CICMHE MATERIAL HANDLING STUDENT DESIGN COMPETITION

2015-2016

ACME FOOTWEAR OPERATIONS DESIGN

Introduction

• The aim of this project is to provide a new warehouse design to ACME as ACME is looking to relocate its distribution center to a new location due to an increase in demand which its current facility can no longer withstand.

• Taking current operations of ACME as baseline, new operational plan has been recommended which is sufficient to meet the growing needs of the customers.

• The new design touches upon the most important issues of labor, equipment selection, and space utilization in any warehouse and gives an efficient lay-out with optimum lane depth and storage policy.

• Economic justification has been provided for all the investments made and guidelines for operating the warehouse safely along with a sound implementation plan.

• While coming up with this new plan all the key assumptions recommended by FORTNA have been duly taken into consideration.

Problem Statement

• ACME is a wholesale footwear distributor that has a distribution center (DC) currently based in Outwest, AZ. They are experiencing an increase in demand which the current facility can no longer maintain.

• The current facility is at capacity for both storage and throughput which is restricting ACME’s growth. Expansion on the current facility is impossible due to it being landlocked and so they are forced to relocate.

• While predicting an increase in annual unit growth of 7% and stock keeping units of 2% based on current growth, ACME would like the new facility to be able to accommodate the increase in demand through 2021.

• While satisfying the increase in customer demand is the main focus, ACME is also seeking new, justified, alternative operational processes in order to support the increasing demand.

• These alternatives need to make the operation more efficient, more flexible, and less complex.

Equipment Selection

Baseline

• Currently ACME uses pallet trucks to pick from the forward reserve area and order picker trucks to pick from the reserve area which is simply the higher levels in pallet racks.

Recommendation

• Since about 67% of the orders can be fulfilled by A and B type of stock keeping units (sku) and most of the picking is being done as eaches and cartons, this means that pallet trucks will be mostly required for order picking for A & B’s as they are stored on the ground positions.

• Also, restocking is always done only as pallets so we suggest using narrow aisle deep reach trucks for restocking as our new storage policy is storing 3-deep in push back racks (explained under space utilization)

Number of Pallet Trucks and NA Deep Reach Trucks Required

• Since a rule of thumb is that one restocker typically supplies five order pickers and assuming that each restocker and order picker has his own equipment viz pallet truck and NA deep reach truck, following number of equipments can be recommended which will prove to be sufficient for ACME to operate till 2021 considering 7% order growth and 2% sku growth.

Number of projected employees

For put away = 23

For order fulfillment = 273

• Most of the order shipments received need to be put away in the forward reserve area as about 70% of the product flow caters to A and B type skus. So, mainly pallet trucks will be needed for put away along with few NA deep reach trucks

For order fulfillment (picking as well as restocking)

• Number of pallet trucks: 225

• Number of NA deep reach trucks: 45

For Put Away

• Number of pallet trucks: 16

• Number of narrow aisle deep reach trucks: 7

Total number of equipments required

• According to our recommendation ACME requires a total of 482 pallet trucks and 104 NA deep reach trucks operate efficiently considering a design factor of 2.

Order Picker Truck NA Deep Reach Truck

Space UtilizationBaseline

• Currently ACME uses pallet racks to store pallets and they must be single deep as the existing equipment, which is order picker truck, has no deep reach mechanism.

• Certainly, single deep storage policy is not the best as it will be having considerable loss of pallet position years due to aisle accessibility.

Recommendation

• Assuming aisle width of two pallet positions and a stacking height of 4 we calculated optimum lane depth which will minimize the pallet position years lost due to honey combing and aisle accessibility and it came out to be 3.

• Hence, the recommendation is to use 3-deep push back racks to store pallets. Though they are costly compared to selective pallet racks, this storage policy has two and a half times less space lost due to aisle accessibility than the earlier policy.

• Pallet flow racks can also be used but they’ll require separate aisles for restocking and order picking which means more space required for aisles decreasing space utilization.

Calculation for optimum lane depth (K)

• Let ‘qi’ be the order quantity for sku ‘i’ in pallets for A and B skus.

• Let ‘a’ be the aisle width in terms of pallet positions.

• Let ‘zi’ be the stacking height for sku ‘i’.

