The University of Southern Mississippi College of Science & Technology IET 471/ 571 Section: G001 Logistics Distribution Systems Midterm Full Marks: 100 Student ID: Name: Closed book closed notes Answer all questions Instructions: Write only the correct answer in front of each corresponding question. On your answer sheet do not write questions. For example you will write, 1. b, 2. c, 3. e, etc or just descriptions if it is a descriptive question. For the math problems you should show the detail steps of solving with the final answer for partial credit. You can write the test on paper and scan them and drop them in the assignment drop box if that is convenient for you. Do not use any colored text or color highlights - I print them in black & white! Submit a word or pdf file with answers only (do not type questions). Multiple Choice Questions: 40 points 1. Who is not a part of physical distribution channel? a. Manufacturer b. Shipper c. Receiver d. Supplier e. 18 Wheeler 2. Buying a Dell computer from a kiosk is an example of a. Intensive distribution b. Selective distribution c. Exclusive distribution d. Direct distribution e. Indirect distribution 3. Selection of proper material handling equipment is important because of the following except a. Reduce handling cost b. Reduce transportation cost c. Reduce handling time d. Minimize breakage e. Minimize spoilage 4. Warehouse location is important for all of the following buta. Quick response to customer need b. Reduce inventory cost c. Reduce transportation cost d. Increase customer service e. Increase Inventory level 5. Typical cost of warehousing is a. 2-5% of sales b. 10% of sales c. More than 10% of sales d. $0.50 per $1 sales e. None of the above 6. Humanize warehouse operations means a. Making ergonomically safe for manual operation b. Automating warehouse operation c. Making completely manual operation d. Treating workers with respect e. None of the above 7. Unitizing & shipping do not include a. Packaging merchandize b. Weighing shipments c. Accumulating orders d. Pricing merchandize e. Checking orders 8. Activity profiling is not for a. Justifying investment b. Identifying root causes c. Activity breakdowns d. Capture activities in visual form e. All of the above 9. To design warehouse layout, which profiling do you conduct? a. Order mix profiling b. Popularity profiling c. Seasonality profiling d. Activity relationship profiling e. Demand correlation profiling 10. What is the best statement for contract warehouse? a. Serves single customer b. Serves multiple customers c. Serves as storage d. It is a public storage e. All of the above 11. Honeycombing is worse for a. Shallow depth column b. Deep column c. Single stack racks d. Wide aisle racks e. Carrousel 12. Seasonality distribution helps to identify a. Average yearly demand b. Peak and valley demand during the year c. Cost of storage in the Christmas season d. All of the above e. None of the above 13. What is not true about benchmarking? a. Process of comparing performances b. Setting goals at or above world class standard c. Implementing WMS in the warehouse d. Developing an improvement plan of action e. Gathering assessment data 14. Warehouse performance is higher for a. New warehouse b. Old warehouse c. Small warehouse d. Urban warehouse e. No quantifiable relationship exists 15. Cost of shipping is the cheapest in case of a. Cross docking b. Direct primary putaway c. Traditional shipping d. Direct shipping e. Consolidated shipping 16. Storing items in the golden zone are usually performed by a. Direct putaway b. c. d. e. Directed putaway Batched putaway Interleaving Direct shipping 17. If aisle width, lot size, load length, and stack height of a warehouse facility are 5 feet, 25, 3 feet, and 10 feet respectively, what should be the approximate optimal lane depth? a. 1 foot b. 2 feet c. 4 feet d. Cannot be calculated e. None of the above 18. Which of the following criteria is the most important for push back storage system? a. Cost per position b. Storage density c. Load access d. FIFO maintenance e. Ease of installation 19. If you need to store your products at a higher level in the warehouse and at the same time you do not want to invest more than $100, 000 for equipment, which of the following pallet retrieval system will you choose? a. Counter balance b. Straddle reach c. ASRS d. Turret e. None of the above 20. What is not a characteristic of grocery picking system? a. Motorized vehicle b. Transport pallets at a floor level c. Low capital investment d. Picks between 150-250 cases per person-hr e. Not flexible and unsafe Descriptive Questions: 40 points 1. What is the key difference between warehouse and distribution center? 2. Is EDI an example of physical distribution? Why or why not? 3. Explain prepackaging and no-packaging in warehouse operation. 4. Why do sellers encourage customers to order a full case rather than a broken case? How do sellers encourage them to buy full case and what type of profiling is required? 5. When do a departmental store conduct demand correlation profiling? 6. What are the characteristics of successful benchmarking partnership? 7. What is deadheading in warehouse operation and how to reduce that? 8. What are the associated reasons for selecting or deselecting a Pick-to-Conveyer system? Analytical Questions: 20 points 1. Company A has gathered following information for storing its products in designated space within the warehouse. Golden zone will accommodate only 10% of items that are requested about 50% of the time, Silver zone will accommodate only 15% of items that are requested about 30% of the time, and the rest items (75%) will be placed in a non assigned zone. Which items will be placed in what zone? Draw a profiling chart to show this assignment clearly. Items Item 1 Item 2 Item 3 Item 4 Item 5 Item 6 Item 7 Item 8 Item 9 Item 10 Item 11 Item 12 Item 13 Item 14 Item 15 Item 16 Item 17 Item 18 Item 19 Item 20 Yearly Requests 0 1 1 0 2 9 0 15 5 0 1 2 1 6 1 4 1 1 0 1 LOGISTICS: DISTRIBUTION SYSTEMS DESIGN AND ANALYSIS IET 471/571 Dr. MD Sarder Introduction: Why Have a Warehouse? Will we ever completely eliminate the need for warehousing? Think about the changing purpose/role of warehousing... How can warehousing be used to improve logistics accuracy and supply chain efficiency? Value-Added Warehousing Raw material & component warehouses Work-in-process (WIP) warehouses Finished goods warehouses Distribution warehouses/centers Fulfillment warehouses/centers Local warehouses Value-added service warehouses Warehouse Roles Buffer Consolidation Rapid Response Product Customization The Warehouse Role of: The Buffer used when there is variation between production schedules and demand typically located near manufacturing plant usually full pallet loads inbound and outbound to the facility monthly to quarterly replenishment of stock The Warehouse Role of: Consolidation accumulate and consolidate products from multiple manufacturing plants for combined shipment to customers usually located geographically central to manufacturing plants or customers usually full pallets inbound and full cases outbound weekly or monthly orders The Warehouse Role of: Rapid Response goal of providing same-day delivery to key customers (not typically all customers) often requires more warehouse locations to shorten transportation distances can have full or broken-case inbound and often single item outbound The Warehouse Role of: Product Customization perform some functions previously accomplished by manufacturing plants packaging labeling marking pricing Warehousing Costs often between 2% - 5% of costs of sales challenge of maintaining/improving customer service while minimizing costs! total warehousing costs include: labor, space, material handling systems, information handling systems Warehouse Infrastructure Information Handling Space Human Resources Material Handling Warehousing Situation Today Execute more smaller transactions Handle and store more items Provide more product service and customization Offer more value-added services Process more returns Receive and ship more