Warehouse Optimization for a Spare Parts Warehouse

Background and Challenges

An automotive company has been running its spare parts business from a proprietary, limited size, low-ceiling facility that was designed a few decades ago. The business has been growing exponentially, increasing the pressure on warehouse capacity, and testing the business processes. This has raised the question of whether and how this warehouse would be able to fulfill its important role for much longer: Should we stay or should we go?

The warehouse faced several operational challenges that needed to be addressed.

1. Space: The warehouse was small, measuring 15,000 sqft, with low ceilings of 14 feet. Half of the warehouse was covered with a mezzanine, which left very little room to accommodate different types and sizes of products such as large bulky items, medium-sized boxes, and small screws. The high number of SKUs and a high percentage of slow movers (D-items) add increasing pressure to the already constrained warehouse.

2. Picking: Picking was done manually and on an order by-order basis. The printed packing slip served as the guiding document, and items were picked and dropped off at the packing station one after the other. This resulted in a lot of walking time and sub-optimal paths through the aisles.

3. Inventory Accuracy & Visibility: No scanning was used to confirm locations and quantities, which opened the door for mistakes and inaccuracies. While operators cross-checked each other and cycle counts were performed, mistakes happen regularly and are costly. They usually cannot be assigned to an operator and therefore are hard to learn from or improve on.

4. Labor: The chaotic nature of the operations made it hard to attract and retain reliable operators for the warehouse. Since standards were not set or documented (SOP), training and learning was challenging.

5. Damages: Pallets and boxes were built manually, and it had proven to be a challenge to build and handle stable and secure pallets, resulting in damages and claims from the dealers and the end customers.

6. Safety & Ergonomics: The use of old shelving and the lack of material handling equipment means that items are often carried around manually or picked from a height with a simple stairs/ladder, resulting in unsafe situations that should be avoided.

The existing warehouse operation was very manual, with inefficiencies and deficiencies in terms of safety, productivity, accuracy, and visibility. The goal of Establish was to determine how these processes can be improved while also creating a warehouse design that enables growth.

The Evaluation and Analysis

Establish evaluated the storage and fulfillment processes to identify the gaps and challenges in the operation. In parallel, warehouse data was gathered, analyzed, and profiled to understand the operational volumes and identify opportunities for improvements. After the analysis, the following observations were documented:

• 50% of the items in the warehouse are classified as D-items and have not been sold in the last two years.

• 80% of the orders on the outbound side are single item, single quantity orders.

• The current warehouse is over capacity, with the storage capacity vs. the storage needs consistently above 100% across the different product categories.

• The forecast predicts a 10% growth rate over the next two years.

The Recommendations

To achieve the project goal, Establish prioritized the improvement and automation of the warehouse processes into different phases based on time and resource considerations.

1. Phase 1 focuses on getting the warehouse operational and efficient, mostly by implementing scanning and improving flows, chasing the quick wins.

2. Phase 2 leaves the opportunity for further automation through ASRS and Vertical Carrousels, investing in the current warehouse to free up extra space and buy extra time in the current warehouse.

Phase 1

A. Update the picking and order release strategy:

To improve the efficiency of the warehouse, it was recommended to update the picking strategy. There are several picking strategies that could be implemented, such as pick path sequencing, order release, or zone picking. Pick path sequencing is a strategy that involves organizing the pick path in a way that minimizes the travel time of the picker. This strategy is useful when the warehouse has many SKUs, and the pickers must travel long distances to pick the items. Order release is a strategy that involves releasing orders to the warehouse in a specific sequence. This strategy is useful when the warehouse has a high volume of orders, and the pickers need to prioritize the orders based on their importance or distance. Normally, a WMS should guide you through this sequencing, but there are workarounds that can be implemented. Zone picking is a strategy that involves dividing the warehouse into different zones and assigning pickers to each zone. This strategy is useful when the warehouse has many SKUs, and the pickers need to travel long distances to pick the items. This picking method can reduce warehouse employee travel time (-22%), therefore improving productivity.