• Let ‘Di’ be the total pallet sold in a year

• Pallets ordered for A and B in a year = 94912.20

• Total types of A and B skus = 3130

• Pallets ordered per year per sku = 30.32

• Average waiting time for A and B skus = 0.285 years

• qi = 8.17

• a = 2

• zi = 4

• Optimum lane depth (k) = sqrt((a/2)*(qi/zi)) = 2.86 = 3

Pallet position years lost due to aisle space

Formula used:

• Pallet position years lost due to aisle space = (a/2)*((qi/zi*k)+1)*(qi/Di)

• Pallet position years lost when using selective single deep racks = 3.73X10-4

• Pallet position years lost when using 3 deep push back racks = 1.5X10-4

Selective Rack Push Back Rack

• Considering inventory turns of 3.71 (given for baseline) for all skus over the complete planning horizon and quantity of pallets sold for each sku class, pallet positions have been calculated.

• Since the types of C and D class skus are large enough compared to the quantities shipped, some types of skus of these classes must have been stored as quarter or half pallets.

• Half and quarter pallet positions have been calculated based on the number of units shipped/year for each sku.

• 7% order growth per year and 2% sku growth per year has been taken into consideration to come up with projected numbers for 2021.

• Out of the total skus, 29% of the quantity goes to the forward reserve area as per the baseline operations and these positions are the ground positions of push back racks used for storage which is assigned to A & B SKUs

Applying Little’s Law to Calculate Pallet Positions

Calculations

SKU Type

2015 2021 Accommodating 2% SKU Growth

Full Quarter Half Full Quarter Half

A 19084.37 28640.49 3843.42

B 11056.33 16592.57 2205.81

C 7437.25 83.14 163.45 11161.31 124.77 245.30 1539.29

D 4823.18 930.18 661.35 7238.29 1395.95 992.51 1013.06

E 1644 1644

Total Pallet Positions (A+B+C+D+E) 76636.77

Total A&B Pallet Positions 51282.29

Total C,D&E Pallet Positions 25354.48

Floor Pallet Positions Assigned to A&B 22224.66

Total Pallet Positions based on Floor Pallet Positions 88898.65

Space Utilization (%) 86.21

By this plan and storage policy of 3 deep with stacking height of 4 we can achieve space utilization of 86.21 %.

Receiving Put Away Order Fulfillment Staging Shipping

Unloading from trailer

Sort to SKUlevel on Pallet

Forwardor

Reserve

Pallet Put Away

Case Put Away

CustomerDemand

FullPallet

Forward

Reserve

Full Case

Stage on Shipping

Dock

Pick from Reserve

Area

YesNo

Yes

Qty. is Less than

SafetyStock

NoPick From Forward

Area

ReplenishmentCase/Pallet

No

Place Carton on

Extendable Conveyor

Load onShipping

TrailerYes

CarrierPulls

Trailer

Product Flow

ActivityCapacity

Baseline Year

Year 2021

UNIT

Unloading Trailer to Conveyor

Unloading (Conveyor) 150 225 CPH

Scan LPN to ASN 700 1051 CPH

Sort to SKU 150 225 CPH

Scan Case Label to Pallet 800 1201 CPH

If CrossDock

Cross Dock OB ContainerLabel 150 225 CPH

Put Away

Reserve Area

Put Away Pallet 15 23 PPH

Forward Area

Put Away Cases 30 45 CPH

Order Picking

Reserve (If Full Pallets)

Pull Pallet and Apply Label 10 15 PPH

Reserve (If Full cases)

Pull Full Cases and Apply label 65 98 CPH

ActivityCapacity

Baseline Year

Year 2021

UNIT

Forward Area ( Replenishment)

Case Replenishment

Picking from Reserve 51 77 CPH

Putting Away 75 113 CPH

Pallet Replenishment

Picking from Reserve 20 30 PPH

Putting Away 51 77 PPH

Forward Area (Picking)

Apply LPN to Carton 150 225 CPH

Pick Units to Carton 55 83 UPH

Apply Ship Label & Palletize 150 225 CPH

Staging

Staging Cartons on Shipping Dock 150 225 CPH

Q/A 120 180 CPH

Loading in Trailer

Place Carton on extentable conveyor 400 600 CPH

Scan Carton to Trailer 800 1201 CPH

Load Carton to Trailer 350 525 CPH

Capacity Calculation

• Manpower needs to be increased by 7% per year.• As Manpower increases, Capacity increment of each activity in every

operation is calculated for year 2021 based on Manpower growth rate.