international orders Less time to process an order Less margin for error Less young, skilled personnel Less WMS capability Warehousing Challenge Identify & Implement Change to Improve Customer Satisfaction & Resource Utilization Meeting the Challenge Development and implementation of an organized set of principles is the key to achieving world-class operations! Principles of World-Class Warehousing Profile: Activity Profiling (Ch2) Benchmark: Measuring and Benchmarking (Ch3) Innovate: Receiving and Putaway Principles (Ch4) Pallet Storage and Retrieval Systems (Ch5) Case Picking Systems (Ch6) Small Item Picking Systems (Ch7) Order Picking Operations (Ch8) Unitizing and Shipping (Ch9) Layout (Ch10) Automate: Computerizing Warehouse Operations (Ch11) Humanize: Workforce Design and Development Ch12) Review of Warehousing Fundamentals Receiving Prepackaging (optional) Putaway Storage Order picking Packaging and/or pricing (optional) Sortation and/or accumulation Unitizing and shipping Warehouse Process Flow Receiving Put-away Storage Cross Dock Flows Support Sort & Accumulate Shipping Order Picking LOGISTICS: DISTRIBUTION SYSTEMS DESIGN AND ANALYSIS IET 471/571 Chapter 2 Dr. MD Sarder World-Class Warehousing Activity Profiling (Ch2) Measuring and Benchmarking (Ch3) Receiving and Putaway Principles (Ch4) Pallet Storage and Retrieval Systems (Ch5) Case Picking Systems (Ch6) Small Item Picking Systems (Ch7) Order Picking Operations (Ch8) Unitizing and Shipping (Ch9) Layout (Ch10) Computerizing Warehouse Operations (Ch11) Workforce Design and Development Ch12) Warehouse Activity Profiling systematic analysis of item and order activity designed to quickly identify root cause of material and information flow problems helps pinpoint major opportunities for process improvements provides an objective basis for decision making must be careful to strike a healthy balance between "enough" profile distributions vs. "analysis paralysis" Warehouse Activity Profiling Why use profile distributions vs. averages? Example: 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Items per order distribution part #1 part #2 part #3 What's the average # of items per order? How often does the average really happen? Warehouse Planning & Design Issues 1. 2. 3. 4. 5. 6. 7. Order Picking & Shipping Process Design Receiving & Put-away Process Design Slotting Material Transport Systems Design Layout and Material Flow Design Warehouse Sizing Level of Automation & Staffing 1. Order Picking & Shipping Process Design: Customer Order Profile Key Questions: Order batch size? Pick wave planning? Picking tour construction? Shipping mode disposition? Profile Components: Order mix distributions Lines per order Lines & cube per order distribution 2. Receiving & Put-away Process Design: Purchase Order Profile Key Questions: Receiving mode disposition? Put-away batch sizing? Put-away tour construction? Profile Components: Order mix distributions Lines per receipt distribution Lines & cube per receipt distribution 3. Slotting: Item Activity Profile Key Questions: Zone definition? Storage mode selection & sizing? Pick face sizing? Item location assignment? Profile Components: Popularity profile Cube - movement / volume profile Popularity - volume profile Order completion profile Demand correlation profile Demand variability profile 4. Material Transport Systems Design: Calendar-Clock Profile Key Questions: Material handling systems selection & sizing? Profile Components: Seasonality profile Daily activity profile 5. Layout and Material Flow Design: Activity Relationship Profile Key Questions: Overall warehouse flow design (U,S,I, or L Flow)? Relative functional locations? Building configuration? Profile Components: Activity relationship distribution 6.Warehouse Sizing: Inventory Profile Key Questions: Overall warehouse space requirements? Profile Components: Item family inventory distribution Handling unit inventory distribution 7. Level of Automation & Staffing: Automation/Investment Profile Key Questions: Staffing requirements? Capital - labor substitution? Level of mechanization? Profile Components (Economic factors distribution): Wage rate ($/hour) Cost of space ($/sq.ft. per year) Cost of capital (% per year) Required ROI and/or payback period (% or years) Working days per year (days/year) Planning horizon (years) Power of Warehouse Profiling - Summary It may appear that profiling requires lots of work - it is true but absolutely necessary to insure an accurate plan & design. Design changes are more expensive during project construction than conceptualization! Warehouse activity profiling is a process that is actually never completed, but world-class warehouse management systems support continuous profiling which supports continuous warehouse problem solving. LOGISTICS: DISTRIBUTION SYSTEMS DESIGN AND ANALYSIS IET 471/571 Chapter 3 Dr. MD Sarder World-Class Warehousing Activity Profiling (Ch2) Measuring and Benchmarking (Ch3) Receiving and Putaway Principles (Ch4) Pallet Storage and Retrieval Systems (Ch5) Case Picking Systems (Ch6) Small Item Picking Systems (Ch7) Order Picking Operations (Ch8) Unitizing and Shipping (Ch9) Layout (Ch10) Computerizing Warehouse Operations (Ch11) Workforce Design and Development Ch12) Why Measure and Benchmark? Recall activity profiling helped to diagnose problems in current operations and revealed opportunities for process improvement. In benchmarking, goals are set at or above worldclass standards for warehouse performance, practice, and infrastructure. Why Measure and Benchmark? Cont'd. A benchmark is typically a quantitative assessment of some aspect of performance of an enterprise: Productivity Shipping accuracy Inventory accuracy Dock-to-stock time Warehouse order cycle time Storage density Why Measure and Benchmark? Cont'd. Proper benchmarking and goal setting yields an estimate of an annual benefit related to quantified opportunities for improvement. By having annual benefit $ determined, it is much easier to compute affordable investment levels for process improvements. Measuring and Benchmarking Warehouse Performance Section 1 Benchmarking Warehouse Operations Section 2 Warehouse Performance Measures Section 3 Warehouse Performance Gap Analysis Section 4 Warehouse Performance Index Section 5 Do's and Don't' for Warehouse Automation Section 6 Warehouse Practices and Performance Section 7 Summary Section 1 Benchmarking Warehouse operations Three Perspectives of Benchmarking: Internal Benchmarking External Benchmarking Competitive Benchmarking Section 1 Benchmarking Warehouse Operations Internal Benchmarking Internal Benchmarking is focused on the operations of a single company. Example: Gillette friendly competition among all logistics managers using key logistics metrics: Shipping accuracy Inventory accuracy Inventory turns Fill rate DC productivity DC storage density Order cycle time Perfect order percentage Section 1 Benchmarking Warehouse Operations External Benchmarking External Benchmarking looks outside the firm's industry. Recall the full circle of : CFM (electronics) QR (textiles) Everyone is learning from someone.... ECR (grocery industry) JIT (automotive) Section 1 Benchmarking Warehouse Operations External Benchmarking Examples Example: Xerox What did Xerox have in common with L.L. Bean? Example: SBC Why did SBC, John Deere, United Stationers & Excel Logistics develop a formal benchmarking partnership? What did each company contribute? Section 1 Benchmarking Warehouse Operations Desirable Attributes of External Benchmarking Partners Strength in areas where you have weaknesses Sensitivity to proprietary/confidential issues Willing to share lessons learned (weaknesses) Willing to share success stories (strengths) Open-minded Logistically similar Experience in different industry &/or country Section 1 Benchmarking Warehouse Operations Competitive Benchmarking Competitive Benchmarking looks at firms conducting business in the same industry. Section 1 Benchmarking Warehouse Operations Traditional Benchmarking Performance Metrics 1. Operating Cost and Operating Productivity Operating cost is measured as warehousing and/or distribution cost as percent of sales. Operating productivity is measured in units (lines, orders, cases, pieces, pallets, pounds, etc) handled per person-hour. 2. Annual Warehousing Cost is the sum of the three major warehouse resources - labor, space, and systems. 