limited 34
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n auto parts warehouse is a service facility, often playing the role of a customer satisfaction promoter or the only view that the customers actually have of a large product company or a manufacturing entity. The design, the storage layout strategy, equipment deployment plan and well-orchestrated management of such a parts warehouse has significant leverage over order lead times and fill rate reliability. As with any other service facility pre-building up design and post setup, operations ability are closely interlinked to ensure that the client and its customers derive required benefits from such a facility. In this case study, Delex shares its experience in executing such a complex warehousing project for South Asia’s largest automobile company TATA Motors’ Commercial Vehicle Business Unit’s spare parts division regional warehouse near Howrah, West Bengal. This project totally spearheaded and executed by Delex team involves site selection, warehouse flow through requirement assessment based on historical data provided by the customer, layout design, storage system sizing, equipment deployment plan finalization, manpower organization structure design-n-deployment through to SoP build-up, successful implementation roll-out and continuing with day-to-day
management. GREENFIELD WAREHOUSE DESIGN Challenge: To design a distribution operation that would be resilient to as yet unknown operational changes but planned growth expectations. Approach: It was critical to understand the volume flow-through implications for product sourced from various parts of the country and the additional lead time requirements as a consequence of re-packing the inward components in to market ready (sale ready) sales packs plus growth for coming 3 years and their effects on storage, flow through and final efficient dispatch. Layout configuration of the warehouse had to accommodate efficient picking and storage operations, whilst at the same time allowing volume growth without the need for major disruptive reconfiguration during the live operation. This was accomplished by sensible zoning of the warehouse and appropriate use of second level picking. Storage options had to be flexible to enable the operation to be reactive to fast track changes. THE EXECUTION OF THE PROJECT: The warehouse contract was awarded to the Delex parent group company M/s
Internal fit-out of Storage systems, MHE, shelving for small bins etc., were also timed in such a way that they are completed along with the execution of structural construction.
Foundation stone laid by Mr A.D. Banerjee General Manager SCM CVBU Spares TML Attended by Mr AK Jain AGM CVBU Spares TML In the presence of Mr Sattiraju CEO, Delex
NDR Warehousing Pvt Ltd., towards the end of the year 2009. Post signing the agreement NDR has assigne the job of executing the project to Delex team. The project headed by Delex Head Operations Mr.Athmaraman was closely monitored at each stage meeting each deadline diligently leading to completion of the project in a record time. By Aug-2014 Delex completes three years of successful operation at this site, which is a testimony of Delex’ overall abilities in conceiving, designing, executing, implementation of warehouse processes and successful operation of the 3PL warehouse management winning regular recognition from Tata Motors. IMPORTANT KPIS THAT ARE FOLLOWED BY DELEX TEAM AT THIS WAREHOUSE: Receipt KPI: Vehicle reporting to binning of the material including UC (Unit Cartonization) should be completed within average time of 24 hrs. Packing KPI: General Order: Order released till ready for dispatch should be within 48 hrs. Vehicle Off Road Order: Order released till ready for dispatch should be within 6 hrs. Customer Claim KPI: Customer Claim to be settled within 72 hrs. From Warehouse Compendium 2014
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the time of claim lodged. Delex executes the warehousing activity with a team of close to 400 manpower, headed by the project head Mr.Sukanta Kundu who is there from the time of inception of this project and successfully leading the team. Conclusion: A compact but efficient layout that satisfied picking and dispatch operations for the expected planning horizon. Provision for future growth had to be an integral part of the initial layout to significantly reduce the need for wholesale reconfiguration during live operations…all has been successfully achieved by Delex. n
BELOW ARE SOME INTERESTING MILESTONES:
SOME WAREHOUSE SPECS AND STATISTICS:
ACHIEVEMENTS OF HOWRAH WAREHOUSE
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ACHIEVEMENT
2011-2012
2012-2013
2013-2014
Highest no of Vehicle unloaded in a Day(line Item)
19 (29.03.2012)
22 (25.11.2012)
25 (10.04.2013)
Receiving docks
10
Highest no of Vehicle unloaded (in a Month (line Item)
224 (March 2012)
235 (Dec 2012)
255 July 2013)
Dispatch docks
10
Highest no of UC done in a Day (line Item)
209 (04.12.2011)
238 (08.01.2012)
245 (july 13)
Average no of SKUs stored at any time:
above 45000
Highest no of UC done in a Month (line Item)
3750 (March 2012)
4526 (Jan 2013)
4020 (july 13)
Average no of Active SKUs in any normal month:
above 25000
Highest no of BINNING done in a Day (line Item)
163 226 481 (08.03.2012) (04.12.2013) (02.04.2013)
Highest no of BINNING done in a Month (line Item)
4115 4853 4365 (Jan 2012) (06.01.2013) (July 13)
Highest no of Challan conversion in a Day
1267 ( 19Aug 2011)
2102 (31.01.2013)
2505 challan (03.08.2013)
Highest no of Challan conversion in a Month
25246 (Sep 2011)
31709 (Aug 2012)
41406 (DEC 2013)
Warehouse Compendium 2014
Roof height
No of pallet locations:
52 feet
6000
No of shelving bins:
12000
Average manpower per shift:
160 (including security)
Operation hours: 365 days a year
24/7
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OF CONSTRAINTS
APPLICATION THEORY
D
r. E l i y a h u G o l d r a t t i n t ro d u c e d t h e T h e o r y o f Constraints (TOC) through his path breaking book, “The Goal” in 1984. TOC based projects are now carried out by almost all companies and is taught in almost every leading business school throughout the world. TOC started out as a manufacturing improvement methodology. Applications were then created in project management, distribution and supply chain, enterprise planning systems design, etc. BP used Theory of Constraints to accelerate the cleaning of the Gulf of Mexico after the massive oil spill in 2011. Habitat for Humanity, a humanitarian firm involved in making and repairing sustainable houses in Asia Pacific used the Theory of Constraints to make a house in 3 hours and 44 minutes. This is a world record. There is virtually no literature available to discuss the use of TOC principles for warehouse operations. In the book “The Choice”, Dr. Goldratt creates scenarios to apply TOC for the replenishment process at the warehouse that is a part of a distribution network. Dr. Goldratt in his book portrays the warehouse as a part of the supply chain system. We look at warehouse as the system. THE THEORY IN BRIEF The core message of TOC is that the output of any system is dictated by the slowest or the weakest operation – very much like the concept that the weakest link of the chain determines the strength of the chain. In a manufacturing facility, the slowest machine determines the factory output. In a project, the constraint is the critical path or rather the critical chain, as Goldratt terms it. This critical chain is the constraint and needs to be continuously monitored for on time completion. Once the constraint is located, it should
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never be allowed to idle and the entire facility should be tuned to work at the pace of the constraint. All the resources that are needed for the constraint should be readily available. The easiest way to increase capacity would be to increase the capacity of the constraint. The simplicity of this message masks the profound philosophy of TOC. The constraint could be a physical resource – like a machine, space and labour. It also could be customers or in many cases, the constraint could be the mindset and the policies of the firm. For a large warehouse with spare capacity, the customers would obviously be a constraint. In some other cases it could be the forklift or the labour. For warehouses with a fixed outbound despatch time, this time could be the constraint. KNOWING THE CONSTRAINT A simple way to start on this would be to look at the most frequent complaints from the warehouse supervisors. If they indent for additional forklifts there is a good chance that the forklifts would be the constraint. If the supervisors keep pushing for multi tier racking systems, then the space could be a constraint. In the rare scenario of there being no complaints, there is a chance that the warehouse has lesser customers than what it can handle. So, the customers could be a constraint for that facility. This is not a fool proof way of finding the constraint, but it could be a good way to start. Changes could be made in the warehouse operations policies on the complaint based constraint. If the warehouse performance improves, you have identified the constraint. Of course there are better ways to do this. A detailed work analysis could be carried out and the average load for every resource estimated. An elaborate set of metrics would have to be created to measure Warehouse Compendium 2014
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performance. A load profile could then be developed and the constraint could thus be accurately traced. This would however take considerable amount of time. Using the complaint based method for locating the constraint is an intuitive and a much faster method. THE CONSTRAINT BASED PRICING Obviously, the constraint is the most valuable resource for the firm. A labour being paid Rs. 200 per hour could be more important than a VNA worth Rs. 50 lakhs if labour is a constraint. Assuming that labour is the constraint, underutilisation of one worker could limit the output of the warehouse. This would not be the case for a VNA with inherently higher capacity. The cost of providing a service is directly proportional to the degree of usage of the constraint. Take the case of a warehouse that is forced to limit its operations because of limited availability of labour. A customer that has a high SKU count and a high pick frequency is more expensive for this warehouse than a customer with infrequent deliveries. For a warehouse with a limitation of space, a customer with high pick frequency might in fact be a better customer. The degree of usage of the constraint is the most important thing in pricing. By using the wrong base in pricing decisions the customers are motivated to behave adversely. For a warehouse with labour or material handling device as a constraint, the contract must clearly limit the number of transactions. For a warehouse with space limitations, customers must be motivated to have greater transactions so that the warehouse can earn more money from the same space. CONSTRAINTS SHIFT Most warehouses have a peak time by which all the despatches need to happen. Suppose 40
Warehouse Compendium 2014
that the vehicles need to leave the facility by 5 PM. In this case, the warehouse would have a rush for work from say 2 PM to 5 PM. The labour or the material handling devices would be the constraint in this time. But, after 5 or at noon, neither the labour nor the material handling device would be the constraint. Effort must be made to reduce the load on the bottleneck. During non peak hours the labour could stock the regularly despatched items closer to the staging area. And, the items that are not despatched could be again put back in the regular location after the peak time. Such actions do create an overall increase of labour activity. But, in peak times, when labour is actually a constraint, the movement for picking process is reduced. In the example above, the total work content for labour was increased. But, the work content for labour in the peak time was reduced. This would obviously allow the same labour to conduct more number of picking activities in the peak period. Since the load on the warehouses change with time, the constraints would also change. Accordingly, the activities need to be planned to reduce the bottleneck load in the peak times. A warehouse manager is an expensive resource. But, in peak times, the labour would be much more expensive. The warehouse managers could thus in peak times indulge in any work that could reduce the load on the labour. POLICY AS A CONSTRAINT The experience with implementation of TOC in other sectors has confirmed that firm policies could be the biggest constraint. Batch sizes and the policies of full truck loads are designed to optimise the internal costs of firms. However, these very policies could cause a significant reduction in both the availability and variety for the customer.
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Leading provider of enterprise solutions in the Microsoft Cloud
time. Maybe, having a second despatch widow could limit the temporary surge in labour requirement. A warehouse may thus plan for two despatch windows – at say 11:00 am and the other at 4:00 pm. This could reduce the peak time load on the constraint by half. One of the biggest policy constraint is the lack of good metrics in most warehouses. While the idea of selecting the right metrics is an issue for another article, it is sufficient to mention here that not having metrics limits the ability of warehouses to take the right steps. It would be impossible to know if the low equipment utilisation is due to maintenance failure (which again could have many reasons) or due to the lack of training of the operator.
The lack of discipline is a constraint in itself. Because the items are not put away accurately, a good amount of time would be spent on tracking and tracing all the SKUs in the stores. Policies on how and where to put away the received stock could have a huge impact on the distance travelled by the labour and other workers. The policy to have only one despatch window also creates a large and temporary load at one point of 42
Warehouse Compendium 2014
THE LAST WORDS Theory of constraint has delivered massive benefits in all areas of application. There is no reason for the theory to fail in the warehousing domain. The key would be to ensure that the senior warehousing team is adequately informed about TOC. Firms have created local language versions of Goldratt’s books and have forced all their executives to read. Local language audio visual content also exists to educate. Unless the entire firm is clear about the goals and methods of TOC, sustaining the implementation would be difficult. Like all improvement initiatives the push for change must come from the top. In case of policy constraints, the object of the change should also be the top management. It is easy to lament on the lack of morals or discipline in the rank and file of a warehouse. A better way would be to create policies and an incentive structure that automatically moulds behaviour to optimise the usage of the constraint and thus increase the output. n
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SUPPLY CHAINS ARE BECOMING CENTRAL TO AN ORGANIZATION’S OPERATIONAL EFFICIENCY. From being
WAREHOUSE
OPERATIONAL METRICS
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Warehouse Compendium 2014
mere movers of goods from point A to point B, we now speak of value addition coming from the supply chains. And integral to the supply chain is the warehouse. Measuring Warehouse Key Performance Indicators or developing Warehouse metrics is a critical issue if we are to provide warehouse managers with the ability to visualize clearly and unambiguously the potential issues and opportunities for improvements. These metrics tie in to the business strategy, which drives operations and operations success drives the financial performance. However, most organizations operating warehouses either have no metrics, don’t have the right metrics, have the right metrics but lack real time feedback or have metrics but do not take action on the results. If warehouses are going to be a source for adding value to the supply chain this must change. Girish V S takes a look at the issues in Warehouse Operational Metrics.
I
t has been a bumpy ride for the economy over the past three years. The experts say they see “green shoots” in the economy. The economy, according to them, is poised for a takeoff. The question is are we as supply chain professionals ready to navigate the rapids as the economy accelerates? Do we have the right set of numbers to compare and benchmark? These are questions we need to ask ourselves. Let us take stock of what we have – we have fairly well developed network and process optimization methods which will create the right environment to tap into the growth. We have the optimum material handling and control systems to create the right conditions. We have the ability to capture identity and data without manual intervention to ensure the right goods is delivered to the rigt person at the right location and we have reasonably developed supply chain execution systems that will ensure that we deliver as promised. The question is where do we go to from here? Do we continue to do business as is or do we aim for excellence. In this article, we look at the Warehouse Operational metrics we need to develop to achieve warehouse excellence.