Labor Allocation

By considering given growth rate,• Average Total Full Time Non Support Manpower (Year_2021) =364.2• Average Total Support Manpower (Year_2021) = 16.5• Also batching orders while picking is done in the same way as baseline.

Recommendation• Considering Design factor of 2, Total Support and Non Support

manpower is calculated by doubling the Average Projected Manpower of year 2021.

• To fulfill the orders during the period of demand surge (Christmas to early summer) more manpower will be needed which can be fulfilled by hiring Contractual Temporary Manpower. Thus, maximum manpower will be three times the average projected manpower.

Operational Plan

• Demand is expected to be increased by 7 % every year.• Total expected Full time Manpower and Support staff for year 2021 is

calculated based on the 7% growth every year• Calculated average Manpower is allocated to the different operations based

on the allocation in current year.

Operation Baseline ManpowerAverage Manpower

Year 2021Design Manpower

Year 2021Maximum Manpower

Year 2021

Receiving 19.2 28.8 57.6 86.4

Put Away 15.2 22.8 45.6 68.4

Order FulFillment 181.7 272.7 545.4 818.0

Staging & QA 17.6 26.4 52.8 79.2

Shipping 9 13.5 27.0 40.5

Total Non-Support FTE 242.7 364.2 728.5 1092.7

Support Staff 11 16.5 33.0 49.5

Labor Cost

Assumptions• Support Staff/contractual labor Cost per hour = $ 15• Average Inflation rate per year = 3 %

Calculations

Full Time Labor Cost Per Hour Given for Baseline $22.50

Current Labor Cost Per day = 8 X (Full Time Labor X 22.5 + Support Staff X 15) $4,161.60

Projected Fulltime Labor Cost per hour for year 2021

= Current Full Time Labor Cost Per Hour X (1.01)6 $ 26.87

Projected Support Staff Labor Cost per hour for year 2021

= Current Support Staff Labor Cost Per Hour X (1.01)6 $ 17.91

Projected Average Labor Cost per day for year 2021

= 8 X (Fulltime labor X 26.87 + Support staff X 15.91) $ 10048.57

Projected Design Labor Cost Per day for year 2021

= 2 X Average Labor cost per day $ 20097.14

Projected Max. Labor cost per day for year 2021 = Design labor cost + 15 X 380.7 $ 30145.71

Material Handling & Storage Equipment Cost

EquipmentAverage Rates

Pallet Truck

Type Walkie Pallet Jack

Quantity 241

Capacity 4000 lbs

Cost Per Equipment $4,500

Total Cost $1,084,500

Total Design Cost $2,169,000

Cost For Pallet Trucks:

EquipmentAverage Rates

Reach Truck

Type NA Deep Reach Truck

Quantity $52

Capacity 3000 lbs

Cost Per Equipment $28,000

Total Cost $1,456,000

Total Design Cost $2,912,000

Cost For NA Deep Reach Trucks:

EquipmentAverage Rates

Push Back Racks

Type 3 Deep

Quantity (Total Ground Pallet Positions) $22,225

Cost Per Pallet Position (4 Levels High) $150

Total Cost $3,333,750

Total Design Cost$6,667,500

Cost for Push Back Racks

Area Calculation

Assumptions• Width of warehouse = 2 X Length of warehouse• Space between two pallets = 10 inches = 0.83 Feet• Aisle Width = 9 feet (Narrow Aisle)• Shipping Area Width = 2 X Receiving Area Width

Total No. of Ground Pallet Positions = 0.29 X Total Pallet Positions 22224.7

Area Considering only Pallets = # of floor pallet positions X Area of 1 pallet (16) 355594.6

Length considering only pallets = SQRT(Area Considering only pallets/2) 422.0

width considering only pallets = 2 X Length considering only pallets 844.0

Total Width Due to 6 pallets back to back = 6 X Width of each pallet 24.0

No of Aisles = Width Considering only pallets / Total Width Due to 6 Pallets 36.0