3. Productivity is the number of units handled divided by the number of person-hours involved. Section 1 Benchmarking Warehouse Operations Traditional Benchmarking Performance Metrics Extreme caution must be used in the interpretation of performance based solely on these metrics. Warehousing and distribution cost as % of sales varies widely with product pricing and sales volume - usually out of the control of the warehouse/distribution management! Cost as % of sales also varies across industries. See text tables 3-1 and 3-2 for examples. Section 1 Benchmarking Warehouse Operations Traditional Benchmarking Performance Metrics Warehousing unit costs can also be misleading. Annual warehousing cost = sum of the three major warehouse resources: labor, space, and systems (material handling, storage, & information handling). See table 3-3 for examples. Section 1 Benchmarking Warehouse Operations Traditional Benchmarking Performance Metrics Can designers & managers influence Wage rate? Cost of space? Depreciation rate? But, what about resources consumed? Amount of labor consumed? Amount of space occupied? Systems investment? Section 1 Benchmarking Warehouse Operations Traditional Benchmarking Performance Metrics The design and integration of people, space, & systems will determine warehouse performance! Focus on the consumption of the resources to meet the mission: "Shipping perfect (right product(s), right quality, on time, damage-free, right paperwork) orders and storing product efficiently." Section 2 Warehouse Performance Measures Warehouse Financial Performance Figure 3-1 Use Activity-Based Costing for ease of measuring and understanding performance improvement in each activity Activity costs can also provide a quantitative basis for comparing third party warehousing proposals and menubased pricing for warehouse services. Section 2 Warehouse Performance Measures Warehouse Financial Performance Figure 3-1 $ Labor Space MHS WMS Total $ $/transaction Receiving $/receipt Putaway $/line Storage $/SKU Picking $/line Consolidation $/load Delivery $/load Marketing $/piece Returns Total $/line Section 2 Warehouse Performance Measures Warehouse Financial Performance Figure 3-1 $ % of Total Cost/Sales Cost/Order Cost/Case Cost/Line Cost/Piece Cost/CF Cost/Pound Cost/SKU Labor Space MHS WMS Total $ Section 2 Warehouse Performance Measures Warehouse Productivity Performance Productivity = output/input is the most popular warehouse performance measure. Labor productivity = annual lines, orders, pounds, etc. pallets shipped / total annual labor hours employed in the warehouse. (Used alone, this could be a misleading ratio...) Storage density = inventory storage capacity / total square footage in warehouse. (can also use location utilization and cube utilization) Section 2 Warehouse Performance Measures Warehouse Quality Performance Putaway accuracy (% items putaway correctly) Inventory accuracy (% warehouse locations without inventory descrepancies) Picking accuracy (% order lines picked error free) Shipping accuracy (% order lines shipped error free) Best warehouse operators in USA accuracy near 99.97% Best in Japan near 99.997% Section 2 Warehouse Performance Measures Warehouse Cycle Time Performance Dock-to-Stock Time (DTS) = elapsed time from when a receipt arrives at the warehouse until it is ready for picking or shipping Warehouse Order Cycle Time (WOCT) = elapsed time from when an order is released to the warehouse until it is picked, packed, and ready for shipping Section 2 Warehouse Performance Measures Warehouse Key Performance Indicators (WKPI's) Table 3-4 Receiving Putaway Storage Order picking Shipping Total Financial Productivity Utlization Quality Cycle Time Section 3 Warehouse Performance Gap Analysis Developed to help managers and operators assess their own performance relative to world-class standards. The analysis quickly points out weak and strong points in the performance of the operation. Section 3 Warehouse Performance Gap Analysis Warehouse Performance Gap Analysis Productivity 6 Safety 4 Storage density 2 Warehouse "X" 0 WOTC Dock-to-Stock Time Inventory Accuracy Shipping Accuracy Text Example - Figure 3-2 World-Class Section 3 Warehouse Performance Gap Analysis The usefulness of gap analysis Can be used to establish project goals. Can be used to compare operations in a potential benchmarking partnership. Can be used to justify capital expenditures for new information and/or material handling systems (see text figure 3-3). Section 4 Warehouse Performance Index WPI is developed with a utility theory technique called data envelope analysis (DEA) see text figure 3-4. Comment about workforce demographics & warehouse performance \"average performance index for union facilities was nearly identical to that of the non-union facilities\". Section 4 Warehouse Performance Index Comment about warehouse size and performance \"Do you think large or small warehouses tend to have better performance?\". Comment about warehouse mechanization and performance \"Are highly mechanized operations more productive than conventional warehouses?\" Comment about warehouse practices and performance \"The warehouse performs as a function of its practices\". Section 5 Do's & Don'ts for Warehouse Automation Key Points Complexity Training and Documentation The Guinea Pig Cross-Functional Teams Incremental Justification Flexibility Section 6 Warehouse Practices and Performance Warehouses perform the way they practice World-Class Warehousing Practices are illustrated via examples in figures 3-8, 3-9. Section 7 Summary Use benchmarking for quantitative assessment Use external benchmarking when possible Use holistic approach to jointly consider all performance indicators (productivity, shipping accuracy, inventory, dockto-stock time, warehouse order cycle time, & level of mechanization). Use benchmarking & performance gap analysis to justify capital expenditures incrementally Integrate benchmarking & analysis into ongoing journey to world-class performance LOGISTICS: DISTRIBUTION SYSTEMS DESIGN AND ANALYSIS IET 471/571 Chapter 4 Dr. MD Sarder Principles of World-Class Warehousing Activity Profiling (Ch2) Measuring and Benchmarking (Ch3) Receiving and Putaway Principles (Ch4) Pallet Storage and Retrieval Systems (Ch5) Case Picking Systems (Ch6) Small Item Picking Systems (Ch7) Order Picking Operations (Ch8) Unitizing and Shipping (Ch9) Layout (Ch10) Computerizing Warehouse Operations (Ch11) Workforce Design and Development Ch12) Receiving Receiving sets the stage for putaway, storage, orderpicking, and shipping. Receiving and Putaway Principles What is the highest productivity possible? 