THE FEW KEY PARAMETERS THAT DEFINE EXCELLENCE Profile & Measure Current Performance Establish target and performance metrics Map Processes, Material & Data Flows Define Trading Partner Needs Identify Gaps & Opportunities Define Structural & Functional Needs Match Likely Costs & Benefits Put a Value on Potential Incremental Gains
We start developing metrics by first profiling the existing infrastructure, products, product flows, product constraints and systems place for collection of data. We take a serious look at the facility layout in terms of usable Sq. Feet, Height Material & Data Flow Diagrams. We need to understand the method we will use to move material within the warehouse - Lift Trucks, Pallet Jacks, Warehouse Compendium 2014
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Conveyor, AGVs, or other. We identify the storage locations - Bulk, Pallet Rack & Flow Rack, Bins/Shelving, AS/RS, Mini-Load, Carousels. We look at the product profiles and product constraints like Number of SKU’s, Classifications; e.g., Hazardous, ABC Percentages, Shelf Life, Lot & Date Codes, Serial Numbers, Seasonal Issues, etc. We move on to establishing activities in terms of receipts per hour each day - like trucks, railcar, other, orders, lines, items, pallets, cartons, rolls etc. we take a look at the number of picks per hour each day in terms of orders, lines, items, cartons, pallets, other, and the number of shipments by trucks, rail, courier, other modes. We also establish the resources at the warehouse - Supervisory, Receiving Operators, Pickers, Packers, Checkers, Replenishment Operators, Shipping Personnel, Inventory Control, Expeditors, Data Entry / Indirect, and Other staff. Once we have the profiling done, we move on to establish the key performance indicators. One of the issues with performance indicators is that managers tend to go overboard with it. Managers should take great care not to burden the system with a very large number of KPI’s. It is always safe to restrict the numbers to manageable levels. KPI’s are further classified as Internal INTERNAL KPI’s Perfect Orders
SUPPLIER KPI’s
Inbound Cost/Order Value On-Time Deliveries On-Time Deliveries Lead Time Inventory Accuracy Fill Rate Inventory Turns IT/Technology Resources Order Cycle Time Service Flexibility Order Entry Accuracy Attitude Workforce Utilization Returns Policy Value Added Services Shipping Accuracy VMI Capabilities Order Fill Rate Ease of Doing Businesses Customer Satisfaction Ethics / Compliance
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Warehouse Compendium 2014
CUSTOMER KPI’s Profitability Sales Volume Growht Potential Credit/payment History Shared Strategic Vision Return Rate Customer Viability Order Frequency Loyality Cost to Serve Competitive Pressure Hassie to Serve
KPI – more to do with the measurements of process performance within the warehouse, and are fully under the warehouse management control. There are a few KPI’s which measure the supplier performance and some which measure customer processes. A healthy mix of all forms need to be developed. From here on the process is very simple. For each of the KPI’s the management decides to follow, the fir needs to establish the data that will be used and the method of calculation. In addition to the method, the units and the expected benchmarks or targets need to be decided. Due to the absence of data collected from Indian warehouses, we can look to the developed world for what we come to acknowledge as the current best practices and benchmarks. Once the firm has developed the metrics, the nest big challenge is to collect data. In India this will be a challenge. In the absence of a enterprise warehouse management system, the firm has no option but to engage in a tedious manual collection of data. Once the data is in, we can use order and SKU activity profiles to deploy or ‘slot’ inventory based upon historical & anticipated volume like Improve Space Utilization, Reduce Travel Times, Increase Pick Rates & Throughput, Optimize Replenishment Activity, Reduce Damage, Improve Safety and Simplify Retail Restocking. And as a final step, the KPI’s can be used to calculate the ROI for the investment required to put in place a warehouse operational metrics program. And as a parting thought, it is reckoned that 90% of the warehouses in India do not have a WMS in place. In the absence of WMS, data collection can be a huge task prone to errors. Remember, the best technology installed in operations with ill-conceived material flows & processes will only enable users to do things badly - - - faster! n
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ABHISHEK GOPAL is Senior Consultant at Miebach consulting working mainly in the Supply Chain strategy vertical. He has over 5 years of experience working across industries and geographies with some of the top companies in the world. He holds an MBA from IIM Ahmedabad.
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Warehouse Compendium 2014
SMOOTHING T he art of forecasting is probably one of the toughest techniques to master, especially in a business that is growing in excess of 10 – 15%. While most companies spend a lot of time and effort into getting forecast accuracies as high as possible, the levels of success are varied. Most companies use simple statistical techniques like a simple or weighted average of past data to
predict future demand. If data is noisy, as sale data usually is, the accuracy of forecast through simple statistical techniques may not be significant. In this write-up, we focus on exponential smoothing, a simple but very popular technique used in forecasting the next period in a time-series that does not have a pronounced trend or seasonality. Exponential Smoothing is widely used for smoothing discrete time series, and is based on the principle that “All data and inputs are useful, however that which is recent needs to be given more importance”. It is computationally efficient and simple, hence is a favourite amongst demand planners who want to move away from using average for forecasting. Mathematically, the exponential smoothing technique tries to forecast future based on past average, however recent values are given higher weightage in determining the forecast, when compared to the more distant values. It is defined as below: Ft+1 = ∝ Dt +(1-∝) Ft where D_t is the actual value of demand at time instant ‘t’, Ft+1 is the forecast value for time instant ‘t+1’, F_t is the forecast value for time instant ‘t’ and ∝ is the weighting factor and its value ranges between 0 and 1. If we use the same formula to determine the value of Ft, then the formula gets modified as below: Ft+1= ∝ Dt + (1-∝)(∝Dt-1 + (1-∝) Ft-1 It is seen that, mathematically,
Dt-1multiplied by both ∝and (1-∝) and if this is continued for all the past instances, the historical data (actual values) are weighted exponentially thus giving the methodology its name. By continuing to substitute previous forecast values and going to the starting point of the model, we can arrive at the general form of the equation which is as below: Ft+1= ∝ ∑ (1-α)k Ft-k
The series of weights that are used in producing the forecast Ft+1 is ∝, ∝(1-∝), ∝(1-∝)2, ∝(1-∝)3,... and these weights decline towards zero in an exponential fashion; thus, as we go back in time, the more distant values in the time-series have the least weight. To get started, we need a value of ∝, an initial forecast, and an actual value. Since the initial forecast is unknown, we can assume that the initial forecast is equal to the value of the first observation. Thus F_t can be equal to F1. Choosing the value of the smoothing constant ∝ is important, as the speed at which the older time series values are ‘dampened’ or ‘smoothed’ is a function of ∝. This is illustrated in the table below which shows the value of smoothing factor for various starting values of the smoothing constant. a (1-a) (1-a)2 0.90 0.100 0.010 0.70 0.300 0.090 0.50 0.500 0.250 0.30 0.700 0.490 0.20 0.800 0.640 0.10 0.900 0.810
(1-a)3 (1-a)4 (1-a)5 0.0010 0.00010 0.00001 0.0270 0.00810 0.00243 0.1250 0.06250 0.03125 0.3430 0.24010 0.16807 0.5120 0.40960 0.32768 0.7290 0.65610 0.59049
If we need a prediction that is stable and random variation smoothed, then it is a good idea to use a smaller value of ∝. However, if a rapid response is desired, using a larger value of ∝ is recommended. Hence, the value of ∝ is chosen so that the result has the least
Mean Squared Error (MSE). The most popular method of choosing ∝ is to iteratively calculated MSE for various values of ∝ and then determine which value is suited the most. This trial and error method is cumbersome and inconvenient when there are a large number of SKUs. However, better methods like the Marquardt procedure exist where nonlinear optimizers are used to minimize MSE. Most statistical tools which offer the exponential smoothing as an option will be able to also dynamically choose the value of ∝, a method that is called as adaptive exponential smoothing. Now that we have understood the exponential smoothing concept and how it works mathematically, let us look at how the model should be evaluated? In other words, what are the performance characteristics of the model? The veracity of any forecasting model would depend on how it minimizes forecast error. Common error measures like MAPE (mean absolute percentage error), MSE (mean squared error) or RMSE (root mean squared error) can be used. Most forecasting tools will have the option of choosing from multiple error measures giving the user the flexibility. In conclusion, exponential smoothing ensures that recent trends in the timeseries data get captured by assigning higher importance to the most recent data point. The choice of smoothing constant is an important criterion in this model and goes a long way in determining forecast accuracy. Simple exponential smoothing is appropriate for non-seasonal patterns with approximately zero trends and for short term forecasting. This is because as we extend past the next period, the forecasted value for that period is used as a surrogate for actual demand, and any error actually multiplies as we go further in the future making this methodology non-conducive for long term forecasting. n Warehouse Compendium 2014
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AUTOMAT ION
AUTOMATION
W
arehousing capacity in India is expected to grow at 7.5% per annum to reach approximately 2 billion sq. ft. by the end of 2015. Along with this vast expansion in storage capacity, India is also observing a gradual transformation of its storage spaces: from single-user godowns to multi-user warehouses equipped with modern storage infrastructure, technology and processes.Increasing competitiveness and rising customer expectations are leading to average warehouse sizes of over 60,000 sqft compared to traditional sizes of less than 10,000 sq. ft. WAREHOUSING SPACE IN INDIA (million sq. ft.)
AUTOMATION...
1,600
A NECESSITY
WITH OVER 1.7 MILLION SQ. FT. OF WAREHOUSING SPACE AND EXPECTED FUTURE GROWTH OF 7.5%, THE INDIAN WAREHOUSING INDUSTRY IS ON A HIGH GROWTH PATH.
Evolution of the industry and expected implementation of GST has led to setting up of larger sized warehouses. This vast upcoming storage space consisting of large warehouses provides immense opportunity for use of automation and technology. Several key levers and emerging technologies can change the automation scenario in Indian warehousing; say Manjula Sriram and Abhishek Daiya of TATA Strategic Management Group
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Warehouse Compendium 2014
2011-2012
1,722
2012-2013
1,852
2013-2014
1,993
2014-2015
Source: EY-CII Conference. “Building Warehouse Competitiveness”
ONE OF THE KEY ELEMENTS OF MODERN WAREHOUSE PLANNING AND DESIGN, THAT MUST NOT BE OVERLOOKED, IS WAREHOUSE SIMULATION.
Automation in warehousing has grown from use of conveyor belts in 1920s to automated robotic delivery systems in 2010s. Today, the role of technology in warehousing has grown from being a mere support function to a more strategic role. Increased adoption of technology can help warehousing players in having a competitive advantage, better productivity, growth in sales and reduced costs. AUTOMATION: From an advantage to a necessity Industries such as retail, automotive and
pharmaceuticals need flexible warehousing capacity, impeccable inventory visibility and quick order picking in order to manage large number of SKUs, minimize delivery times and delays and ensure product availability and quality. Similarly, in other industries as well, increasing product variety and SKU proliferation has led to increased business complexity. Accurate inventory management and fast handling with the help of automation can help reduce this complexity by streamlining warehouses’ internal logistics processes. Deliveries can be handled in an efficient manner, space can be utilized better and it is easy to know the existing stock & warehousing space available for stocking. Integrated automation solutions such as warehouse control systems that integrate operation of conveyer belts, carousels, and other MHE enable efficient management of large warehouse with minimal labour. Automated storage and order picking systemsautomatically retrieve products as per the pick list and put them at the required place, thus increasing productivity and throughput, and reducing labour costs. A pushpull system can drastically crash container loading and unloading time. Manual loading of a 40 feet container takes 3-4 hours, compared to 0.5-1 hour using pushpull.Automatic guided vehicles (AGVs) eliminate risks of employee safety and issues of forklift damage through misuse. While the benefits of automation and technology are multifold, its adoption in India is still rudimentary. Currently, barcoding is the most common form of technology used in warehouse and inventory management in India, adopted by approximately70% of users. RFID, which is a more advanced solution, finds limited adoption as it is more expensive. ASRS,pick-to-light and voice picking systems have low adoption levels (< 5%). In terms of material handling equipment, several large warehouses still continue to use hand trolleys (manual and hydraulic) and Warehouse Compendium 2014
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AUTOMAT ION
AUTOMATION
on-the-ground storage of pallets. However, racking systems for pallets and use of forklifts is finding increasing adoption, especially among newer warehouses. Tata Strategic believes that there are several key levers that will lead to increased automation in the Indian warehousing industry going forward. A. IMPLEMENTATION OF GST GST implementation, whenever it happens, will bring about a major change in the way distribution is done within the country, as interstate transactions will become tax-neutral. Logistics will therefore see a major change; sourcing, distribution and warehousing decisions which are currently planned based on a state level tax avoidance mechanism instead of operational efficiencies will be reorganized to leverage efficiencies of scale, location and other factors relevant to the business. To become GST-ready, most warehousing companies and manufacturers will take measures to rationalizeexisting distribution networks and consolidate warehouse capacities leading to large integrated warehouses with increased stacking heights. Effective management of such warehouses will necessitate adoption of technology. B. RISING LABOUR COSTS AND SKILL GAPS A warehouse needs different sets of people to operate efficiently â&#x20AC;&#x201C; managers, supervisors, operators, workmen etc. Operators and workmen are part of the labour that does the job of stocking, packing, loading and unloading goods in the warehouse. A 50,000 sq. ft. warehouse will require a manpower of anywhere between 20-40for daily activities and smooth functioning. Manpower is the single largest cost component of warehouse management (followed by rent) accounting for 35-45% of total costs. Labour costs have increased at 10% per annum between 2005 and 2010. With constantly 52
Warehouse Compendium 2014
AVG. HOURLY COMPENSATION FOR LABOUR: INDIA
x% CAGR
9.9% $1.46
5.3% $0.70
2000
$0.91
2005
2010
Source: Bureau of Labour Statistics
rising labour costs, it is challenging to keep the operating costs low. At the same time, skill gaps in warehousing industry also pose a challenge in Indian context. Skill gaps along with increasing labour costsare leading to higher handling costs/ unit, and are expected to gradually lead to a rise in use of automation in warehousing.