B. Start scanning to increase efficiency, accuracy, and visibility:

To increase efficiency, accuracy, and visibility in the warehouse, it was recommended to start scanning. Scanning can be used for inventory management, picking, confirming location, and packing. Inventory management tools can be used to scan items and update inventory records in real-time. This can help prevent stockouts or overstock situations and improve overall visibility. Scanning to pick can help eliminate errors by ensuring that pickers select the correct item and quantity. This can be done using barcode scanners or a warehouse management system. Scanning to confirm location can help ensure that items are always where they should be for pickers. Scanning while packing can help ensure that the correct items are packed and shipped to the customer. By implementing scanning, the warehouse can improve efficiency, accuracy, and visibility, leading to higher profitability and customer satisfaction.

C. Invest in the proper material handling equipment:  

To improve the efficiency of the warehouse, it was recommended to invest in proper material handling equipment.

• Removing the mezzanine in the building to leverage the full height of the warehouse. This will help increase storage capacity and leverage the full height of the warehouse.

• Investing in wave pickers for safety and efficiency. Wave pickers are mobile productivity tools that allow one person to accomplish the work of safely and efficiently two, traveling twice as fast as the average walking speed. They can reach working heights of up to 17 feet and are supported by a four-point safety system.

• Investing in carts to apply pick-to-cart logic to reduce travel distance. Picking carts are used to store and transport products during the picking process. They often have several levels that can be used to store different SKUs or order numbers. They allow the orders to remain separate while picking simultaneously. By investing in proper material handling equipment, the warehouse can again improve efficiency, safety, and productivity.

Phase 2

A. Consider a long-term plan for the warehouse:  

To ensure the long-term success of the spare parts business, it is recommended to consider a few strategies:

• Consider moving into a new warehouse that is more spacious and better suits the storage needs. This can help optimize the operations and improve efficiency in the long run. Using a greenfield with optimal ceiling height would allow to consider all storage, operations, and design criteria- and to decrease offsite storage costs.

• Outsourcing to a third-party logistics (3PL) provider can help reduce costs and improve efficiency by leveraging the expertise of a specialized logistics provider.

• Eliminating D-items from storage. Instead, consider pushing them back to the supplier or forwarding them to a dealer. This can help free up space in the warehouse and reduce congestion.

By implementing these strategies, you can improve the efficiency and profitability of the warehouse in the long run.

B. Consider automation to free up space:

For the middle-long-term, Establish recommended considering automation solutions such as Automated Storage and Retrieval Systems (ASRS) and Vertical Carrousels.

• ASRS can help optimize order fulfillment and gain supply chain efficiencies by automating the storage and retrieval of unit loads for picking, packing, and shipping. They are the ideal solution to densely store medium-sized items, while storing slow rotators deeper within the solution.

• Vertical carousels are a great way to store small items efficiently and densely, without losing the overview. They provide real-time inventory control as all items stored within are tracked by the system software. Investing in ASRS and vertical carousels can be a considerable investment, but it can free up space and buy some more time in the current warehouse.

C, System Capabilities for further improvement:

In the longer term, it is recommended to explore a Warehouse Management System (WMS). Implementing a WMS would enable flexible storage, logical slotting, improved inventory visibility, and other inventory management capabilities that are not available in the current system.

The Results

Based on the current undercapacity and limitations of the existing ERP system, the focus areas were prioritizing storage, layout, picking, and outbound shipment strategies.

After implementing these changes, the overall storage capacity should increase by 25%. The improvements in the picking strategy are expected to increase efficiency by 20%. The scanning efforts will result in better accuracy and accountability, which is the start of a continuous improvement journey.

Further automation could further increase efficiency and decrease footprint, freeing up much-needed space in an already constrained warehouse, buying time to stay as long as possible in the current set-up.