100 lines per man-hour? 2000 lines per man-hour? 2000 lines per man-hour? Can you afford automation? What other options are possible? Receiving and Putaway Principles Simplify the W/H operations by aligning the process with world-class W/H operating principles is critical step on the way to world-class warehousing. W/H operating principles are all designed to eliminate and streamline work content. (material and/or information handling) Receiving and Putaway Principles Why automate when you could eliminate or at least minimize the need for automation? What about direct shipping? What about cross-docking? Direct Shipping Direct shipping - product is shipped directly from the source of supply to the customer. "the best receiving is no receiving" Opportunities for direct shipping include: - large, bulky items; - made-to-order items; - combinations of items for which the regular shipping volume occupies at least a full truckload. Cross-Docking Cross-docking is the practice of moving product from receiving immediately to shipping for loading into a customer order. Natural scenarios for cross-docking are: - full pallets with a single SKU on-board, - floor-loaded loose carton, - backorders, - made-to-order products, - custom-ready-product, -branch and inter-DC transfers. -In order to effectively handle cross-docking, you must have the capability to schedule inbound/outbound loads - often hourly. -Pre-receiving saves time especially if using cross-docking. Cross-Docking Company Examples of Direct Shipping and CrossDocking: L.L. Bean Amway K-Mart Food industry Receipt Preparation, Prepackaging Pre-package in increments that customers are likely to order in and encourage customers to order in full handling unit increments Apply labels and tags Cube and weigh for transportation planning Putaway Direct putaway Directed putaway Batched and sequenced putaway Interleaving Direct Putaway Putaway directly to primary or reserve location Bypass receiving staging and replenish primary locations from the receiving dock Useful if there are no severe constraints on stock rotation Eliminates time, space, and labor associated with staging and inspection activities Directed Putaway Assignment of putaway locations via warehouse management system (not random operator selected) in a manner that maximizes location and cube utilization and maximizes retrieval productivity. The key to proper sequencing is to design minimum distance picking, putaway, restocking, and interleaving tours of the warehouse locations. Batched and Sequenced Putaway Sort inbound material for efficient putaway Interleaving & Continuous Moves Combine putaway and retrieval transactions to prevent "deadheading" whenever possible Example: Warehouse Zoning based on Popularity Items Item 1 Item 2 Item 3 Item 4 Item 5 Item 6 Item 7 Item 8 Item 9 Item 10 Item 11 Item 12 Item 13 Item 14 Item 15 Item 16 Item 17 Item 18 Item 19 Item 20 Yearly Requests 3 1 5 6 2 25 9 12 15 3 1 2 1 6 11 3 1 1 8 2 LOGISTICS: DISTRIBUTION SYSTEMS DESIGN AND ANALYSIS IET 471/571 Chapter 5 Dr. MD Sarder Principles of World-Class Warehousing Activity Profiling (Ch2) Measuring and Benchmarking (Ch3) Receiving and Putaway Principles (Ch4) Pallet Storage and Retrieval Systems (Ch5) Case Picking Systems (Ch6) Small Item Picking Systems (Ch7) Order Picking Operations (Ch8) Unitizing and Shipping (Ch9) Layout (Ch10) Computerizing Warehouse Operations (Ch11) Workforce Design and Development Ch12) Introduction Objective of this chapter includes: to introduce the full range of mechanization options for storing and retrieving pallets to describe the pros, cons, costs, and appropriate application of each system. Pallet Storage Systems Pallet storage systems include: block stacking; stacking frames; single-deep selective pallet track; double-deep rack; drive-in rack; drive-thru rack; pallet flow rack; push-back rack. Block Stacking Block stacking (figure 5-1) refers to unit loads stacked on top of each other stored on the floor in storage lanes (blocks) 2 to 10 loads deep. Height of stacks may range from 2 loads high to a height determined by: acceptable safe limits, load stackability, Load weights, Pallet conditions, Weather (high humidity softens cardboard, etc.) vehicle lift height capacity, the crushability of the loads, and/or the building clear height. Loads in a block should be retrieved using LIFO. Block Stacking Block stacking is particularly effective: when there are multiple pallets per SKU when inventory is turned in large increments i.e. several loads of the same SKU are received or withdrawn at one time. Honeycombing occurs as loads are removed from a storage lane so it causes a space-loss phenomenon. The investment in a block stacking system is low because no racking is required. Optimal lane depth = [Aisle width x Lot size / 2 x Load length x Stack height]1/2 Pallet Stacking Frames Pallet stacking frames (figure 5-4) are either frame attached to standard wooden pallets or self-contained steel units made up of decks and posts. Stacking frames are commonly used: when loads are not stackable; when other racking alternatives are not justifiable. A single stacking frame costs between $100 and $300. Single-Deep Pallet Rack Single-deep pallet racking (figure 5-5) is a simple construction of metal uprights and cross-members providing immediate access to each load stored (ie. no honeycombing). A typical single-deep rack position costs between $40 and $50. The major advantage is full accessibility to all unit loads. The major disadvantage is the amount of space devoted to aisles - typically 50% to 60% of the available floor space. Double-Deep Pallet Rack Double-deep pallet racks (figure 5-6) are merely selective racks that are two pallet positions deep. The advantage of two-deep rack facings (perpendicular to the aisle) is that fewer aisles are needed. Double-deep rack are typically used: when the storage requirement for SKU 5 pallets; when product is received and picked frequently in multiples of two pallets. Drive-In Rack Drive-in racks (figure 5-7) extend the reduction of aisle space begun with double-deep pallet rack by providing storage lanes from 5 to 10 loads deep an 3 to 5 loads high. Loads should be retrieved with a LIFO discipline and with a retrieval discipline to free up each lane as quickly as possible. Best used for slow-med velocity SKU's with 20 pallets on hand. Drawback of drive-in racks: the reduction of lift truck travel speed; the honeycombing losses since no more than one SKU can be housed in a lane. Drive-Thru Rack Drive-thru rack is merely drive-in rack that is accessible from both sides of the rack. Pallet Flow Rack Pallet flow rack (figure 5-8) is used like drive-thru rack. But, pallets are retrieved by FIFO discipline. The main purpose of pallet flow rack is: to provide high throughput pallet storage and retrieval; to provide good space utilization. Pallet flow rack is used for items with high pallet inventory turnover and with eight or more pallets on-hand. The major disadvantage is the expense; $200 to $300 per storage position. Push-Back Rack Push-back rack (figure 5-9) provides LIFO, deep-lane (2 to 5 pallets deep) storage using a rail-guided carrier for each pallet load. Advantage of push-back rack: no need to drive into the rack; no vertical honeycombing. Push-back rack is appropriate for medium to fast-moving SKUs with 3 to 10 pallets on-hand. The cost of typical push-back rack is in the range of $150 per pallet position. Mobile Pallet Rack Mobile pallet racks (figure 5-10) are single-deep pallet racks on wheels or tracks permitting an entire row of racks to move away from adjacent rack rows. The underlying principal is that aisles are only justified when they are being used. Less than 10% of the floorspace is devoted to aisles. Storage density is the highest of any of the pallet storage alternatives; but, the pallet storage retrieval productivity is the lowest. Mobile Pallet Rack cont'd. Mobile racks are justifiable when space is scarce and expensive, and for slow-moving SKUs with 1 to 3 pallets on hand. The cost of typical mobile rack is in the range of $250 per pallet position. Pallet Storage Systems Selection The key to selecting the appropriate pallet storage system configuration is to assign each SKU to a pallet storage system whose storage and productivity characteristics match the activity and inventory profile of the SKU. Refer to Table 5-1 and Figure 5-11 Pallet retrieval systems Pallet retrieval systems include: walkie stackers; counterbalance lift trucks; straddle trucks; straddle reach trucks; sideloader trucks; turret trucks; hybrid trucks; automated storage and retrieval machines. Walkie Stackers A walkie stacker (figure 5-12) allows a pallet to be lifted, stacked, and transported short distances. Walkie stacker may be appropriate in situations where there is low throughput, short travel distances, low vertical storage height, and low cost solution. A typical walkie stacker can stack loads a maximum of three loads high. Cost of walkie is in the range of $10,000. Counterbalanced Lift Trucks Counterbalance lift truck (figure 5-13) uses a counterbalance in the back of the truck to stabilize loads carried and lifted on a mast at the front of the truck. The lift height limitation is around 25 feet. Operating capacities are up