OPERATORS/ WORK MEN - SKILL GAPS Inadequate knowledge about material-handling equipment such as stackrers, forklifts ets. Inadequate formal training leading to on-the-job learning. Inadequate ability to maintain service standards, leading to damages. Source: www.nsdcindia.org C. INCREASED PRESENCE OF MNCS AND GROWTH OF MODERN WAREHOUSING Indiabeing one of the key emerging markets for logistics, several world leaders in logistics are expanding their footprint in the country. Companies like DHL, Fedex, Agility, DB Schenker etc. have expanded their base in India and are implementing best-in-class practices, new technology and automation
in material handling. Aggressive growth plans of MNCs and the integrated solutionsimplemented by them have led to Indian 3PLs adopting similar measures in order to compete. This hasled to increased technology adoption in the industry as a whole. At the same time, modern warehousing (managed by organized sector entities i.e. 3PL) is growing at a rate of 25% to 30% per annum. As long as the benefits justify the investment, organized players have a higher propensity to adopt technology solutions for warehousing. D. RISING CUSTOMER EXPECTATIONS With mature and knowledgeable customers, and complex customer businesses, come high service level expectations. Increased customer expectation is translating into sophisticated, integrated and automated warehouses, e.g. agriculture and frozen food industry demands for warehousing services such as food safety with temperature control and proper handling. Customers expect warehouses to deliver at lower costs, higher frequencies and zero errors. Automation helps in using warehouse space to its full potential and with greater storage efficiency, allowing warehouse to operate with minimum stock levels. II. EMERGING TECHNOLOGIES While established technologies are finding increased penetration levels in India, globally warehousing technology continues to evolve. Robotics which is already used in production is finding a larger space in warehousing. Use of robotics in warehousing for managing the storage, product movement and sorting of inventory can benefit through improved productivity, reduced labour costs, fewer safety incidents and order accuracy.Also, use of tablets and ipads (connected to wireless networks) to update inventory status during Warehouse Compendium 2014
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CUSTOMER EXPECTATION FROM WAREHOUSING FUNCTION / INDUSTRY
Visibility Value added services
Customize d solutions
Flexibility
CUSTOMER NEEDS
Specialize d solutions
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Warehouse Compendium 2014
Easy Data Exchange
24x7 support
receipt and put-away is a trend that is being observed internationally. Increased IT costs are leading to warehouses adopting solutions like cloud computing. Warehouses pay for IT infrastructure as an operating expense thus saving significantlyon IT costs. A cloud based, warehouse management system gives easy access across multiple warehouse sites, and can easily be integrated with ERP, sales order processing, transportation management and other supply chain management systems. Given India’s low adoption of technology & automation in warehousing, it will be sometime before these technologies catch up in the Indian market.
tions of a planned or existing warehouse to identify potential bottlenecks and undertake a ‘what-if ’ scenario analysis. Solutions can then be developed for the problems identified through the simulation. The process enables fine tuning of design, assumptions and processes before the actual operations of the warehouse begin, to enable a smooth roll-out. Warehouse simulation is a critical step for enhancing profitability of operations by designing and installing optimized systems. Logistics companies that fail to undertake this step will find themselves grappling with the complexity of managing the operations of large scale warehouses.
CONCLUSION: While technology has potential to provide massive efficiencies, it is important to support it with right design and processes to unlock its true potential.Companies may have a certain vision of an automated warehouse: seamless operations and high efficiencies. However, several times this vision is not necessarily translated into reality and the company may get stuck with a hi-tech warehouse where technology elements in fact become a hindrance to processes, leading to sub-optimal performance and higher operational costs. The main reason for this is poor design and trying to align existing processes to new technology. Therefore, one of the key elements of modern warehouse planning and design, that must not be overlooked, is warehouse simulation. Warehouse simulation is a modelling technique that incorporates the physical and operational elements into a single analysis tool. It has the capability of incorporating a vast array of elements such as forklifts, ASRS (Automatic Storage and Retrieval System), sortation conveyors, pick to light systems, overhead transport devices, gantry cranes, robots, fixtures and operators. Warehouse Simulation helps to visualize the actual opera-
About Tata Strategic: Tata Strategic Management Group is part of the Tata Group and one of the largest Indian owned management consulting firms. We enhance client value by providing creative strategy advice, developing innovative solutions and partnering effective implementation. In the logistics domain, we have supported clients in developing growth strategy, India entry strategy, strategic cost reduction, network optimization and supply chain effectiveness. Tata Strategic has vast experience in network design and logistics optimization. Through its strategic alliances, Tata Strategic has developed a specialized offering that combines network design with warehouse simulation to offer end-to-end logistics optimization solutions to support organizations become GST-ready. Simulation elements include: • Warehouse planning & design • WMS validation & training • Operational testing scenario
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CASE STUDY
ASHOK KUMAR K, heads Logistics Infra Planning Solutions at Godrej Storage Solutions and can be reached at ashokk@godrej.com
Material Flow & Operations Design – Two Wheeler Manufacture
A
leading 2 wheeler manufacturer had decided to set up a new production facility to augment its capacity by more than 100%. Through this initiative, the company wanted to achieve superior service levels to its clients by offering them with a wide range of variants in shorter lead times. Additionally the organization wanted to create its newer operations and systems that meet or exceed the best in class. With the help of a Logistics Engineering Consultant, the company went about the task of defining its operations for the new facility. The challenges were addressed in 4 broad stages, as follows: OPERATIONS AND PRODUCT MAPPING The company went about collecting the key data on its products and processes in a systematic manner through a dedicated project management office. Various profiling exercises were carried out to identify key trends and assimilate critical information. KEY OPERATIONS DECISIONS To address the key challenge of offering a wide range of variants to meet customized needs of the clients, the company set a target of meeting a TAKT time of 1 min per vehicle and went about planning its supply chain activities and assembly line operations. Various unit load sizes were analysed to meet the dual need of larger varieties as well as high uptimes for assembly lines and
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Warehouse Compendium 2014
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a suitable unit load size was decided for the supply chain team to align its sourcing and warehousing operations. Analysis results on vendor supplies were considered to arrive at batch sizes for incoming material and to maintain lean inventory in the manufacturing plant. This exercise was followed up with key strategies on Kit bin formation and Line feeding methodologies.
ions Specializat ly Chain Supp nt Manageme t anagemen Risk M usiness Agri B & d Planning Deman g Forecastin housing Ware ortation Transp dit ly Chain Au Supp tics ing & Logis Shipp twork ly Chain Ne Supp Design Logistics Retail nability Sustai
SYSTEMS SELECTION FOR MARKET PLACE/WAREHOUSE Key material storage and handling needs were assessed for feeding the assembly line continuously and the market place for materials was designed. The storage and handling systems were selected to optimize transactions to assembly lines and to ensure ergonomics in handling. The plans were made keeping in mind expansion needs of future. CREATING VISIBILITY The company consultant duo further went about creating visibility for the operations and materials by exploring and implementing Manufacturing Execution Systems (MES) for the plant. A thorough bread approach to the key issues and challenges, a decision to have an external view of its operations, Management focus of very high order laid the foundation for the organization to set up and run a world class manufacturing facility that has the highest feel for its customers. n
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Transforming Supply Chain in RETAIL through DATA-DRIVEN DECISIONS 58
Warehouse Compendium 2014
odern retailers are today competing on local and global scale. They procure from different vendors, market via multiple channels and sell in different geographies. Retailers have now moved from a local procure and sell model to procureanywhere and sell-anywhere framework. Complexities and opportunities are constantly increasing for retailers. There is an exponential increase in the number of channels – social, mobile, branch, kiosk, etc., which adds to the complexity. At the same time, digital channels are helping retailers’ bridge the gap between a shopper and a potential purchase. Today, consumers are empowered more than ever-before. It is important to consider transactional and consumer data in almost all walks of business. The world around us is evolving and consumers are interacting via multiple channels and sharing their experiences. Each interaction leads to the creation of data. Big data is only growing bigger. And, while retailers consider to align sales and procurement, it is sacrosanct to optimise the string that ties both these functions together – Supply Chain Management (SCM). The role of data-driven decisions in Supply Chain Management (SCM) is becoming more important than ever before. Analytics can be utilised efficiently to transform this challenge into an opportunity. Retailers have been leveraging analytics for the past few years. The use of analytics, have however been restricted to creating reports, managing operations, measuring efficiency, etc. While this is important, it only gave a picture of the past and the present. The real value of big data comes from the ability to leverage it for forecasting outcomes, predicting behaviour and foreseeing trends. Retailers are realising the importance of aligning procurement based on sales forecasts, consumer behav-
iour and market trends. Forward-looking supply chain intelligence can play a key role. Traditionally, organisations have been leveraging analytics to describe past problems and derive insights for reaching to a solution. However, in today’s dynamic business environment, it is vital that organisations turn proactive in terms of managing supply chain. Predictive analytics and in-memory techniques can help retailers in forecasting sales, market basket analysis, building propensity models, etc. This further helps in forecasting accurate quantities of right products and SKUs in the right stores/channels. This creates an alignment between the back-end and front-end, reducing stock-outs. Data-driven decisions have a significant impact on the inventory management and optimisation process as well. Analytics can help organisations automate and enhance inventory distribution management by providing the ability to take a forecast and calculate adjusted inventory and order quantities for product distribution systems at every level. Thus maintaining adequate stock levels, maximising response times and improving customer satisfaction. It helps control the upward pressure on inventory buffers at all levels of the supply chain. The number of SKUs are increasing, that combined with consumer preferences, number of category, etc.; creates millions of combinations of offerings. Data management and predictive analytics can gather and consolidate huge data volumes throughout the distribution chain, manage data on these millions of SKUs, and then transform, standardise and cleanse the data. This helps organisations in optimising safety stock levels, reducing redundant stock, achieving targeted customer service levels, improving cash flow and managing replenishments. Creativity in supply chain intelligence can also help enhance customer service levels. One of the most critical element in Warehouse Compendium 2014
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on the future trends in purchase, propensity to make combined purchases, SKU requirements, service requests, etc. Retailers collect millions of data points every day, across customer touch points, point of sale, operations, logistics, etc. The terabytes of data can become overwhelming. The value of data comes-in when organisations leverage data to empower decisions and derive foresights. The retail and SCM industry has seen a many transformations over the past few years, a significant transformation which it has been witnessing lately is ‘data’. Data is emerging as new asset class. Analytics is a strategic enabler that can help optimise supply chain, manage inventory, forecast sales, and much more. Retailers are constantly striving to provide flawless customer experiences and brand consistency across all available touch points and ensure that the right goods are available at the right time and via the right channel. To do so, it is vital to understand demand and align supply chain & inventory management accordingly. Inventory management and sales forecasting is residing in the realm of every supply chain visionary and retail innovator. Using techniques such as in-memory analytics and data visualisation, business users can explore data themselves and create interactive reports that helps in predicting trends and aligning sales with procurement. A culture of fact-based decision making and data-driven processes can help retailers in improving outcomes, managing supply chain and delivering superior value to consumers. n
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enhancing service levels is to ensure quality. Gaining a holistic view of customer complaints, purchase patterns, product specifications, etc., helps retailers in proactively reducing supplies of products that have a high quality issue and encourage products that have a better satisfaction index. This helps a retailer in giving the right feedback to the supplier / manufacturer. In this way, retailers can increase focus on providing better value to customers rather than merely promoting discounts. This helps build a better customer experience and at the same time induces loyalty. Branch and e-commerce channel play a vital role in any retail organisations overall growth strategy. It is important to not only plan what products are distributed in which outlets / channels, but also necessary to plan how the products would be placed internally in the outlet. It is also important to integrate service centers and call centers with retail outlets, so that customer experience is consistent across channels. Data plays a major role here. Analysing data from service, sales, branch purchase, etc., helps retailers in planning the integration of various branch networks and after-sales. This aspect is of prime importance in a geographically diverse and large country like India. It is also important to align the fast-growing e-commerce channels in sync with in-store outlets. Accurate stocking, order management, delivery and procurement systems helps retailers in driving performance via the e-commerce platform. To add to this, predictive analytics can provide knowledge
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CASE STUDY
BRIJESH PATIL,
Territory Manager at Mumbai for Godrej Storage Solutions. A challenging case of designing a DC for Retail client with 20000 SKUs consisting of temperature sensitive and expensive items in record 3 months time.
CASE STUDY
The Challenge of Designing a Retail DC
W
hen retail major contacted the leading racking systems provider for planning, designing and implementing a 4.8 Lacs Sq.Ft distribution centre (DC), it provided a huge challenge. The DC is not only enormous in size, but also the number of items and variants that are to be handled from the DC. There were about 20000 SKUs that needed to be planned for in terms of safe storage and handling. Temperature sensitive products and Expensive Items further added to the custom design need of the warehouse. Additionally, the client wanted to bring in very high level of operations and asset visibility in the DC and reduce the errors that are normally associated with excessive worker involvement. Above all, the DC needed to be set up within 3 months. PROCESS: The systems provider in collaboration with the client organization went about breaking the task into smaller sub tasks that bring out key information for selection of suitable systems. First, the SKUs were categorized on multiple dimensions such as Size, Weight, Stock Volumes, Controlled Temperature Need and Handling Sensitiveness. This had led to the 1st level assessment of storage systems and area needed.