No. of Pallet Rows Along the length = Length considering only pallets / Length of each pallet 105.5

Space between two pallets Assumption 0.8

Extra length due to pallet spacing = No. of Pallet Rows Along Length / Space between two pallets 87.9

Aisle Width Assumption 9.0

Extra Length Due to 1 Cross Aisle = Cross Aisle Width 9.0

Total Width Due to aisles = Aisle Width X No of aisles 324.0

Total Width = Width due to pallets + Width due to aisles 1168.0

Total Length= Length considering only pallets + Extra Length due to pallets spacing + Extra Length due to 1 Cross Aisle

518.9

Total Area of Storage = Total Length X Total Width 606094.7

All units are in feet

Area Calculation

Receiving Section width = Total Width / 3 389.3

Shipping Section Width = 2 X Receiving area Width 778.7

Average Pallets Shipped Per day= Average Units Shipped Per day /( No of cartons on each pallet X No of units in each carton)

1059

Area of Shipping = Maximum Pallets Shipped Per day X Area of one pallet) 16944

Length of staging area = Area of Shipping Section / Width of warehouse 21.76

Total Length of Shipping Section including area for movement

After Adding some length for movement to the length of staging area 45

Area of receiving and shipping = Total Length of shipping section X Total Width of warehouse 52560

Total Area of Warehouse = Average Total Storage Area + Area of Receiving and Shipping 658654.7

All units are in feet

• Total Area of warehouse = 658,654.7 Sq. Feet• Design Total Area of Warehouse = 2 X Average Total Area= 1,317,309.4 Sq. Feet• Maximum Total Land Area to Be Acquired = 3 X Avg. Total Area = 1,975,964.1 Sq. Feet

Since, we acquire land only once and we should acquire this in maximum quantity so this will be 3 times the average area. The facility can be expanded as per the demands in the future.

Pallet Positions Allocation of A & B Class Skus to Forward Area

Assumptions

• we have assumed that the warehouse works as a fluid model and since storage containers are small with respect to the size of storage equipments, continuous model is a good approximation

Model

• Let ‘fi’ be the flow in volume/year for sku i belonging to A and B class.

• Let ‘vi*’ be the optimum volume of sku i stored in the forward area.

• Let ‘pi’ be the number of picks for sku i

• let ‘pi/√fi’ be the labor efficiency for sku i which gives a metric to measure the benefit of storing sku i in forward location.

• vi* = √fi/(∑√fi) for i 1,2,3……n

• (n is 3130 in our case which is total types of A and B skus)

Total number of pallet positions for A and B projected for 2021 (N) = 51,283

• We can now calculate the optimum number of pallet positions to be stored in the forward area for each sku i falling in A and B class by multiplying vi* with N, in decreasing order of their labor efficiency and location convenience.

• This allocation policy even gives the flexibility to replace present skuswithout effecting any benefits.

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SKU Count

Labor Efficiency for Each SKU in A&B Class

• Following table shows the space allocation for top ten most labor efficient skus.

Some Additional Points

• The products are of uniform shape and size, so this helps in achieving a high space utilization.

• If there is a need to store a particular pallet quantity as safety stock (si) for sku i, optimum storage quantity can be increased to that level to meet such constraints.

• Also, ACME may think of storing some family of skus together based on the order quantities and frequencies, a set of particular skus are ordered together.

SKU Labor efficiency vi* vi* X N762354731794 242.1868084 0.000712 36762354731811 239.7921043 0.000825 42762354731688 232.8944957 0.000821 42762354731818 232.1726621 0.000943 48762354731787 224.3853104 0.00055 28762354731848 223.1549439 0.000896 45762354846391 221.3143348 0.000885 45762354846374 220.2086722 0.00101 52762354731841 219.9835286 0.000842 43762354846367 218.7804399 0.0007344 37

Schematic Diagram of Layout

Trailer

Pallet

Aisle

Shipping Area Receiving Area

Parking & Maintenance Area

Storage Area

Why U shaped Layout ?

• U shaped layout is more beneficial when we have ABC skew in product in product mix as there are more number of equal convenient locations.

• There is flexibility to interchange receiving and shipping doors to meet any uncertain surges.

• Task interleaving can be done in U shaped layout.