to 100,000 lbs and cost is in range of $30,000. Counterbalance trucks can be used for longer moves than walkie stackers. Counterbalanced Lift Trucks cont'd. Because of flexibility and the vehicle's relatively low cost, this truck is the benchmark for all other pallet retrieval vehicles. The major drawback is the wide turning radius required to turn the vehicle in an aisle. A 11' to 12' storage aisle width is required. Straddle Trucks Straddle truck (figure 5-15) provides load and vehicle stability by using outriggers to straddle the pallet load, instead of counterbalanced weight. The aisle width requirement is 8' to 10'. A typical straddle truck costs in the range of $35,000. Straddle Reach Trucks Straddle reach trucks (figure 5-16) shorten the outriggers on the straddle truck providing \"reach\" capability with scissors reach device. Two basic straddle reach truck designs: mast-reach design consists of a set of tracks along the outriggers than support the mast; fork-reach design consists of a pantograph or scissors mounted on the mast. Aisle width requires 8' to 10' and costs in the range of $40,000. Side Loading Trucks Side loading trucks (figure 5-17) load and unload from one side, so eliminating the need to turn in the aisle. Side loading trucks can operate in a 6' to 7' wide aisle. Two basic side loader designs: the entire mast moves on a set of track transversely across the vehicle; the forks project from a fixed mast on a pantograph. Side Loading Trucks cont'd. Sideloaders can generally access loads up to 40 feet high and cost in the range of $75,000. The major drawback is the need to enter the correct end of the aisle to access a particular location, thus adding to the time and complexity involved in truck routing. Turret Trucks Turret trucks (figure 5-18), like sideloading trucks, do not require the vehicle to make a turn within the aisle to store or retrieve a pallet. The load is lifted either by forks which swing on the mast, or a shuttle fork mechanism. Turret trucks can access to load positions at heights up to 50 feet, and can operate in aisles 5 or 6 feet wide. Turret truck costs in range of $95,000. Hybrid Storage/Retrieval Trucks A hybrid S/R truck (figure 5-19) is similar to turret truck, except that the operator's cab is lifted with the load. The hybrid truck evolved from the design of an automated storage and retrieval machine used in AS/RS systems. Hybrid trucks operate in aisle widths ranging from 5 to 7 feet, allow rack storage up to 60 feet high in a rack supported building. Hybrid Storage/Retrieval Trucks cont'd. The disadvantage of hybrid trucks: the lack of flexibility; the high capital commitment; the high dimensional tolerance in the rack. The cost of a typical hybrid storage / retrieval truck is in the range of $125,000. Automated Storage/Retrieval Systems An automated storage/retrieval system (AS/RS) (figure 5-20) for pallet is commonly referred to as a unit load AS/RS. A typical AS/RS operation involves: single command (SC) operation accomplish either a storage or a retrieval between successive visits to the input/output (I/O) point; dual command (DC) operation accomplish two operations, a storage and a retrieval, between successive visits to the I/O point. Automated Storage/Retrieval Systems cont'd. A unique feature of the S/R machine travel is that vertical and horizontal travel occur simultaneously. Horizontal travel speeds are on the order of 500 feet per min; vertical, 120 feet per min. The typical unit load AS/RS in its most straightforward configuration includes unit loads stored one deep, in long narrow aisles, each of which contains a S/R machine. Automated Storage/Retrieval Systems cont'd. A single I/O point is located at the lowest level of storage and at one end of the system The possible variations in AS/RS systems: the depth of storage; the number of S/R machines assigned to an aisle the number and location of I/O points. A typical AS/RS machine costs in the range of $300,000. Pallet Retrieval Systems Selection Refer to Table 5-2 which summarizes the key storage and handling features of each of the pallet retrieval system options. LOGISTICS: DISTRIBUTION SYSTEMS DESIGN AND ANALYSIS IET 471/571 Chapter 6 Dr. MD Sarder Principles of World-Class Warehousing Activity Profiling (Ch2) Measuring and Benchmarking (Ch3) Receiving and Putaway Principles (Ch4) Pallet Storage and Retrieval Systems (Ch5) Case Picking Systems (Ch6) Small Item Picking Systems (Ch7) Order Picking Operations (Ch8) Unitizing and Shipping (Ch9) Layout (Ch10) Computerizing Warehouse Operations (Ch11) Workforce Design and Development Ch12) Case Picking Systems - Pick Face Palletizing Pick Face Palletizing systems include Pallet jack picking Pallet trains Lift truck picking Order picker truck Pick-to-conveyor End-of-aisle AS/RS Robotic case picking Pallet Jack Picking A pallet jack (figure 6-1) is a motorized vehicle equipped with forks to transport pallets at floor-level. Double pallet jack is shown in figure 6-2. Pallet jacks are most popular method for case picking, and are common in the grocery industry so it is referred to as the grocery picking method. Pallet Jack Picking cont'd. The advantages of pallet jack picking are: low capital investment required; the simplicity of the concept; flexibility; safety since it operates on floor-level. Typical pallet jack picking rates range between 150 and 250 cases per person-hour. The cost of typical pallet jack is around $8,000. Pallet trains can increase the number of pallets per picking tour (see figure 6-3) Lift Truck Lift trucks (figure 6-4), can be used for case picking and allow for the pallet to be kept at operator waist level for ease of loading. They allow the order picker to travel at high speeds over long distances and can also load outbound trailers. Costs around $30,000 per truck. Order Picker Truck Order picker trucks (figure 6-5), sometimes referred to stock pickers or cherry pickers. They allow the order picker to travel to pick locations well above floor level. The productivity of case picking with this truck is only in the range of 50 to 100 cases per person-hour. Order picker trucks are usually used for picking slower moving items and where high density storage is required. Costs around $30,000 per truck. End-Of-Aisle AS/RS In some cases AS/RS (figure 6-6) are used to automatically convey pallet quantities to a stationary operator. Then the operator transfers the required number of cases from the storage pallet to the order pallet. The advantages include: high storage density of the storage pallets; excellent ergonomics; and relatively high productivity since the operators are stationary. The disadvantages are the high degree of mechanization required; the associated capital investment and control complexities. Robotic Case Picking Robotic case picking (figure 6-7) are even more rare except where limited variety of case sizes are involved and/or hazardous environments exist. Case Picking Systems Downstream Palletizing Downstream palletizing systems include Pick-to-conveyor Case sorting systems Pick-car systems Automated case dispensing Tier (or Layer) picking Pick-To-Conveyor Pick-to-conveyor operations (figure 6-8) allow the order picker to walk down the line removing cases from pallet storage locations and placing them on a takeaway belt or roller conveyor. The advantage of pick-to-conveyor operations (over pallet and order picker truck) : a substantial increase in picking productivity; a result of pickers being confined to zones; less travel distance between picks; the elimination of the order picker palletizing as they pick. The disadvantage is the need for a downstream sortation system. Case Sorting Systems Pick-to-conveyor operations must include a sortation operation before orders are palletized or loaded onto outbound trailers (figure 6-9). Pop-up wheels, pusher bars, shoes, or tilting trays can be used in conveyor systems to divert cases into appropriate lanes. Pick-Car Systems Pick-car is a telescoping conveyor belt attached to manaboard AS/RS machine and operates within a single picking aisle (figure 6-10). Automated Case