IMPLEMENTATION: Subsequently, movement analysis results were looked into for further classifying the items into Fast, Slow and Medium categories. Accordingly suitable handling equipments were chosen.
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Warehouse Compendium 2014
Considering the high throughput needs of some categories of items, specialized identification solutions such as pick to light and handling solutions such as conveyors were planned for lesser effort but high throughput operations. During this process the initial selection of storage systems and areas got refined in favour of facilitating higher number of outbound transactions. The challenge was to use the vertical space available by way of MultiLevel/Tier systems and still provide for small flow of materials. Special areas were assessed and allocated for temperature sensitive products such as Chocolates and Handling sensitive products such as Consumer Electronics and Software. Considering diverse dispatch needs, both local and upcountry, the docks needed to be planned for handling variety of vehicles for 24X7 operations. Taking into account the value added services within DC, various material flows such as “Inverted U flow”, “Through flow” were validated before finalizing on “Through flow” kind of material movement and accordingly docks on either side of the building were planned. CONCLUSION: While the above methodology helped in identifying pockets of solutions, integration of the same to arrive at an efficient overall layout for DC was carried out with much care and in discussions with the client. Consultative approaches to the task were highly instrumental in arriving at a suitable solution and implement the DC in a smooth and transparent manner in real quick time. n
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TE CHNOLOG Y
TECH NOLOGY
THE TRADITIONAL FORMAT OF SALES HAS CHANGED FOREVER. In order to expand their market base, and reach
their target segment, companies are using electronic mediums – internet, mobile and social media (which is different from the traditional e-space) to reach consumers. E-commerce, or more recently M-Commerce, is the fastest growing consumer connect channel and it requires a fast, flexible, and accurate order fulfillment methodology. E-commerce orders are characterized by the high volume of orders, the low number of items per outbound case, the fast order turn time, and the growing requirement for real time fulfillment visibility. Girish V S goes beyond the warehouse walls to see what this means to warehousing.
IMPACT OF
E-COMMERCE
ON WAREHOUSING
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E
-Commerce, (which, for this article, includes mobile commerce) has emerged as a strong point of sales for companies. Global e-commerce turnover exceeded USD 1 Trillion in 2012 and is expected to grow at 25% in 2013. And companies are rushing to go online as quickly as possible. And China, India and Indonesia are expected to see the fastest growth of e-commerce globally. Unlike in the store format, the seller need not have physical possession of goods which the buyer can touch, feel and take home. It involves a customer, who could be in any part of the world, go online, check out the products on offer, place an order and expect the order to reach her within a period which can be as low as a day – the famous “One Day Rush Orders” from Amazon. This phenomenal rush to go online is fundamentally changing the retail supply chain networks. We look at the changes to one part of that chain – the warehouse. Typically, an e-commerce aligned warehouse design to incorporate multi-level pick modules, automated sortation, and ever increasingly sophisticated Warehouse Control System (WCS) to Warehouse Management System (WMS) interfacing. The traditional fulfillment process which includes receiving, putaway/storage, picking, transport through the warehouse, sortation, value-added services, packing, and shipping—is a not a suitable option for han-
dling the needs of e-commerce. E-commerce is all about your ability to pick, pack and ship small items – some as small as an ear ring to large equipments like treadmills to customers in far flung areas within tight delivery times. The expected fulfillment process might require delivery to customers—not weeks or even days, but typically within 24 to 48 hours. Speed, accuracy and efficiency are the buzzwords. In addition to this, the demands of continual stock-keeping unit (SKU) expansion add to the complexity of warehouse operations. Unlike traditional stores which can stock only a limited inventory, internet retailers support an ever-increasing selection of merchandise that typically includes fast-moving items and many very slowmoving items. How these SKUs are picked and handled can present two very different operations.
E-COMMERCE FULFILLMENT HAS FOUR MAJOR CHALLENGES: Large volume of very small orders n Major variations in the order flow nD elivery of the product to a private consumer who is not always home to receive the goods nL arge quantity of troublesome returned goods n
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TE CHNOLOG Y
Chaotic Storage is particularly interesting for warehouses handling a large number of items with small stock each – essentially e-commerce!
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TECH NOLOGY
E-commerce is more a supply chain operation than a sales operation. From the moment a customer places an online order to the time it is received at the warehouse, picked, packed, and shipped, every step in the process must be handled efficiently, consistently, and cost-effectively. Unlike other formats, in e-commerce, the warehouse provides much of the customer experience. Simply delivering the goods is no longer an adequate mission for the fulfillment center—customer satisfaction has to be a critical priority. The typical e-commerce consumer expects a wide selection of SKU offerings, mobile or internet ordering capability, order accuracy, fast and free delivery, and free returns. We turn to the warehouse part of e-commerce. The first requirement of the warehouse is a Warehouse Management System, with a high speed broad band connectivity to receive the customer orders. Once the warehouse receives the order, the WMS has to check for availability of the stock. If the stock is not available, the system should generate an alert to the manager for alternate
sourcing. Networked warehouses will be able to locate the SKU at whichever warehouse it is at and route the shipment from there. In some cases, the warehouse might have to co-ordinate with other warehouses to complete a shipment. For example, a laptop order may mean the warehouse might have to co-ordinate with a bag manufacturer and accessories manufacturer to complete the order. E-commerce fulfillment is basically a piece-pick operation, which is essentially a manual procedure. No doubt, right automation facilitates the minimization of manual efforts, resulting in increased accuracy, improved ergonomics, lower labor costs and worker travel time, fewer returns, and space saved by operating in a smaller footprint. This calls for a higher capital expenditure. The low margins mean that the warehouse will take a longer time for break even. To upset the calculations, the global trend that has emerged is that the sellers are reducing the period of their contract with the outsourced entities – from around 10 years to 3-4 years. To break even, the warehouse has to either boost volumes or increase pricing. The latter is not an option today. We take a look at the warehouse of Amazon – arguably the largest on-line retailer in world. The story of Amazon is mostly about warehousing and distribution. Amazon today operates 80 huge warehouses across the globe. During its initial years, Amazon started off with the principle that they would serve all their customers – wherever they are - from a centralized warehouse. But as business grew, so did the number of warehouses. Amazon deserves special mention for one simple reason – it follows a very unconventional storage system in its warehouses. And no – there are no robots on the Amazon warehouse floor – only a ocean of humans – who pick, pack and ship. While traditional warehouses follow a well defined storage
plan – with every SKU allotted a specific storage place, Amazon uses what it calls “Chaotic Storage”. The Amazon experience is that by storing items randomly instead of categorically, the warehouse has a much better flow of material. Chaotic storage –also known as random storage – is simply a shelving system holding the products. In this aspect it is similar to the fix storage positions. What differentiates the chaotic storage system so special is the flow of material. The real advantage of chaotic storage is that it is significantly more flexible than conventional storage systems. If there are any changes in a product range, or new products come in, the company does not have to plan for more space. The products or their sales volumes do not need to be known or planned in advance if they’re simply being stored at random! Another advantage is that the free space is better utilized in chaotic storage system. Unlike a conventional system, where free space may
go unused for quite a while because stock is low or there are not enough products, in the absence of fixed positions, available shelf space is always being used. For Amazon, it is also a major time-saver. The Amazon warehouse, which has millions of different SKUs to keep track of, would take a significant amount of time just to stock the goods in an organized fashion – that is even before an order comes in. The staff can cover more ground using Amazon’s system, and they don’t need to spend time sorting items by product or shipping volume. Chaotic storage has a very simple process flow. As the goods come in, the staff places it in the nearest empty space. The space and the product both have a bar code. The staff simply records both the place and the stock bar code using a hand held reader. When an order comes in, the WMS prepares a pick list, directing the staff to the exact location of the product. And as the staff picks it up, they scan it so that the database can be updated. n
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CASE STUDY
The rapid growth in economic activities, increase in FDI in manufacturing sector and rise in foreign trade has all led to growth in production in major industry segments. Driven by this uptick in production, warehousing sector has emerged as a major contributor towards the growing Indian Logistic Industry. However, the sinusoidal nature of this growth has thrown up plenty of challenges to the warehousing sector.
Technology Evolution for Operational Efficiency T he rapid growth in economic activities, increase in FDI in manufacturing sector and rise in foreign trade has all led to growth in production in major industry segments. Driven by this uptick in production, warehousing sector has emerged as a major contributor towards the growing Indian Logistic Industry. However, the sinusoidal nature of this growth has thrown up plenty of challenges to the warehousing sector.
CHALLENGES IN WAREHOUSE DESIGN While at one end companies have to meet the demand of high throughput due to enhanced demand from the market, at the other end they need dense storage to cater to fluctuation of demand, forex fluctuation impacting procurement & storage of imported raw materials and so on. Critical parameters like Inventory Management, Efficient & Accurate Operations and Integration with ERP/SAP have gained prime importance in warehousing facilities to ensure client delight resulting in growth of business. EVALUATION OF TECHNOLOGY DEPLOYMENT IN WAREHOUSE The Indian business fraternity is well aware of these challenges but is cautious in their approach and is extremely sensitive to high investments. The typical challenges in their mind while evaluating any new technology in warehousing is on two fronts:
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1. How Technology adaptation would happen in their organization? To elaborate further on this, the customer is concerned about seamless integration of automation in warehouse with their business processes, supplier’s credentials & domain knowledge, acceptance of new technology by its human resource and its real benefits to their endclients. 2. Level 2 challenges are mainly from the ROI front viz. How to keep the investment low or Can the payback period be fast? Before spending millions of rupees on a new technology any CEO would do due diligence, especially when they are operating in a challenging economic environment. But should they have a closer look at the latest warehousing automation technologies and the wonders it can do for their business? In the old era of 20th century the answer could probably be no, but in the modern era of 21st century a confluence of factors mentioned above is creating a better business case for warehousing automation. TECHNOLOGY EVOLUTION @ ZYDUS CADILA Now we would like to share the transformation story of one of our esteemed client Zydus Cadila a leading player in Pharmaceutical Industry. In year 2006, Zydus Cadila aim was to ensure better growth than industry in coming years and due to the far-sighted vision of their lead-
ers they quickly realized that this could be achieved by taking baby steps in the arena of warehousing automation. Godrej Efacec being a leader in “Automated Warehousing Solutions” was approached. After coming on board, the team at Godrej Efacec carried a thorough study of warehousing operations encompassing vital factors like desired storage capacity, throughput, material flow and automation needs. Finally, AS/RS (Automated Storage & Retrieval System) emerged as the best fit. However, adaptation of this latest technology in warehousing had to be seamless without causing any disruptions in business processes coupled with high acceptance by the user. This should be further supported by low initial investment thereby enabling faster payback.
AUTOMATION ADAPTION AT ZYDUS CADIL AUTOMATION ADAPTION
heads Sales & Marketing at Godrej Efacec Automation & Robotics Ltd and can be reached at shakti. choube@godrejefacec.com
0
10 9 8 7 6 5 4 3 2 1
AS/ RS WITH HCS
2006
2010
2012
YEAR
YEAR
To make this happen, our journey with Zydus Cadila, moved through various levels of automation, as under: 1. AS/RS with HCS (Handling Control System) 2. AS/RS operations through inbuilt WMS (Warehouse Management System) 3. AS/RS integrated with SAP
AS/ RS INTEGRATEDWITH SAP AS/ RS WITH WMS
STORAGE DENSITY DEGREE OF AUTOMATION THROUGHTPUT
SHAKTI CHOUBE,
CASE STUDY
Storage Dencity/Sq.M Degree of Automation Thoughtful
2006
2010
2012
Below graphs shows the AS/RS technology adaptation at Zydus Cadila for their multiple warehouses: The above graph depicts that Zydus Cadila moved gradually from low-end automation to fully integrated automation. This enabled risk-mitigation, easy adaptation and at the same time delivered key benefits such as Dense Storage, High Throughput, Real-Time Inventory Management, First Expiry First Out, Saving in AC operating cost, Reduction in Manpower and Elimination of Damages. Since all solutions are scalable each warehouse delivers full benefits despite of gradual move towards high end automatio
CLIENT TESTIMONIALS: We at Zydus Cadila realized at early stage that ASRS offers best solution for our warehousing needs. It not only saved in terms of capital cost per pallet but also helped MR. S G BELAPURE, President, Manufacturing in reducing the operational expenses (Formulations) of maintaining air conditioned space for our pharmaceutical raw material, packaging materials and finish products. ASRS reduced the space requirement for storage by almost 33%. Integration of SAP with WMS gave us added advantage of avoiding costly manual errors and maintaining very strong compliance to cGMP (Current Good Manufacturing Practices). Currently we are having ASRS with 25000 pallet space, which is probably largest in Indian pharma industry. Service support of Godrej from installation, commissioning to routine operation till today is of vital importance to sustain ASRS operations. CONCLUSION: With the upswing in the warehousing sector, time is ripe for companies to seriously evaluate the benefits of automated warehousing. Though late entrants, this would enable them to leap frog to global levels quickly. As you go down the road for warehouse automation, don’t overlook other areas in your organization that impact whether automation would work for you. Since these are customized solutions, working closely with experts in the field would do wonders for your business. n Warehouse Compendium 2014
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AUTOMAT ION
THE BATTLE OF THE BOTS FRONTIERS IN WAREHOUSING AUTOMATION
AUTOMATION
THE THREE PILLARS OF AN ECONOMY ARE AGRICULTURE, MANUFACTURING AND SERVICES. All three sectors se continued growth. Especially so manufacturing. A strong and vibrant supply chain propels the expansion in manufacturing. And at the heart of the supply chain is the warehouse. It co-ordinates and smoothes the flow of materials and information from the suppliers to the consumers. In spite of being a crucial link in the supply chain, warehouse automation is yet to take root in India. Girish V S takes a look at warehouse automation trends across the world.
