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International Conference on Production and Industrial Engineering
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Abstract - Order picking in a Distribution Center (DC)
refers to the operation through which items are retrieved
from storage locations to fulfill customer orders. I n this
work, a case is considered where an order is picked wherein
shipped only when all items in the order are available in
inventory and the unfulfilled orders are transferred to the
next day with higher priority as a backorder. When there is a
shortage of inventory in the warehouse, an order is not
picked even for a single item. With the inventory available,
the items in each order are assigned in such a way that most
number of orders is fulfilled. A continuous review (Q, r)
inventory system with lead-time depending on lot size is
considered. The objective of this work is to minimize the
total operating cost and increase the efficiency of order fill
rate (OFR). The total cost of the inventory system is
minimized using a search procedure. The OFR problem is
formulated as an LP Model. The performance of the
proposed LP model is compared with the First-Come, First-
Served (FCFS) rule, which assigns the inventory to the
order in the order of arrival. The total cost of the inventory
has been minimized and the OFR is increased using the LP
Model.
Keywords - Distribution Centre, Order picking,
order fill rate, inventory, lot size, and lead-time.
I. INTRODUCTION
Warehouses are an essential component of any supply
chain. Their major roles include buffering the material
flow along the supply chain to accommodate variability
caused by factors such as product seasonality and/or
batching in production and transportation consolidation
of products from various suppliers for combined
delivery to customers and value-added-processing such
as kitting, pricing, labelling, and product customization.
Inventories in warehouses are capital intensive
assets. Large inventories require spacious warehouses
and material handling equipment. Establishing and
maintaining these facilities and equipment increases the
capital committed in warehouses even with effective
and efficient business practice. In addition, warehouse
operations are repetitive and labour intensive activities.
The logistic aspect of order picking in a warehouse
has become more complex. A Distribution Centre (DC)
is responsible for receiving materials from multi-
sources and sorting them to fulfill a number of different
customer orders. Order picking, refers to the operation
through which items are retrieved from storage
locations to fulfill the customer orders which is
considered to be a key activity in a DC.
The main purpose of an order picking system is to
fill customer orders by selecting the appropriate amount
of material from a pre-designated storage medium
known as the picking or forwarding area. Order picking
represents only a subset of the material handling
operations performed in warehousing. However, it is
one of the most costly and time-consuming functions of
warehousing. In many warehouses, the difference
between profit and loss depends on how well the order
picking operation is run [1]. Among the performance
indicators of the DCs, order fill rate (OFR) is defined as
the ratio of the number of fulfilled orders over the
number of orders received during a certain period of
time. An order is said to be fulfilled when the required
quantity of all items in that order are available in
inventory [2].
An order from a customer usually contains many
items with non-zero order quantity. As the number of
items grows in a DC, it is not unusual that some items
are out of stock. In such a case, the shortage is usually
handled as a backorder. Efficient order picking process
is a challenging task in the warehouse operations since
the order picking process is a very costly and time-
consuming material handling activity. In the practical
world, such business practice can be found in internet
shopping mall where customers remain unsatisfied
receiving the delivery in parts of what they have
ordered, and shipping an order in two or more partial
shipment will increase the shipping cost. Hence, instead
of shipping a partial order to the customer, the DCs
would postpone the unfulfilled orders for the next day
and ship only the fulfilled orders to the customers that
day.
Maintaining excessively high level of inventory
for all items will result in high OFR and service level
for the customers. But DCs usually have a limited
storage space and higher inventory will increase
inventory cost, including potential obsolescence of
expensive high-tech products. Consequently, the
shortage is experienced in many DCs as orders are
processed every day. The shortage is more likely to
occur in DCs as the number of items increases. Since
the items are replenished by the suppliers to maintain a
certain level of inventory, shortage is frequently
experienced in DCs.
Modeling and Analysis of Order Picking in a Warehouse

R. Kishore Kumar, R. Sridharan

Department of Mechanical Engineering, National Institute of Technology Calicut, India.
([email protected])