Ergonomic Guidelines for Manual Material Handling

• NIOSH lifting and liberty mutual table guide standards should be used as a check point for the weights to be lifted.

• Job rotation, modifying time tables and work speeds should be considered to prevent any impulsive loading on workers coming to work after long absences.

• All weight lifting activities should be planned in such a way that enough time is provided to relax the muscles. Also, much of the lifting should be executed in the power zone of the employees.

• Aids such as slip resistant gloves, extra handles of suitable size, tools to replace pinch grip with power grip should be provided to the operators.

• Hazard evaluation checklists and job safety analysis should be done to identify problems and risk factors from time to time and while introducing new tasks.

• Last but not the least, workers should be trained in safety procedures such as work at height, fire safety management system, permit to work, emergency evacuation etc to ensure safety at all times.

New Operational Plan (3-deep)

Total Pallet Positions 44450

Cost of 3 deep push back rack per pallet position

$ 150

Total Cost of Push Back racks $ 6,667,500

Total Land Area (Design) 1317309.4

Old Operational Plan (single deep)

Total Pallet Positions 44450

Cost of selective rack per pallet position $ 62.50

Total Cost of Selective racks $ 2,778,125.00

Total Land Area (Design) 2029343

Economic Justification

• If we continue with the old existing plan which is the one with single deep storage policy, the number of aisles required will be larger.

• Single deep storage policy will increase the number of aisles by 70. • This will increase the overall area of the facility, will decrease the space

utilization, and will increase the utilities cost of the facility.• Below two tables show the area calculations for both the cases.

Savings

Additional Investment Due to Push Back Rack over Selective Rack $3,889,375.00

Saving in Area in New Operational Plan (Sq. Feet) 712033.6

Average Yearly Utilities Cost Per Sq. Feet $1.20

Total Savings in Year 2017 $854,440.32

Total Savings till Year 2021 considering inflation rate of 3% $4,536,339.70

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820,491 845,106 870,459 896,573 923,470

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2017 2018 2019 2020 2021

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Year Actual Savings

Target Savings

AssumptionAverage yearly utility cost per square feet = $1.20

• Below graph shows the savings required considering 12% hurdle rate as the target line.• Actual bars show the savings we project to achieve year on year.• In addition to these savings we will be having some more benefits as the overall travel

and operating cost of the equipments will be less.

Implementation Plan• Important key for any relocation plan to be successful is planning well ahead

of time, so that there are no last minute shipment/delivery issues. ACME wants to move by the end of 2016 so the plan should be completely ready well ahead of December 2016.

• Yearly growth rates in demand have been considered to have a good idea of how much resources are required in terms of labor, equipments, size etc.

• ACME should order all equipments such as storage equipments, material handling equipments taking into consideration their supply lead time and the time it will take to assemble and install these equipments.

• ACME can think of hiring specialized agency for relocating the facility as having expert in the team is always helpful in making right decisions at the first step.

• ACME should pay attention to have all required permits such as occupancy, building, fire, etc. in place because any flaw in the paperwork can cause undue delays the relocation process.

• All concerned departments such as construction, operations management, maintenance etc should go hand in hand to accommodate for the specific needs of any one department.

• There should be a proper plan of meeting the customer demands during the relocation period as during this transition phase order picking, shipping etc might not happen as usual due to employees engaged in other tasks and there might be facility constraints as well.

• The IT team of ACME should also play their part in this relocation process as they should make sure that the computer system is functional during the transition.

• Also, this will be a good opportunity for ACME to update the WMS and fix for any existing bugs or problems.

Conclusions

• Material handling equipments ACME should use are Pallet Trucks and Narrow Aisle Deep Reach Trucks. It has been recommended to purchase 482 pallet trucks and 104 NA deep reach trucks.

• 3 deep push back racks should be used to store pallets with stacking height of 4 and two racks have been places back to back.

• Space utilization comes out to be 86.21 % with recommended storage policy.

• Total design area of the facility should be 1317309.4 sq feet with width double of the length built as a U shape facility.

• ACME should allocate pallet positions in the forward area to skus based on their labor efficiency assuming fluid model for warehouse.

• During the period of shifting ACME should have a proper plan to meet the demands of the customers and this time will be a good opportunity to update the WMS or fix any prior bugs.

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