Dispensing Automated case dispensing systems (figure 6-11) can be used to fully automate the putaway and retrieval of individual cases. The advantages of this system are: the complete elimination of human operators; the related labor and workman's compensation costs. The disadvantages of this system are: the high maintenance requirements; the high initial investment. Cost roughly $500,000 per each mechanism. Dispensing rate roughly 500 cases per hour. Tier (or Layer) Picking Full tier or layer picking systems (figure 6-12) are used to mechanically extract an entire layer of cases from a pallet. Variety of mechanical approaches for layer picking including: vacuum suction and conveyor singulation of the top layer; four-sided clamping and conveyor singulation; layer stripping conveyors. Tier (or Layer) Picking cont'd. The advantage of layer picking (over the other case picking methods) is the total elimination of human handling of the cases and high case handling capacity. The disadvantage is the high degree of mechanization and associated cost. A typical layer picker can handle between 750 and 1000 cases per hour. Palletizing Systems Manual (figure 6-13, 6-14, 6-15) Mechanical (figure 6-16) Robotic (figure 6-17) Direct Case Loading Systems Mechanical (figure 6-18) Robotic (figure 6-19) Case Picking Systems Selection A formal economic case picking mode analysis should be conducted to identify the appropriate combination of case picking systems. This analysis should consider the activity and inventory profile of each item and the storage and handling characteristics of each storage mode. The economic analysis should recommend the appropriate picking mode for each item based on this matching of item requirements and storage mode capabilities. Refer to Table 6-1 VOLUME 24 24 NUMBER NUMBER 77 JUNE jUNE 2009 2009 VOLUME Understanding Warehouse Costs and Risks By Thomas W. Speh, Ph.D. Editor's Note: Presented here is a revision of an article written nearly two decades ago by professor Tom Speh, of Miami University, Oxford, Ohio. When written, the purpose of this work was to provide a guideline for public warehouse operators and their customers. Both buyer and seller were accustomed to a transactional pricing and costing system that combined a monthly price per unit for storage with the costs of materials handling and administrative services. The vendor needed to make certain that this pricing would yield a profit, and the buyer wanted to be sure that no money was left on the table. In revising this work, we recognize the need to create a mechanism that is useful for wholesale distributors, as well as logistics service providers who are not using unit pricing. Both buyer and vendor need to understand the process, in order to compare price to actual value of the services rendered. KBA Warehousing is nothing more than the management of space and time. The space management portion, storage, has a cost per month, because there is a monthly cost for warehouse space. The time management component includes labor involved in handling materials as they move in and out of the warehouse. If you are buying or selling warehouse services, or simply providing warehousing services for your own organization, the models that are presented in this article will enable you to isolate and analyze the costs of warehousing. All companies with warehouses incur the same elements of cost, but they compile them differently. The goal of this article is to convey a costing system that can be used to compare costs of one warehouse with another, or one company to others. Some warehousing costs tend to be ignored or misallocated, because the analyst does not recognize where they belong. In any costing system, allocation of overhead costs is a matter of judgment, and no specific formula will be correct for every user. The cost models shown here have been designed to ensure that no item is overlooked. We assume that each user will customize the models, and make individual judgments regarding allocation of administrative costs. Four Categories Of Warehouse Costs 1. Handling. All expenses associated with moving product in or out of the warehouse should be included in 2009 the handling cost center. The largest component is the labor used to handle the product that moves through the distribution center. It includes receiving, put-away, order selection, and loading. It also may include labor to re-warehouse, repackage, or refurbish damaged product. Handling also includes all costs associated with the equipment used to handle product in the warehouse, such as the depreciation of equipment cost, and the cost of fuel, or electricity to power the equipment. Other handling expenses are the detention of truck or rail cars, operating supplies, and trash disposal. In effect, handling includes all those costs that are associated with \"goods in motion.\" 2. Storage. Storage expenses are costs associated with \"goods at rest.\" These costs would be incurred whether or not any product ever moved. Because storage expenses are related to the cost of occupying a facility, and these costs are normally accumulated each month, storage is expressed as a monthly cost. If an entire building is dedicated to an operation, storage expenses are the total occupancy cost for that facility. 3. Operations administration. These expenses are incurred to support the operation of the distribution center. Closing the facility would eliminate these costs. Included are costs for line supervision, clerical effort, information technology, supplies, insurance, and taxes. 4. General administrative expenses. Expenses not incurred for a specific distribution center are included in this category. General management, nonoperating staff, and general office expenses are examples. Allocation of such expenses to each warehouse is a judgment call. Productivity Improvement Most warehousing costs, particularly storage and handling, can be influenced by improvements in productivity. Improved methods and equipment may enable the operator to increase the number of units moved without increasing labor, resulting in a higher number of units handled per hour. Changes in inventory, storage layout or equipment may enable the operator to expand the number of units stored in the same number of cubic feet of storage space. The Risk Factor Cost per unit is escalated when a distribution center is not fully utilized. Fixed costs always will be influenced by the rate of utilization. Variable costs, such as labor, never are quite as flexible as they seem. Management may be reluctant to eliminate experienced workers, particularly when they will be needed for a coming busy season. The same is true for forklift trucks and other materials handling equipment. Therefore, the primary risk in controlling costs is the rate of utilization. Errors represent another unknown risk. People make mistakes, which may result in product damage and errors, or shipping errors. Just as the insurance underwriter factors in the risk of loss, the warehouse operator must make a realistic estimate of risk costs. Risk may be expressed as a percentage of total warehousing costs. It should be based on past experience. Methods to reduce risk should be explored. The simplest way to calculate the risk factor is to include it in the size of the markup. Many time and material agreements have a low percentage of profit, but the unit pricing agreement must factor in a higher profit percentage that reflects the substantial risk of changing volume. As you contemplate the risk factor, consider the position of the buyer. With a time and material agreement, the buyer agrees to pay for all space and labor that is used, which often includes the rent for a building that is dedicated for the buyer's use. In contrast, the buyer of a unit price agreement pays only for services that actually are used. Expansion and construction can be challenging, as well as costly. A good analogy is the difference between a hotel and an apartment. When you stay in a hotel, the price per square foot of space occupied is higher than the cost of leasing an apartment. You pay the