I
ndia has been a laggard in warehouse automation systems â&#x20AC;&#x201C; probably due to the large capital outlay it entails and the long pay back period. However, all that is set to change. Increased competition and pressures to reduce costs are forcing warehouses to adopt automation. A small beginning has been made with a few traditional solutions. However, as the need to quicken the delivery process and reduce costs gain momentum, warehouses will need to go beyond the traditional automation and adopt some of the newer technologies. DRIVERS OF AUTOMATION As with every aspect, there need to be some drivers for automation. One of the drivers of automation is the recognition that a large centralized warehouse enables batter control over inventory as compared to a number of smaller remote warehouses. This improves visibility and reduces aggregate inventory. Another driver is the lack of trained manpower. Most warehouses operate at a distance from the towns and cities, making it difficult to hire skilled personnel. Labor costs in automated warehouses are lower than in conventional facilities because they need fewer workers. This reduced staffing cuts hiring and training expenses. Automation ensures high-density material storage, higher accuracy and efficiency in inventory tasks, offering lower operating costs. Over the past fifty years or so, robots
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Warehouse Compendium 2014
have become smaller, more flexible and precise, making it possible for them to undertake a exponentially higher number of tasks. Unlike the industrial robots, which are fixed and perform a repetitive task accurately, a warehouse robot needs to be small, able to navigate the vast interiors by themselves and yet retain their accuracy. Early stage warehouse automation saw some large firms introduce massive automated material handling systems to retrieve palettes of product as needed from towers of shelves. Others used automated cranes which can move from aisle to aisle grabbing boxes. These are the ASRS, Conveyors and carousels, Automatic Guided Vehicles of the traditional warehouse automation systems. Automated storage and retrieval systems (AS/RS) and their accompanying warehouse management systems (WMS) help achieve the goal of maximizing storage space while reducing operating costs. Sustainability of warehouses operations improve with automation. Even with AS/ RS solutions, warehouses can occupy less space. Automated warehouses save energy in multiple ways. The lighting and air conditioning expenses are lower for a smaller warehouse. The regenerative braking on storage/retrieval machines further reduce energy consumption because it feeds back surplus braking energy to the power supply system. Finally, the facilityâ&#x20AC;&#x2122;s WMS controls all product flows and optimizes product movements, which saves energy. Warehouse Compendium 2014
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AUTOMAT ION
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Please Contact: girish.vs@iscmindia.net with your area of interest Pods with a worker at his packing station. The pods on the left are being filled with ordered items delivered by mobile inventory pods which arrive on the right.
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Warehouse Compendium 2014
That was the past. The future is a series of small, intelligent, mobile robots that will move around the warehouse, picking up the items required and bringing them to a human picker, who will complete the order, and send it to shipping. Some recent advances enabled robots to communicate with each other, improving efficiency. We feature two innovative ways in which modern day warehousing is adopting automation. In March 2012, Amazon ordered a USD 775 million automated warehouse manage-
ment product – called the “magic Shelf” from Kiva, a company based in Massachusetts. A warehouse running Magic Shelf would look like a more traditional operation, at least until the system is switched on and the shelves start moving. The shelves themselves aren’t robotic. Kiva designed a special shelf it called the pod, which the robot can safely pick up and transport. As the order comes into the warehouse, the WMS orders a robot – a squat, orange self-driving dolly that resembles an oversize computer mouse - to the shelf location where the item
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AUTOMAT ION
is placed. The robot travels under the raised shelf, leaving the aisles for movement of the robots carrying the shelves. As the robot reaches the shelf, it rotates like a jack, lifting the shelf off the floor. It then moves along the aisles to the place where human pickers are stationed. A set of lights and laser pointers guide the pickers directly to the shelf and bin containing the item ordered. Once the items have been removed by the picker, the robot takes the partially empty shelf to a location at the back of the store, ready for the next load. The robot, then waits for the next command. Swisslog, a European firm does it a bit differently. Dubbed Click & Pick, the system uses a three-dimensional grid of cubes stacked up-and-down and side-to-side rather than shelves. Each cube contains a bin of identical size that contains the stock of a specific item, (what the industry calls a SKU.) The wheeled robot pickers roam the gridâ&#x20AC;&#x2122;s top level, which also serves as the set of tracks on which the robots run. When an order comes in, a robot will slide to the specific column containing the bin that holds the item ordered and lower tethers that lift the bin to the top. If the bin holding the needed item is buried beneath several others, the robot will pull out the bins on top one by one and make a stack nearby
until it reaches the container it needs. Next, the robot will deliver its cargo to a chute that sends the bin to a picking station staffed by a person. When the bin arrives, the human worker opens the lid, pulls out the mobile phone, T-shirt, or whatever else was ordered, and sends the item to be boxed up and shipped. As per Swisslogâ&#x20AC;&#x2122;s claim, their system can work four to five times as quickly as human-powered operations of similar size. Click & Pick can fill 1,000 orders in an hour and an individual order in as fast as 20 minutes. Today, robots can pick up, move, and place arbitrary items according to a plan. With advances in technology, we will soon have robots do their own bin loading. And when that happens, we can safely switch off the warehouse lights! n
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TRADITIONALLY WAREHOUSE AUTOMATION ONVEYORS: a conveyor network moves the C goods from the picking station to the shipping station UTOMATED STORAGE RETRIEVAL SYSTEM (AS/ A RS): an automation system with high-rise racks
that are loaded and unloaded using automatic storage machines within the aisle.
AUTOMATIC GUIDED VEHICLES (AGVS): used to
transport, store and retrieve loads for warehouses, which are mainly associated with the manufacturing and shipping industries.
CAROUSELS: carousels are used in warehouse to
move loads to a pick-and-drop station.
WAREHOUSE MANAGEMENT SYSTEMS: the
software that enables efficient management of warehouse - including locating the items for each order and directing picks.
...live supply chain ...think supply chain Industry Portal for the Supply Chain Professional
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Warehouse Compendium 2014
CASE STUDY
RAHUL SAGAR,
Senior Manager-Marketing, Maini Materials Movement Pvt Ltd. He can be reached at rahul.sagar@maini.com
CASE STUDY
Yale and Maini...
a perfect chemistry
A
leading global autocomponent manufacturerin Bangalore approached Maini for solution to their operations problem related to weekly pallet movements. With racking reaching heights of over 9 meters and aisles of just 2.9 meters, they had a very specific material handling equipment requirement for their raw materials and finished products warehouse, where there are over 500 pallet movements every week. The materials stored in the warehouse are required throughout the year as the site operates continuously. The breaks in the supply due to delays in pallet movement was increasing the operational costs. SOLUTION: The solution we provided was based on the most efficient truck for the specification of the warehouse. We identified that the MR 20H would offer low cost of ownership, high dependability and productivity, combined with operator comfort. The state-of-the-art Yale MR series Reach Truck operates using a manual order picking system that determines the most efficient method of handling pallets. Our first consideration while offering MR20H Reach Truck was therefore reliability. RELIABLE PRODUCT: • Reliable vehicle control manager • Long lasting reach and fork carriage design • Strong frame/ mast design assembly Yale’s MR20H is designed with AC technology on traction, hoist and steering motors, CANbus technology to reduce point to point wiring and enhance data transmission reliability, easy diagnostic capability to enhance dependability. Low lifetime cost of ownership is achieved through minimised unscheduled repairs and maintenance.
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HIGH ON PRODUCTIVITY: • AC motor • Palm tech joystick control • 360 degree steering • Tilting fork carriage with integral side shift The steering console incorporates the steering wheel, display with keypad and function buttons for parking brake, 3 pre-set performance levels plus slow speed mode, and optional features such as traction cut-out override for battery change. A comprehensive easy to read graphic display is provided featuring drive wheel position indicator with forward/ reverse travel direction indicator, battery discharge indicator, hourmeter on power up, parking brake status, battery release status, selected performance level and alarm condition. A height indicator display is optional. The display may also be changed to show the alarm history detail or set up parameters. The 10 digit keypad can be configured for driver authorisation codes and the optional height pre-selector. CONCLUSION: Our consideration was to ensure the ease of use and comfort for the operators. With a 16 hour shift pattern, split over 2 shifts, operating trucks in a quiet warehouse in the middle of the night can be very solitary and we needed to maintain optimum efficiency and keep operators focused and alert. The MR20H offers great visibility and ease of operation which adds to the health and safety element of operation. The comfortable seat and easily accessible controls also make operation even smoother and help to educe operator fatigue.By addressing these factors using Yale MR20H Reach Truck, movement of 500 pallets per week has become a hassle free process. n
NACCO MATERIAL HANDLING GROUP NMHG designs, engineers, manufactures and sells comprehensive line of lift trucks and aftermarket parts marketed globally under Hyster® and Yale® brand names. It is one of the world’s largest forklift manufacturers offering a full line of products through truly global operations. Yale has one of the most comprehensive range of electric and engine powered forklift trucks globally.
MAINI GROUP Maini Group is one of India’s leading design and manufacturing company, synonymous with innovation and cutting edge technology. The group offers comprehensive solutions in high-precision engineering components, material handling, warehousing & logistics, aerospace and electrical vehicles. While manufacturing base is in India, the warehousing and marketing networks extend over more than 25 countries.
PRODUCT OFFERINGS Pallet trucks Order pickers Reach trucks Turret trucks Pedestrian counterbalance trucks Forklift trucks Explosion proof trucks Warehouse Compendium 2014
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PROFILE
P ROFILE
VERTICAL LIFT STORAGE SYSTEM ALSO OFFERS SECURITY. Unlike conventional open shelves, the system
can be locked simply by pulling down the shutters.
ADITHYA RAO,
Business Development Manager, Schaefer Systems International Pvt Ltd.
Can space saved on the factory floor translate to serious CASH-FLOW ADVANTAGES?
F
actories are expensive and time consuming to setup. In countries like India, factories are also subjected to special sets of taxation rules that affect cash-flow. With the growing trend of short-term high demand being seen during product launches, there is a repeated need to ensure inventory is properly stocked so as to prevent running into a stock out scenario. In an ideal situation, a complete fully automatic warehouse system allows manufacturers to keep track of stock requirements and vastly improve delivery lead time but comes with a significant cost of investment. Nonetheless, simple savings and warehouse efficiency need not necessarily equate to huge investment cost. By using proven, highly efficient and relatively simple automated system such as Vertical Lift technology, manufacturers can easily increase the storage capacity within the existing floor area as well as efficiency in the factory multifold. Payment of excise duties can be delayed with the manufacturerâ&#x20AC;&#x2122;s ability to hold more stock and therefore return on investment from the vertical lift becomes realistic when accounting for the interest earned due to delayed cash flows on excise duties.
WHAT IS VERTICAL LIFT STORAGE SYSTEM?
Resembling like an oversized drawer cabinet, the vertical lift storage system 78
Warehouse Compendium 2014
has trays upon trays stacked up in layers right to the top. With the touch of a button, the automated storage system designed on the tried-and-tested rack and pinion drive swings into action, retrieving the tray required and bringing it directly to the picker.
WHY SHOULD IT BE USED?
One of the most striking features of the vertical lift is its height. The vertical lift can be stretched up to 20 metres high, making it possible for companies to make full use of the warehouse ceiling height. By having a vertical lift instead of conventional racks, one can save up to 80% of the warehouse floor area. Being modular, vertical lift storage systems can also be integrated into any existing system or relocated with equal ease. Manpower usage is minimal with the vertical lift storage system. All that is needed for the pick operation is one operator. Based on the goods to man principle, the items are delivered to the operator at the touch of a button. As it cuts down the need for walking, the operatorâ&#x20AC;&#x2122;s productive hours is maximized. Based on experience, the usage of vertical lift storage system can reduce operator travel time by 50-80% with the operator achieving about 120 picks per hour or roughly 1,000 picks per day. If batch picking is possible then even higher rates can be achieved. Vertical lift storage system also offers security. Unlike conventional open shelves, Warehouse Compendium 2014
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PROFILE
the system can be locked simply by pulling down the shutters. By limiting access only to authorized people, it is an effective safeguard against theft. In addition, the system is equipped with sensors which trigger emergency stops if safety protocols are breached. For operators, working with the vertical lift is a breeze. The user friendly storage system comes with a table adjustable to the level which best suits the operator. The table can also be tilted for better ergonomics, preventing the kind of aches and pains which come with bending and heavy lifting.
WHO SHOULD USE IT?
Suitable for small parts storage and recommended for slow to medium moving items, from electronic products like mobile phones,
spare parts to pharmaceuticals products, manufacturers who want to squeeze as much as possible into their available space should consider using the vertical lift storage system. While it requires a much higher investment upfront as compared with conventional shelves to store the same number of items, given the ability to stock more products with a much smaller space requirement, the interest earned from delayed cash flows payout on excise duties can certainly offset the higher upfront cost enabling manufacturers to achieve a relatively fast return on investment. For an informed decision on what storage system is suitable, do check out with a competent logistics consultant who can help to weigh the pros and cons. n For more information please visit us at: www.ssi-schaefer.in Contact us at +91 22 61114700 / schaefer@ssi-schaefer.in
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ClubSCMPro ClubSCMPro aims to nurture an active community of Supply Chain decision makers, professionals, experts and academicians. The idea is to build a forum where the SCM stakeholders can not only share great ideas on best practices, but can also discuss issues and pain areas affecting supply chain process.
ClubSCMPro aims to nurture an active community of Supply Chain decision makers, professionals, experts and academicians. The idea is to build a forum where the SCM stakeholders can not only share great ideas on best practices, but can also discuss issues and pain areas affecting supply chain process.
ClubSCMPro aims to nurture an active community of Supply Chain decision makers, professionals, experts and academicians. The idea is to build a forum where the SCM stakeholders can not only share great ideas on best practices, but can also discuss issues and pain areas affecting supply chain process.
As qualified members, you can avail the following benefits: > Subscriptions to SCMPro, monthly Enterprise magazine > Regular invites to Supply Chain Workshops, Seminars, Conferences, etc > Industry Reports > White Papers > Case Studies > Exclusive invite to the elite annual Black Suit Event
As qualified members, you can avail the following benefits: > Subscriptions to SCMPro, monthly Enterprise magazine > Regular invites to Supply Chain Workshops, Seminars, Conferences, etc > Industry Reports > White Papers > Case Studies > Exclusive invite to the elite annual Black Suit Event
As qualified members, you can avail the following benefits: > Subscriptions to SCMPro, monthly Enterprise magazine > Regular invites to Supply Chain Workshops, Seminars, Conferences, etc > Industry Reports > White Papers > Case Studies > Exclusive invite to the elite annual Black Suit Event
As qualified members, you can avail the following benefits: > Subscriptions to SCMPro, monthly Enterprise magazine > Regular invites to Supply Chain Workshops, Seminars, Conferences, etc > Industry Reports > White Papers > Case Studies > Exclusive invite to the elite annual Black Suit Event
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As qualified members, you can avail the following benefits: > Subscriptions to SCMPro, monthly Enterprise magazine > Regular invites to Supply Chain Workshops, Seminars, Conferences, etc > Industry Reports > White Papers > Case Studies > Exclusive invite to the elite annual Black Suit Event
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Warehouse Compendium 2014
ClubSCMPro
ClubSCMPro aims to nurture an active community of Supply Chain decision makers, professionals, experts and academicians. The idea is to build a forum where the SCM stakeholders can not only share great ideas on best practices, but can also discuss issues and pain areas affecting supply chain process.
ClubSCMPro 80
ClubSCMPro
ClubSCMPro aims to nurture an active community of Supply Chain decision makers, professionals, experts and academicians. The idea is to build a forum where the SCM stakeholders can not only share great ideas on best practices, but can also discuss issues and pain areas affecting supply chain process.
COLUMN
S A MOHAN, CEO, Maini Material Movement Private Limited.
COLUMN
BUILDING
NEXT GENERATION WAREHOUSES
NEXT GENERATIONS WAREHOUSES ARE SMART WAREHOUSES which are inte-
grated with automated technology to carry out day-to-day operations. S A Mohan, CEO, Maini Material Movement highlights actions to improve warehousing in India.
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ext generation warehouses will be a gate valve that will control the ebb and flow of products between the producing and consuming functions of an economic pipeline. In economic sense, Next Gen warehouses will be the logistics valve of Indian economy. India’s current logistics infrastructure is inadequate to meet growth aspirations. A 2.5 times increase in the freight traffic in the next decade will put further pressure on India’s Logistics future. Logistics costs in India constitute around 13% - 14% of its GDP against 7% - 8% being spent by developed countries like US, Japan & European countries. Market size of logistics in India is estimated to be USD90 – 125 billion. In logistics value chain, warehousing forms a very important link as it constitutes over 20% of the total logistics market. India’s warehousing & logistics sector strength is likely to be one of the key determinant of the pace of future growth of Indian economy. Warehousing market in India is expected to grow 35-40% annually, displaying high potential for growth over the next few years. India’s warehousing infrastructure is evloving. Gone are the days of yore when the dictionary meaning of warehousing used to be a place to store goods. Today warehousing is a strategic function that involves end-to-end value additions in the supply chain that creates significant competitive advantage. Organized warehousing market in India serves several important functions including shipment, consolidation, break bulk operations, processing, assortments, stock piling, product mixing, distribution, customer services, invoicing, etc. However, a majority of Indian warehousing market constitutes unorganized players, who are constantly subjected to limitations like lack of trained manpower, inefficient material handling practices, use of outdated equip-
ment, limited technology penetration, lack of expertise in technologies, process inefficiencies, lack of standardization, high cost of credit, power outages, etc. The immediate challenge is to define ways to extend support to this unorganized warehousing market Demand drivers for warehouse development are increasing international trade resulting planned investment in ports for upgrading container traffic handling capacity, increased use of containerization for inland transport, investment in manufacturing activity in SEZs, planned investments in FTWZs, development of dedicated Freight Corridor, change in government regulations related to State Sales Tax, emergence of organized retail and its need for efficient supply chain management and growing trend of outsourcing logistics function to 3PL service. The GST is expected to be the next big bang fiscal reform by the Indian Government which will lead to the abolishion of almost all indirect taxes incurred by companies and customers. As GST gets introduced all smaller warehouses will be merged to one productive warehouse a real advantage for all key logistics payers. This will leads to more state-of-the-art planning and investment on sophisticated WMS and technology, which otherwise are not feasible in smaller and scattered warehouses. As these larger warehouses get SMART, they attain multidimensionality and offer better services, mass customization and data management for greater efficiency and SMARTer fulfillment. SMART warehouses are the next generation warehouses that are integrated with automated technology. The automated technology comprises of Automatic Guided Vehicles (AGV’s), Automatic Guided Cars (AGC’s), Automatic Storage and Retrieval Systems (AS/RS), Automatic Trailer Loading Vehicles (ATL’s), Warehouse Management Systems (WMS). When used Warehouse Compendium 2014
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NEXT GENERATION WAREHOUSES CREATE AN ENVIRONMENT FOR GRADUATING INDIAN LOGISTICS MARKET TO OFFER VALUE PROPOSITIONS 84
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in concerted effort, these make for a highly productive warehouse and increase customer satisfaction by ‘Delivery on-time of undamaged and accurate orders, and reducing costs’. Other techniques and systems which can be used to modernize as well as optimize the Indian warehousing sector are SMART and efficient lighting, AS /RS, automated material handling equipment, technologically bound order picking and complete integration of WMS software. These warehouses adhere to basic principles of ‘lean’ warehousing while creating a safer work environment by cutting down on the probability of human error. Apart from helping company’s achieve desired results, these Warehouses add reliability, dependability and more importantly predictability to the process. The SMART Warehouses create a possibility of having ‘lights out’ 24/7 operations. Companies which depend on manpower can reassign key personnel to other areas where needed. Material storage is becoming more dyanamic and is no longer a static process. Applied dynamically, storage becomes a tool that facilitates even faster movement of product through a facility. Dynamic storage solutions minimize the space & labour devoted to storage while reducing length of time a product remains at rest. AS / RS eliminates the excessive and repetitive handling of material, improves the efficiency of transporting, buffering and sequencing of standard and non-standard loads, increases productivity capacity of existing floor space, reduces product loss thus boosts savings. It reduces escalating storage costs by reducing space requirements by as much as 50%, energy consumption up to 80% and labour costs up to 70%. High Density Dynamic Storage maximizes the cube with dense storage, minimizes footprint and delivers high throughputs at
lower operational costs. Multi-tier storage optimizes the utilization of storage volume in minimal floor space while facilitating simultaneous order picking on several tiers. Vertical carousels, are next generation vertical storage systems that are fully automated and optimize available storage space. They increase storage capacity, improve picking accuracy and are more ergonomic in product handling. Advanced material handling systems are responsive, flexible, autonomous, multi-functional, and highly automatic. Next Generation Forklift trucks, Reach trucks, VNA’s, Robots, AGVs, Electrified Monorail Systems (EMS), computerized picking systems and computer controlled conveyor systems form the backbone of SMART warehouses. Simulation technology can be used as a test-bed to better understand the systems before their implementation. This understanding helps engineers design the best possible, lowest cost automation solution for their manufacturing system. Simulation can be used as an affective analysis tool in the conceptual, detailed design, launching, and full operation phases of a project to avoid costly mistakes. With the coming upswing in the warehousing sector, the need for Indian logistics companies to modernize and optimize their warehouses is approaching. The need for the companies to re-visit their warehousing approach is pressing. Perhaps, the onset of GST, with its potential to revamp the national warehousing network could be considered as the single largest industry-wide opportunity to consider SMART warehousing as a costsaving opportunity across the supply chain instead of a standalone necessary evil due to its capital-intensive nature. Next Generation Warehouses therefore create an environment for graduating Indian logistics market to offer value propositions. n
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INT E RVI E W
INTERVIEW
ADDING VALUE TO CUSTOMERS
gets wider breadth of business with higher margins, while the customers will have to deal with only one vendor, than managing multiple vendors for 3PL warehousing, transportation, VAS etc.,
SCMPro’s Q&A with Mr. Srinivas Sattiraju, CEO Delex Cargo India Private Limited
1) What do you think of current trends in India logistics Vis a Vis Globally? The current trends in logisticsarefast evolving in India, though they are quite a distance away to match the advances that companies operating in developed economies are adopting. We are still used to following the traditional way of handling the SCM and shy away from making changes fearing the business continuity or apprehensive about managing many other external factors that prevail in the economy around us in India. This can change when all parties involved ie., the 3PL service providers, their clients and the external factors like infrastructure, government agencies, communication service providers agree to come together to roll-out a clearly thought through information exchange process that is built on a well 86
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laid out design in order to provide seamless integration of various stages of the SCM flow then I am sure that the trends in Indian logistics sector will catch-up fast with the Global best practices. 2) What area should 3PL need to concentrate to boost revenue and traffic? Doing excellent 4 wall management is the primary job. This coupled with focus on value added activities, like repacking, kitting and labelling etc., Value Add Services (VAS) would help its (3PL’s) customer to grow their revenues and in turn help 3PL service providers to experience substantially higher revenues. In addition to the 4 wall management, a 3PL should look at convincing the customer to also assign the distribution activity, along with 3PL warehouse management so that the 3PL
3) What need to be done to protect the bottom line by 3PL companies, since logistics is becoming more commoditize and there is wafer thin margins product? Well defined processes, systematically executed SOPs, all on the basis of agreed Scope of Work with the customer and ensuring strict adherence to these “day-in” and “day-out” should basically do the job of protecting the bottom line and avoid any cost outflow that arises out of firefighting. There could be scenarios where there are cost escalations hitting mid-way through the contract period, such cases should be dealt with smartly structured clauses that have room for midway price correction in the event of cost escalation due to external factors like fuel price increase, minimum wage revision etc., Overall shrewd management, stick to the services and cost agreed with the customer, having a contingency plan, maintain agreed KPI’s are some of the known levers to monitor to protect bottom-line. 4) What gives you sleepless night when you look at logistics industry in India? Too unorganized without any standards set & monitored for the industry, many new, many small player are mushrooming all around because of low entry barrier. In addition the constant demand from the customers on value added services and innovative solutions without recognising the cost associated with such demands, putting the 3PL on a back-foot. Besides these, another key factor that bothers is the shortage of trained resources. 5) Do you see the relationship between service provider and customer changing
and what direction do you think this relation will take you? All the customers are looking at 3PL companies as their strategic partners in business, at least during the tenure of the contract. This is a good development that happened over the last 10 years of 3PL-Principle engagement process, in India. But many such strategic engagements, however well they are run are quickly coming to an end, the moment the 3PL insists on a price revision in line with the prevailing cost structures. Very few companies look at the learnings that they imparted in a 3PL services’ provider and the importance to retain them, even if it means awarding a marginal price hike. Therefore the service providers are constantly under pressure innovate processes and offer cost reductions during the period of the contract in order to retain the association for a longer duration. Of course, that impacts the bottom line too at the same time. This is bound to continue until some sort of industry standardization based on certain global benchmarks around Hygiene, Safety, security, accuracy etc., parameters. 6) There is said lot about 4PL and 7PL coming up. Where does it fit in India, since the industry is still evolving. The higher PL, be it 4PL or 7PL, the threat of 3PL margin diminishing will get higher, leading to loss of interest for 3PLs. This will take time to evolve and even globally not much is being done in these directions, but definitely with more and more MNC companies setting shop in India and do not want to deal with many multiple vendors, may lean towards 4PL+ solutions. Looking at wide spread Indian geography where specific local strengths force using different players in each state, the 4PL concept will definitely be a well suited solution for a country like India. At the moment the customers may be waiting to see a successful model to benchmark and start! n Warehouse Compendium 2014
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CASE STUDY
CASE STUDY
Armes Maini is a sought after partner of Indian e-commerce Industry RAHUL SAGAR,
Senior Manager-Marketing, Maini Materials Movement Pvt Ltd. He can be reached at rahul.sagar@maini.com A leading e-commerce player approached Armes Maini to streamline their backend infrastructure in order to improve their operational efficiency.
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rmes Maini Storage Systems Pvt Ltd is a JV between Ferretto Group of Italy and Maini Group. The company offers a comprehensive range of solutions for varying and complex warehousing needs. It has a state-of-the-art manufacturing and solutions engineering facility based out of Bangalore. Armes Maini has been successfully offering solutions across verticals and has clients on a PAN India basis. Some of the esteemed clients are Amazon, Bosch, Flipkart, Larsen & Toubro, Tata Motors, Volkswagen to name a few. THE CASE: Armes Maini has co-created a flexible, scalable storage and material handling solutions for the Indian e-retailer for their multiple locations across India to strengthen their backend infrastructure. RACE TOWARDS NEXT GEN WAREHOUSES: Our customer has been witnessing explosive growth in business volumes over the past few months. With the addition of various categories, higher customer expectations on delivery time, we were faced with a challenge to offer a robust warehousing
FERRETTO GROUP Ferretto Group is one of the market leaders in the material handling and storage sector in Italy and Europe. Since over 50 years, the company has been part of making history in the evolution of storage solutions for the European market and has now extended its reach to Africa, Asia and Middle-East. Latest technology, impeccable quality and dedicated service are factors holding up the brand’s high reputation. 88
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infrastructure which could mitigate these challenges. To support their scaling growth story they chose Armes Maini as their partner as they believed this company had all the technical expertise, flexibility and agility to work keeping customer delight as their guiding principle.