premium because you want the flexibility of occupying the space only on the days you need it. While the apartment may be cheaper, you pay for it whether or not it is in use. Developing a Handling Price A building block approach, using the categories of warehousing costs included in this article, can be used to develop an hourly selling price. First, all of the costs listed in section I, Handling, are totaled. Next, a portion of the costs in section III, Operating Administrative Expense, and in section IV, General Administrative Expense are added to direct handling expense, in order to develop a burdened handling expense. An additional percentage of profit is added to develop a handling sales price. This figure is divided by the hours billed, to convert the figures into a handling fee per man-hour. While you may not invoice your customers by the hour, the hourly fees can be used to check the validity of current pricing. Creating A Storage Price A similar building block approach is used, but the result is expressed in square feet, rather than hours. Since storage costs increase with time, this storage fee is expressed on a per month basis. The first step is to total all costs listed in section II, Storage. Following the handling example described in this article, a portion of operating and general administrative expenses must be added, in order to develop a burdened storage expense. Then, a desired profit margin percentage is added to create a price per square foot per month. That price determines the storage rate per unit. The Importance Of Inventory Turns Because storage costs are calculated on a monthly basis, the total cost of storing an item depends on how long it will be in the warehouse. In the past, each unit received for storage had an anniversary date with renewal storage charges added each month afterward. Later billing systems were designed to simplify the clerical task by charging a half month for items received after the 15th of the month, and a full month for everything in storage on the first day of the succeeding month. Regardless of the system used, an inventory that turns 24 times per year should cost less to store than one that turns six times per year. For that reason, the inventory turn rate is a critical data point in creating storage prices. The \"Make Or Buy\" Factor Nearly all services available from a logistics service provider can be replicated by an internally managed project. The buyer who knows the amount of space needed, and has estimated the number of people required to staff the operation, should be able to simulate the \"do-it-yourself\" cost of providing comparable logistics services. This cost is then compared with the prices offered by a logistics service provider. In this situation, the risk factor is critical. The do-it-yourself option is full of risk, unlike a unit price agreement that provides maximum flexibility because the risk is absorbed by the logistics service contractor. Living With Hurdle Rates When your company makes an investment in logistics facilities, financial managers want to know about the return on investment. Hurdle rate reflects the minimum percentage of investment return that is acceptable for your company. If you choose the \"do-it-yourself\" option, your return on investment will be based on the dollars saved, rather than the cost of contracting the service to another party. Yet, you must recognize the substantial risk of doing it yourself, then compare it to the employment of an independent service provider. Simulating A Logistics Service Provider Some private warehouse operators treat their operations as if they were public warehouses. Transfer costs for internal storage and handling prices are determined, and the warehiouse manager is held accountable for profitable operation at the established rates. Thomas W. Speh is Associate Director of MBA Programs at Miami University. He also holds a part-time position with CSCMP, as Director of Strategic Initiatives. Dr. Speh retired from full-time teaching at Miami's Farmer School of Business in 2008, where he taught courses in Logistics and Supply Chain Management for 35 years. He has woorked on consulting projects in a variety of supply chain areas with many different firms. A FORM FOR WAREHOUSE COST CALCULATION I. A. 1. 2. 3. 4. 5. 6. B. 1. 2. 3. C. 1. 2. 3. 4. II. II. HANDLING Labor Direct payments: a. W ages . . . . . . . . . . . . . . . . . . . . b. Overtime . . . . . . . . . . . . . . . . . . Fringe benefits a. Health insurance . . . . . . . . . . . . b. Pension . . . . . . . . . . . . . . . . . . . c. Life insurance . . . . . . . . . . . . . . d. Uniforms . . . . . . . . . . . . . . . . . . e. Other . . . . . . . . . . . . . . . . . . . . . Compensated time off a. Vacation . . . . . . . . . . . . . . . . . . b. Holidays . . . . . . . . . . . . . . . . . . c. Sick leave . . . . . . . . . . . . . . . . . d. Jury duty . . . . . . . . . . . . . . . . . . e. Funeral leave . . . . . . . . . . . . . . . f. Other . . . . . . . . . . . . . . . . . . . . . Taxes a. FICA . . . . . . . . . . . . . . . . . . . . . b. W orkers compensation . . . . . . . c. Unemployment compensation . . d. Other . . . . . . . . . . . . . . . . . . . . . Temporary labor Development costs a. Training . . . . . . . . . . . . . . . . . . . b. Education allowances . . . . . . . . c. Other . . . . . . . . . . . . . . . . . . . . . Handling equipment Lift trucks and attachments a. Rental . . . . . . . . . . . . . . . . . . . . b. Depreciation and interest . . . . . . c. Maintenance . . . . . . . . . . . . . . . d. Motor fuel or electricity . . . . . . Conveyors a. Depreciation and interest . . . . . . b. Maintenance . . . . . . . . . . . . . . . c. Electric power . . . . . . . . . . . . . . Pallets a. Purchase or replacement costs . . b. Repair . . . . . . . . . . . . . . . . . . . . 3. 4. 5. Insurance . . . . . . . . . . . . . . . . . . . . . $________ Building maintenance . . . . . . . . . . . . $________ Other . . . . . . . . . . . . . . . . . . . . . . . . . $________ B. 1. 2. Grounds Lawn and landscaping maintenance . $________ Parking lot maintenance . . . . . . . . . . $________ C. 1. 2. Storage equipment (racks and/or shelving) Depreciation and interest . . . . . . . . . $________ Maintenance . . . . . . . . . . . . . . . . . . . $________ $________ $________ $________ $________ $________ $________ D. 1. 2. Utilities Heat and/or temperature control . . . . $________ Lighting . . . . . . . . . . . . . . . . . . . . . . $________ E. 1. $________ $________ $________ $________ 2. 3. Security Sprinkler and other fire protection systems . . . . . . . . . . $________ Electronic burglar alarms . . . . . . . . . $________ Guard service . . . . . . . . . . . . . . . . . . $________ F. Pest control G. Other facility expense $________ $________ $________ $________ $________ $________ $________ $________ $________ $________ III. $________ $________ $________ $________ $________ $________ $________ $________ $________ Other handling expenses Detention/demurrage Recouping damaged product Trash and/or snow removal Maintenance of loading docks and related equipment STORAGE A. 1. 2. STORAGE (continued) Facility Rent, or depreciation and interest . . . $________ Taxes . . . . . . . . . . . . . . . . . . . . . . . . $________ IV. OPERATING ADM INISTRATIVE EXPENSE A. Supervisory salaries . . . . . . . . . . . . $________ B. Clerical salaries . . . . . . . . . . . . . . . $________ C. Labor purchased from staffing services . . . . . . . . . . . . . . $________ D. 1. 2. 3. 4. E. F. G. H. I. J. K. Office and data processing equipment Depreciation and interest . . . . . . . . . $________ Software . . . . . . . . . . . . . . . . . . . . . . $________ Maintenance . . . . . . . . . . . . . . . . . . . $________ Training . . . . . . . . . . . . . . . . . . . . . . $________ Office maintenance . . . . . . . . . . . . . . $________ Communications costs . . . . . . . . . . . $________ Legal and professional . . . . . . . . . . . $________ Taxes and licenses . . . . . . . . . . . . . . $________ Travel . . . . . . . . . . . . . . . . . . . . . . . . $________ Insurance and claims . . . . . . . . . . . . $________ Losses due to damage, shortages and errors . . . . . . . . . . . . . . . . . . . $________ GENERAL ADM INISTRATIVE EXPENSE A. Executive salaries . . . . . . . . . . . . . . . $________ B. Executive office expenses . . . . . . . . $________ C. Selling and advertising expenses . . . $________ When Does Mechanization Make Sense? The short answer is that the investment is sound when payback is reasonably sure, and short. Equipment vendors are taught to demonstrate payback, and any buyer who does not ask the salesman about return on investment is asking for trouble. Mechanization always has risks, the biggest of which is that equipment won't function as promised. Another risk is a lack of flexibility, and warehouse mechanization always has had an inverse relationship to flexibility. To some extent, this has changed with robotic equipment, some of which is capable of reprogramming, or even moving to another building. Payback also is related to volume, so there is a risk that unexpected erosion of volume will increase payback time far longer than originally estimated. Because logistics service providers seldom are able to control volume, mechanization is especially risky for the logistics service provider. Mechanization should save either space or time, and in rare instances, it may save both; therefore, the greatest opportunities are in the most labor intensive warehouse jobs. These include building or stripping pallets, picking orders, or handling of less-than-case quantities. Extremely long travel within a warehouse also is a candidate for mechanization. When land is extraordinarily expensive, mechanization, such as stacker cranes, will enable an unusual amount of material to be stored in a modest number of square feet. It can be used to eliminate unpleasant, hard-to-fill jobs, such as labor within a freezer warehouse, or to improve accuracy, such as using bar code scanning or voice recognition to reduce receiving and/or shipping errors. In the last analysis, measure the risk, and balance it against the projected reward. Where possible, share the risk with the vendor. Relocating Your Distribution Center Here are four of the most frequent reasons why warehouses must be moved: The facility is too small and cannot be expanded. The customer base is changed, and the present location does not adequately serve the new market. The supplier base has changed, and the current location is not ideal. Because of mergers and acquisitions, your company now has too many warehouses. Several factors must be evaluated when considering the location of a warehouse. Cost and availability of transportation is the most important variable, because transportation is the largest logistics cost for most companies. Measurement of risk, including fire protection, and the risk of flood, windstorm, and earthquake is nearly as important. Is there a contingency plan if a natural disaster wiped out the warehouse? Cost and availability of labor is of varying importance, since some warehouse operations are more labor-in-tensive than others. Finally, tax incentives are a good indication of how badly a community wants to attract new warehouse operations. In some cases, they can provide significant savings. Company Statements In addition to financial statements, many companies publish written statements to inform employees, customers, and the public what they stand for. Company mission, values, vision and strategy usually are included in the statement. The mission statement explains why the company exists. A values statement describes your beliefs and behaviors. Vision tells where you are going and what you want to be. Strategy describes your competitive game plan. Few warehousing companies publish all four statements. As well, many companies publish statements that are so bland and generic that they are meaningless. Form Follows Function Have you ever asked why your warehouse exists? Why was it established? Why is it located where it is? It is not uncommon to find a warehouse operation that has strayed far from its original function. Perhaps a mixing center also is being used as a storehouse for slow movers. Or, a factory storehouse currently is used to handle returned merchandise. If the form has strayed from the original function, was it because of a careless error, or a deliberate change of policy? In too many cases, the change is accidental. In nearly all instances, the change of form degrades the original function of the warehouse. For example, if it is a mixing center, it should never be too full, nor should it contain the slowest moving items. Contain Hidden Costs With Warehouse Management Systems How often is an item lost in your warehouse, only to turn up later during a physical inventory? How much time is spent searching for lost items? How much time is spent checking the work of order pickers or receivers, even though the function can be performed electronically? How many shipments are returned because the wrong product was sent? What is the total cost of an incorrectly shipped order? How much time is spent in cycle counting, or conducting full physical inventories? All of these functions can be enhanced and improved with the application of a warehouse management system. The Influence Of Future Shock EFCA -A Threat To Private Enterprise We have tried to maintain a neutral position on controversial issues, and avoided any approach that appears to favor a single political party. That said, your editor has concluded that the Employment Free Choice Act, also known as EFCA, or the card check bill, is the most dangerous legislation proposed in the United States for more than half of a century. It should not be a partisan issue. Certain facts are undeniable. Labor unions were an important factor in industrial reformation during the 19th and early 20th centuries; yet, the percentage of the unionized workforce has declined each year during the past half century. The logistics service industry, like many others, has been transformed from a unionized business to one that is nearly union free. Labor leaders, facing the prospect of extinction, have contributed significant donations to politicians who agree to sponsor legislation allowing them to expand. EFCA, for the labor lobby, is payback for political contributions and support. The EFCA is dangerous for these reasons: First, it will deny the secret ballot to workers who face a choice of whether or not to recognize a union. Second, if a union claims recognition and begins to negotiate, a federal arbitrator will dictate a settlement if no agreement is reached within 90 days. Unions essentially are a franchise business, and the union organizer is compensated for expanding the group. If that individual is unscrupulous, a variety of illegal techniques may be employed to induce prospects to sign a union recognition card. This could, and has, included harassment and personal threats. There is no law that can force a corporation to remain in business. Thousands of business owners would liquidate their companies rather than suffer with a hostile work environment; therefore, passage of EFCA has the potential to convert the current recession into a second Great Depression that is worse than 1929. Two legal scholars, writing for the Wall Street Journal, have expressed the opinion that EFCA is unconstitutional because it denies citizens the right of the secret ballot. Unfortunately, the test of constitutionality cannot take place until, or unless, the legislation is passed. The majority of people in this country are union free and want to stay that way. Our Congress is supposed to reflect the will of the people. If you believe that EFCA is a threat to our economy, contact your Senator and Representative, and ask them to reject this legislation. In 1970, Alvin Toffler broke new ground with his book, Future Shock. Published in 15 nations, this book influenced the world public, with its message that future shock is a disease suffered by people who are overwhelmed by change. The real problem was not change, but acceleration of the pace of change. The re