MAINI GROUP Maini Group is one of India’s leading design and manufacturing company, synonymous with innovation and cutting edge technology. The group offers comprehensive solutions in high-precision engineering components, material handling, warehousing & logistics, aerospace and electrical vehicles. While manufacturing base is in India, the warehousing and marketing networks extend over more than 25 countries.
SOLUTION: Armes Maini has evolved and implemented a state-of-the-art comprehensive storage system and material handling solutions after careful study of their needs. The implemented solutions ensure optimum storage and retrieval of all categories of SKU’s ensuring critical KPIs. n
PRODUCT OFFERINGS Pallet racking Multipurpose shelving Mezzanines Automated storage solutions Vertimag
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LEAGAL
WAREHOUSE RECEIPTS: GIRISH V S, Executive Editor, SCMPro
THE INDIAN EXPERIENCE WAREHOUSE RECEIPT IS USED IN FUTURES MARKETS TO GUARANTEE THE QUANTITY
and quality of a particular commodity being stored within an approved warehousing facility. Rather than delivering the actual commodity, warehouse receipts are used to settle expiring futures contracts. Also referred to as a vault receipt, they are most often used when settling futures contracts that have precious metals as their underlying commodities. We look at the dynamics of warehouse receipts.
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ack of access to credit is a severe constraint for Indian farmers. According to a report by World Bank warehouse receipts are an important and effective tool for creating liquidity and providing easy access to credit. Such schemes also offer additional benefits such as smoothing the supply and prices in the market, improving grower incomes, and reducing food losses. The paper describes the steps of interaction involved in a warehouse receipt system, sets out the essential questions to be asked regarding the critical conditions for its success and illustrates the roles of the key actors in setting up and running such a system. Warehouse receipt is not new to India â&#x20AC;&#x201C; Way back, the Royal Commission on Agriculture, in 1928 had recommended establishment of licensed warehouses. Warehousing being capital intensive with low returns, private sector was shy of investment and hence public sector was inevitable. A licensed warehouse is authorised to issue a negotiable or a non-negotiable warehouse receipt. The warehouse receipt is a document of title to goods as per the sale of goods act, 1930. The warehouse receipt is a negotiable instrument that can be used as collateral to support borrowing or accepted for delivery against a futures contract, will enhance the bargaining power of farmers. They can avoid distress sale of their produce and raise cheap loans. The warehouse receipt market in India is dominated by large players. The Formal Warehouse Receipt Market in India evolved only 5-6 years ago. The market is estimated at approximately US$2Billion. The market has remained limited in size and scale due to: Lack of quality warehouses Govt. intervention in order to control inflation
Collateral management losses to banks Wholesale in nature The current warehouse receipt system favors large customers. Under the existing product feature, the warehouse receipt is a short term loan extended by the bank as an add on to normal working capital. It is usually given for a tenor of one crop season - around months. The challenges to a warehouse receipt market in India are that of tenor - the current tenor of a crop season is too long - farmers require much shorter tenors. In addition, the loan sizes are smaller and over and above these, the high Collateral management cost makes this unviable. However, there are quite a few positives to the warehouse receipt market. The establishment of grading standards for commodities and shift from identity preserved stocking to co-mingled stocks coupled with improved warehousing regulation has helped create a vibrant market. The negotiable warehouse receipt today is an electronic dematerialized document which adds to its attraction. As farmers become aware of the possibility of higher price realization with a timed market release of produce, warehousing by farmers will rise. This will give rise to new challenges â&#x20AC;&#x201C; As a rule, farmers do not have adequate access to organised warehouses where the produce can be stored in the right conditions. On the other hand agro processors are unable to plan their production schedules to create a demand pattern. This creates volatility in prices. The need of the hour is to see warehouse receipts as a part of the overall supply chain. The benefits of looking at warehouse receipts in context of an overall supply chain model are that quality of produce will improve with scientific storage, The combined offering of Warehouse Receipt, Terminal Market and Warehouse Compendium 2014
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Banking correspondent at a warehouse, increases the viability of investment in Warehousing and Can easily be extended to Govt. procurements, improving efficiency Opening up the warehouse market to farmers downstream is an investment in the future warehousing market in India. Banks richer by the experience of such pilots will be able to leverage and take part in the implementation of the Warehousing development regulations. It is not only about providing a warehouse receipt loan to the farmer but providing complete services at the warehouse. These developments will see a migration from traditional markets to warehouse receipt based Terminal and Futures markets. n
BENEFITS OF A A WAREHOUSE RECEIPTS SYSTEM Mobilizing credit to agriculture by creating secure collateral for the farmer, processor, and trader
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Smoothing market prices by facilitating sales throughout the year rather than just after harvests Reducing risk in the agricultural markets, improving food security and credit access in rural areas Increasing market power of small-holders by enabling them to chose at what point in the price cycle to sell their crops Helping to upgrade the standards and transparency of the storage industry since it requires better regulation and inspection Helping to create commodity markets which enhance competition, market information and international trade Providing a way to gradually reduce the role of government in agricultural commercialization Contributing to lower post harvest losses due to better storage conditions (i.e. Induces farmers to store in more appropriate warehouses) Lowering transaction costs by guaranteeing quantity and quality Increasing quality awareness (assuring the quality deposited is the same as the quality withdrawn). source World bank
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PROFILE
P ROFILE
VOLTAS MATERIAL HANDLING
KION GROUP
PRODUCT PORTFOLIO
Leading manufacturer of Material handling equipment in India
Global player in material handling industry
Complete range under Diesel, Electric forklift & warehouse equipments
V
T
(1.5T to 16T)
oltas Material Handling Private Ltd. (VMH) is one of the leading manufacturers of material handling equipment in India. The product range includes diesel forklift trucks, electric forklift trucks and warehouse trucks. Company has over 15 branches and 60 dealerships across India providing strong network for sales & service. The truck business contributed by Voltas Limited produced its first forklift truck in 1967. VMH was founded jointly by the KION Group AG and Voltas Limited in May 2011. Since November 2012, the KION Group AG, a German multinational manufacturer of materials handling equipment fully owns this company. VMH is building on its leading position in India and aims to become the undisputed number one, with complete range of machines under IC, electric and warehousing product segments. Voltas MH equipment meets the needs of numerous sectors and segments. VMH is committed to offering higher value, lower cost and better returns on capital investment, right through an extended life cycle for equipment.
he KION Group is a worldwide leading provider of forklifts, warehouse equipment and other industrial trucks, and is the market leader in Europe. Measured in terms of units sold, the KION Group is currently number one in the European market and number two in the market worldwide. It is the largest foreign provider of industrial trucks in the important Chinese market and the market leader for electric forklift trucks and warehouse technology in Brazil. The strategic partnership formed with Weichai Power at the end of 2012 will give the KION Group more momentum with which to build on its market position – particularly in the Asian market, but also elsewhere. Weichai Power, part of the Shandong Heavy Industry Group, is one of China’s leading industrial companies. It brings to the alliance its experience in commercial vehicle manufacturing and automotive supply. This partnership will give the KION Group the opportunity for targeted expansion of its extensive sales, service and dealership network. Group employs more than 21,000 people and in 2012 achieved revenue of more than €4.7 billion. With brands Linde, STILL, Fenwick, OM, Baoli and Voltas and representation in more than 100 countries, we are a global player and set the benchmark for quality, innovation and profitability in the premium segment of the industry. KION stands for sustainable, profitable growth through focusing on a clearly defined business segment.
DIESEL FORKLIFT TRUCK
•Outdoor environment •Heavy goods handling
ELECTRIC TRUCK
(1.5T to 3.5T)
•Indoor environment •No emission
WAREHOUSE EQUIPMENT
(Battery operated, Stacker & Reach Truck) •Transport of goods at faster speed •Specialized for warehouse
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I DARRYL JUDD COO, Logistics Executive With more than 20 years of executive experience in Aviation, Supply Chain and Logistics Transport Industry, Darryl has held executive positions within the airline & aircraft leasing/charter industry and major logistics organizations and can be reached at: darrylj@logisticsexecutve.com
The Warehousing Labour Challenge OF
TOMORROW
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n the past 10 years, the rise in consumer purchasing power, growing consumerism and brand proliferation has led to retail modernization in India. The growing Indian market has attracted a number of foreign retailers and domestic corporates to invest in this booming sector and with new FDI regulations coming into effect, it is only a matter of time before multi-brand retail changes the retail sector forever. According to A.T. Kearney’s Annual Global Retail Development Index in 2012, India placed at fifth rank (after Brazil, Chile, China and Uruguay) on the basis of retail investment attractiveness and according to the Investment Commission of India, the retail sector is expected to grow almost three times its current levels to $660 billion by 2015 (just two years away). FDI in the retail can expand markets by reducing transaction and transformation costs of business through adoption of advanced supply chain practices that benefit consumers and suppliers. Improvement of supply chain/ distribution efficiencies, coupled with capacity building and introduction of modern technology will help reduce waste (in the present situation improper storage facilities and lack of investment in logistics have been creating inefficiencies in food supply chain, leading to significant wastages), shorten lead time for deliveries and reduce costs (thus benefiting consumers). Another indicator of India’s emerging importance on the global logistics scene is the growth and expansion of logistics service providers in the country. In 2010, the logistics market in India was valued atRp5.6 trillion and is forecast to grow annually at a rate of 15 to 20% to reach Rp17 trillion by 2015. Global 3PLs have been particularly
visible and aggressive in building their networks and service capabilities in India. Companies such as DHL, Kuehne + Nagel, CEVA Logistics, Menlo Worldwide, and expediters including FedEx are quickly making strategic moves to develop and evolve their service networks, warehousing footprints and operations in India. These services help early adopters piggyback on their resources and make a seamless transition into the Indian market. As a result of this expansion, the warehousing market in India is expected to grow at a rate of 35 to 40% annually. This is supported by property company CBRE’s India market report which finds that expectation of growth will continued to see automobile players, FMCG companies and retail majors as the prime occupiers of warehousing space; while the preferred expansion mode for most corporates remained Built-to-Suit facilities in the range of 100,000-150,000 sq.ft Despite its strategic importance in the Indian economy, the opportunities that the Indian landscape presents and its immense potential for growth, the Indian warehousing sector confronts several challenges. Logistics costs in India constitute around 13 to 14% of its GDP against seven to eight per cent being spent by developed countries such as the US, Japan and other European countries, coupled with an inadequate skilled labour pool, Inefficient material handling equipment and a lack of world-class standards and specifications. Attracting and more importantly retaining quality warehousing and logistics labour has always been a struggle for the 3PL’s and Shippers. There is a huge gap in the knowledge and skill set requirement and availability of talent. Relative to modern economies, there are in fact very few professionals in the warehousing field in India and most of the activities, strategic or operational, are done by generalists. Skill Warehouse Compendium 2014
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and talent issues exist in varying degrees in the warehousing sector in India. TALENT SHORTAGES The skills shortage is one logistics challenge common to India and indeed throughout all emerging markets. As economies are rapidly expanding, then logistics activity increases, which in turn drives demand for trained, skilled and experienced professionals. India’s leadership role in global commerce has developed in areas such as telecommunications and business process outsourcing. The impact for supply chain management is a smaller pool of experienced talent to fill the expanding demand in the logistics sector. As India plans to modernize many sectors, in particular the retail trade, there will be further increasing demand for experienced logisticians. In India the difficulty of recruiting skilled professionals is exacerbated because of its scale and also due to India’s expanding role in global supply chains, leading to increasing demand for skilled logisticians. At the same time, the sheer size of the population gives it a larger pool of workers than in other countries. LACK OF TRAINED MANPOWER The trained manpower adds to the woes of the warehousing sector.By 2015, India will need approximately 35,000 to 40,000 warehouse managers . With increasing supply chain complexity, improved warehouse management processes and operations with more demanding customers, lack of attraction for new recruits arising from poor working conditions, relatively less attractive incentives and benefits, and the emergence of attractive alternate career options are having a significant contribution to the skill shortage in the Indian warehousing sector. 98
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The operational needs for the industry as far as skilled labour is concerned, will undergo a tremendous change as a result of the changing economy. It will also raise training needs because of technological changes as well as evolving customer expectations. In a small, yet critical way, the increased availability of specialist training institutes and the focus being give to Supply Chain education may help smooth the path to improved skills capability in warehouse labour management. Obviously not every business has the financial scope to structure similar elaborate feats of learning. However, some of the best companies today realize that continuous learning and development skills are key to organizational success. They are therefore investing in training strategies for their largely ‘blue-collar’ workers. They are taking note that better training reduces risk, increases safety and security and through better retention and employee engagement reduces cost. According to L.R Sridhar, Managing Director for specialized logistics talent firm, Logistics Executive India, training has become an imperative for supply chain and logistics organisations looking for a competitive edge. “Our clients who have traditionally used Logistics Executive to source talent, are now asking us to take our off the shelf supply chain training programs and personalized these for their local environments in order to be more globally ready and to retain staff ” said Mr Sridhar. As a result of this upward swing in demand for specialized, Mr Sridhar added that led Logistics Executive to partner with internationally leading universities to deliver a full suite of programs from ground floor basics like warehouse excellence, inventory management to MBA certified programs
specializing in Supply Chain. Poor facilities for-on-the-job training is another area being tackled by Logistics Executive. According to Mr Sridhar, “In providing training to our clients warehouse staff, we quickly came to the realization that most workplaces were not conjunctive to providing on-the-job training and that worked needed to be done to ensure adequate facilities and systems supported a continuous learning environment”. The by-product of this type of investment is improved retention and better employee engagement. WAREHOUSE LABOUR COSTS ON THE RISE Whilst labour costs in India are among some of the lowest in the world, the increasing demand for India’s coveted warehouse labour talent pool is expected to costs up. In a recent survey undertaken by Logistics Executive Group by 2015, labor rates in India is expected to rise 20 percent to 35 percent above 2013 rates . The Logistics Executive Group’s annual 2014 Employment Market Report found that more than 31.5% of survey respondents in India expected a pay increase greater than 20%, with 12% of these expecting a greater than 30% increase in 2014. Notwithstanding direct pay increases, as basic wages rise, then the benefits increase accordingly which can add considerably to companies’ costs. Employers equally expressed concern with 57.5% claiming that it is becoming harder to source/hire quality staff to meet the business demands. Clearly increasing productivity will be an important counter measure to this. Increased investment in technology systems and reducing staff turnover to ensure skill and knowledge retention are two important factors in achieving this. As Gwynne Richards, Director of
Apprise Consulting pointed out in recent his Logistics Time article on improving warehousing operations, “the involvement of the warehouse staff in improving processes and reducing idle time was also seen as being crucial to attaining better productivity rates. Transparency, communication, accountability and incentives were all seen as enablers to achieve improved performance and reduced costs”. For many organisations with diverse warehousing this means ensuring that workplace standards and facilities are vastly improved making the job more attractive. In turn focusing Understanding the art of In turn focusing on safety in the workplace, career development and on-the-job skills training with counter balance employee desire to seek greener pastures, whilst control costs as employees see greater benefits. The growing warehousing industry has created huge opportunities for direct and indirect employment. It is now up to all stakeholders including the government, policymakers, and private players to tap this opportunity and accelerate the growth rate of the mushrooming logistics industry. Initiatives such as those being run by Logistics Executive India will have to be undertaken to improve the skill level and develop talent in the warehousing sector in India, along with collaborative approach being taken by the various industry stakeholders. Leaders in the warehousing sector in India will need to pull together their resources to push for the establishment of a structured training infrastructure and provide incentives to employees for learning and development related initiatives. As industry leaders, we have collective responsibility to encourage the younger generation to choose a career in logistics, and within our businesses we must actively engage on talent attraction and retention programs. n Warehouse Compendium 2014
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NATARAJA SUBRAMANIAN, Business Unit Head, Miebach Consulting, He has worked in more than 50 supply chain consulting assignments across industries like Automotive, Chemicals, E- commerce, FMCG, Fashion, Pharmaceuticals, MRO and Retail on strategic and operational issues. He is an alumnus of NIT Trichy and IIM Bangalore and can be reached at nataraj@miebach.com
H UMAN RESOURCE
Manpower PRODUCTIVITY enhancement at DISTRIBUTION CENTERS
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he plight of supply chain managers at distribution center’s with manpower intensive operations is no different from the farmer who had to carry his goat, wolf and a bag of cabbage in a rowboat across a swelling river . In a country like India,where financial viability of highly automated green field distribution centerprojectscontinue to be unfavorable due to high manpower cost arbitrage, supply chain managers suffer the double whammy of higher project cost if they automate and lower operational reliability if they don’t. The solution to this seemingly paradoxical business problem is fairly simple – continually looking at ways to improve manpower productivity at distribution centers till such time partial / full automation beginsto make business sense.
PURPOSE – PROCESS– PEOPLE
Every distribution center exists for a purpose. Every distribution center has a set of processes which are followed within its four walls to meet the above purpose. Every distribution center employs a set of people to execute the defined processes. T he first ste p in a productivity enhancement program is to check whether the holy trinity of purpose, process and people are all aligned towards the needs of the customers supposed to be served by the distribution center.
CURRENT STATE
Finding answers to five key questions help in understanding current state of operations at the distribution center: Who are the customers of the distribution center? What is the service commitment to the customer / customer segment / Order type 100 Warehouse Compendium 2014
(in time and quality)? What are the processes carried out in the distribution center to meet those service commitments? How is the manpower deployed across all processes? What are the resultant productivities for all activities? Though not the only way to find answers to the above questions,creation of a value stream map for the distribution center could be a quick yet reliable way to do this. Value stream maps place the customer need at the heart of the entire process thereby helping the practitioners to separate wheat from the chaff by identifying value added and non-value added activities amongst the entire set of activities carried out at the distribution centers. Well begun is half done they say. An objective manpower productivity summary at an activity level spanning the entire current operation ( Gate entry , Unloading , GRN creation , Put away , Pick list generation , Picking , Packing , Consolidation , Invoicing , Loading , Housekeeping , Security etc. ) could give great insights on the holistic operational health of a distribution center .
FUTURE STATE
Once the current state productivity metrics are captured as above at an activity level, future state targets need to be set. Though the focus at an activity level target is key, it is equally important not to lose sight of the overall productivity of the entire operation so that local efficiencies do not result in a global inefficiency. Relevant benchmarks (of same / similar industry, activity type, business context), if available, come very handy in setting future state metrics at an overall operational level and at an activity level. Warehouse Compendium 2014 101
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These metrics then need to be set, discussed and agreed with the operations team leaders. Once the future targets (activity wise, in phases) are agreed, displaying them prominently in the operations area acts as a constant reminder to the entire workforce on expected performance levels.
Changes to storage and handling techniques at distribution centers are normally a direct function of available capital budgets and site constraints.Hence, identification and implementation of “Quick wins”, steps with highest impact potential which need little or no capital investment is most often the logical first step.
GOOD, BAD AND UGLY
BLOCKBUSTERS
Once current and future state metrics are in place, and the productivity gaps known, it is easier to take the three dimensional “Good –Bad –Ugly “ approach to improving site productivity as below: Improving efficiencies at all value adding steps Minimizing value erosion at all ‘unavoidable’ non-value added activities Removing all redundant non-value added activities Most productivity enhancement programs are a heady mix of all three. Sometimes it is surprising to see a significant improvement in site manpower productivity by streamlining peripheral activities like installation of surveillance cameras to reduce patrolling security officers, computerizing gate entry, using floor cleaning machines for housekeeping etc.
QUICK WINS
Productivity improvement atdistribution centerstypically come from changes in three major areas as below: Process Layout Storage and materialhandling techniques
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While every distribution center has its own unique set of challenges, few fundamentals like the ones mentioned below work like a charm almost everywhere:
VELOCITY BASED SLOTTING
Though slotting sounds like a clichéd suggestion to improve picking productivities, the results associated with effective slotting have always been very rewarding. There are three common errors which are committed by the practitioners when it comes to slotting: Slotting too often ( like every month ) or too infrequently ( like once a year ) Slotting done in PC not in shop floor. Slotting based on product dispatch value ( not on effort ) Defining right slotting principles and periodically executing them in the operations floor could pay rich dividends.
FOCUSING ON FLOW
Moving away from the practice of defining processes around big batch sizes (both in inbound and outbound operations) and moving as close as possible to a single
Do Your Warehouse GOALS SUPPORT Business Strategy?
piece flow could result in significant reduction in search times at different activities ( due to big WIP inventory between process steps).
STANDARD WORK AND LEVELING LOAD
Definition of standard work content for every activity (basis standard productivity at activity level) within the distribution center could go a long way in leveling load within the distribution Centre. Usage of simple tools like Heijunka boxes for work load leveling could help divert management attention to an activity running slower than standard rate resulting in timely decision making interventions and meeting committed service goals.
ERGONOMICS
Right from defining the maximum depth of the pallet for unit picking to golden pick zone height definition to selecting a material handling equipment with a tilt cabin to defining packing material storage slots in packing tables, ergonomics needs to be the corner store of distribution center design. It warrants very high attention to detail during the design phase, but it could be immensely rewarding when the facility is operational
he growth in outsourcing and offshoring of the Source and Make functions have rendered warehouses the last and only corporate facilities to handle customer shipments. Throughout history, warehouse workers have been manual laborers that did a lot of lifting, moving, and loading. The goal of warehouse operations was to be cheap, mechanistically productive, fast, and accurate in order fulfillment. Automation has largely been deployed to achieve these types of operational objectives. Are the operational objectives strategically aligned with the company’s competitive strategy? My experience tells me it’s unlikely.
DR. LAPIDE is a lecturer at the University of Massachusetts’ Boston Campus and is an MIT Research Affiliate. He welcomes comments on his columns at llapide@ mit.edu.
WAREHOUSE GOALS ARE MISALIGNED
align with corporate objectives if the business is to succeed on revenues, margins, and profit performance.
JOURNEY
Productivity improvement is a never ending journey of on-going improvements towards anutopian state called perfection. Like they say, sometimes the journey itself becomes the reward! n
T
IN MOST CASES, THE ANSWER IS NO. Warehousing goals need to closely
I’ve encountered situations in which warehouse operations were wildly successfully in meeting their performance objectives. The problem was that these objectives conflicted with corporate strategic goals. Three anecdotal examples are discussed below. During a conference a presentation
given by two warehouse managers from a pet foods company., the speakers boasted that throughout their company’s long history, 100 percent of orders were shipped ontime. Amazingly, this was their operational performance goal. They told a story about an instance where an order could not be shipped on time because an item on the order was out of stock. Rather than ship the order late, one of them went into a local pet store and bought the product, repackaged and shipped it to the customer, meeting their 100 percent on-time goal. Yet this solution surely ran counter to the corporate profitability goals as the company obviously lost money on the product that they purchased at retail and then re-sold at wholesale prices. Another concern was that the stock-out was not documented. I’m sure the company’s inventory managers would have liked to have been informed in order to prevent future stock-outs. In this example, the sole objective was on-time shipments, with no regard to profitability. This is typical of “Perfect-Order” goals that view performance in the eyes of the customer, absent any company-view perspective. What was needed instead here was an “Efficient Perfect Order” goal. This more comprehensive objective supplements the Perfect Order goal with criteria on how an order was filled in comparison to how it was planned to be filled. Implementing an Efficient Perfect Order goal would have accomplished two important things: (1) the incident would have been documented and (2) no credit would have been given to filling the order because it was not filled properly (and thus cost the company money). A second situation involved a grocery store chain that did business in Puerto Rico. Each week, the stores ordered goods from a warehouse in Florida, which loaded the goods in a container for shipment. Often, Warehouse Compendium 2014 103
COLUMN
ALIGNING WAREHOUSE OPRATIONAL PERFORMANCE TO BUSINESS GOALS CUSTOMER RESPONSE (Customer-Facing) On-time Shipments Perfect Order Fulfillment
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Cycle Times (Do not relate to financial statements)
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EFFICIENCY (Internal)
ASSET UTILIZATION (Internal)
Labour productivity (e.g., Unit-Based Picks/Hour) Warehousing Costs Efficient Perfect Order* (Related to income statement)
Warehouse Thoughtful (Units and Value) Overlow Storage Product Spoilage and Expirations Cash-Flow (Related to balance sheet)
*L. Lapide, “Not-So-Perfect Order”, Supply Chain Management Review
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after the goods were loaded, there would be a lot of extra space left in the container. So to save transportation costs, workers filled in the extra space with paper products. When a store manager got the extra paper products and realized that there was a surplus, he would conduct a sale to get rid of them. Over time, managers were running weekly sales—that is, until it was discovered what the warehouse workers were doing. In effect, to meet transportation cost objectives the warehouse workers were invariably forcing store managers to heavily discount paper products. This, of course, had significant impact on the grocery store’s profitability, to say nothing of the disruption it caused to the merchandise managers’ promotional plans. The root of the problem: warehouse goals conflicted with corporate Objectives. A third and last anecdote involved a supply chain colleague who worked at a manufacturer of medical supplies and devices. The company had consolidated logistical operations so that all inventories were held within the same warehouse. Warehouse performance was evaluated largely on productivity metrics, irrespective of the products handled. Because the supplies products were high-volume (yet low-margin), the warehouse director focused the lion’s share of employee efforts on them. Consequently, he had less time to spend on the smallervolume, faster-growing, and highestmargin medical devices. Because my colleague worked in the medical devices division and his goals were revenue and margin-focused, he constantly bickered with the warehouse manager to get medical-device orders shipped on-time and shipped before the supplies orders. The finance organization agreed with him because from a corporate cash-flow perspective it had similar goals. By aligning goals, this ongoing bickering between managers could have been avoided. Specifically, goals
around revenue, cash-flow, and profit oriented performance should have been incorporated into the warehouse director’s objectives.
ALIGNING WITH STRATEGIC OBJECTIVES
These anecdotal examples underscore that the warehouses of today need to have some performance objectives that align to corporate- wide objectives. In an earlier Insights column, “The Operational Performance Triangles” (SCMR November 2008), I discussed an approach for establishing a set of balanced supply chain performance objectives that align to corporate go-to-market strategies. (I consider this alignment to be the mark of an excellent supply chain). The approach uses a triangle as depicted in Exhibit 1. The location of the “dot” within the triangle represents the balanced focus among three types of operational performance objectives: efficiency, asset utilization, and customer response. At each point in the triangle are examples of operational performance objectives that might be relevant to warehousing operations. However, note that a few of these are not typical. For example, warehouse operations are usually goaled by metrics based on unit volumes, such as number of picks, shipments, and receipts—without regard to the value of goods handled. Adding in metrics based on values such as the revenue, margin, and profitability derived from goods will incent a warehouse to be more revenue and profitability oriented. Supplementing the typical goals that are focused only on being cheap, productive, fast, and accurate, with the values-oriented objectives would better align warehouse goals with other corporate objectives. In summary, now that the warehouse is becoming more important to competing in the marketplace, it may be time for managers to reset warehouse goals so that the whole supply chain team works in unison to achieve corporate- wide objectives. n