3
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International Conference on Production and Industrial Engineering
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Order picking planning is defined as the decision
process as to which a set of orders to be picked and
shipped in a particular day by the DC [3]. Order picking
planning must be carefully conducted before
sophisticated execution of order picking, such as route
optimization, storage optimization, and order-batching,
etc. for efficient picking.
In the classical (Q, r) continuous review model, the
procurement lead-time is considered as a constant input
parameter or follows a stationary probability
distribution when treated as a random variable. In other
words, the lead-time is assumed to be a given input to
the model and is not subject to control. However, this
assumption is not realistic from an operational point of
view since lead-time can be made shorter by reducing
some of its components such as run time (lot size),
setup time, moving time, and waiting time. In fact, a
reduced procurement lead-time can lead to smaller
safety stock, lower risk of shortages, and, consequently,
improved customer service.
For general daily demand distributions, the
continuous review model with lead-time and lot size
interaction becomes very intractable to be solved
analytically. Therefore, for such cases, the more
appropriate tool is used to determine the optimal (Q, r)
ordering policy than analytical methods.
This paper deals with the order picking decisions in
a warehouse. An effort has been made to develop a
practical model of order picking planning for a
warehouse which can be utilized in the real world for
better service level by improving order fill rate (OFR).
However, OFR can be increased by increasing the
inventory level which intern increases the operating
cost of the warehouse. So, initially, a cost efficient
continuous review inventory model is considered for
inventory management in the warehouse. Then, the
OFR model was implemented into the system for
effective and profitable operation of a warehouse.

II. LITERATURE REVIEW
Many research results have been reported in the
literature on order picking. Dividing the order picking
into two stages, the first stage is planning; determining
the set of orders to be picked on a particular day among
the received orders. The second stage is the execution
of the order picking by picking orders in the most
efficient way, such as minimum total travel distance. In
the literature, there are a few works reported on
planning the order picking. A brief review of the
literature in order picking is presented in this section.
For efficient order picking, researchers have
elaborated on warehouse layout, storage policy, and
picking policy [4]. Warehouse layout problem
addresses the shape of warehouse, shelf location,
number of aisles, location and number of
starting/ending points of picking operation [5]. Picking
policy includes zone picking, batching, and picker
routing. Picking policies determine which stock keeping
units (SKU) are placed on a pick list and subsequently
retrieved from their storage locations by a single picker.
Storage policies, which assign SKUs to storage
locations, generally fall into three broad categories.
Storage policy includes random storage, dedicated
storage, class-based storage, and volume-based storage
[4]. Research shows that a within-aisle implementation
of volume-based storage significantly reduces travel
time [6]. Class-based storage with as few as three
storage classes provides nearly the same savings as
volume-based storage in an automated storage and
retrieval systems (AS/RS) while requiring less data
processing [7].
Combining several orders in batches is an
alternative policy that has been shown to reduce total
picking time significantly [8]. First come- first-served
(FCFS) batching combines orders as they arrive until
the maximum batch size has been reached. Tseng and
Ho [9] study the order-batching methods for a DC with
two cross-aisles and conduct an extensive experiment
over the combinations of nine seed-order selection rules
and ten accompanying-order selection rules, along with
two route-planning methods and two picking frequency
distributions.
A recent review paper by Goetschalckx and
McGinnis [10] identifies order picking as one area of
warehouse operations. They classify order picking into
batching, sequencing and routing, and sorting, all of
which belong to the operational level, not planning
level. A few results have been published where two
policy classes are studied jointly, for example, Koster et
al. [11] evaluate batching and routing algorithms
together. Gademann and Velde [12] solve the batching
problem to minimize the total order picking time by
formulating it as a set partitioning problem, and then
solving it with a branch-and-price algorithm and an
approximation algorithm. Chen and Wu [13] use a
clustering approach to batch orders that are highly
associated, i.e., orders sharing a large number of
common items.
To integrate efficient order picking system in the
warehouse with an inventory model, literature was
reviewed on a continuous review system. Many models
for continuous review inventory systems, i.e., (Q, r)
models, with stochastic demand and allowable
shortages have been studied. For example, [14], [15],
[16], [17], [18], and [19].
Kim and Benton [20] incorporated a linear
relationship between lead-time and lot size into the
continuous review model. Assuming a normal
distribution for the daily demand and following the
marginal analysis approach, their algorithm first adjusts
the economic order quantity (EOQ) expression to
include the effects of order frequency and lead-time.
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International Conference on Production and Industrial Engineering
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Recently, simulation practitioners tried to find
answers through the use of simulation optimization
which is defined in the literature as the process of
searching for the best decision variable values from
among all possibilities without performing a complete
evaluation search. Swisher et al. [21] presented a survey
of the search techniques used in discrete event
simulation optimization.
Hariga [22] used a search procedure which is a
partial enumeration method that exploits the convexity
feature of the cost function in the variables Q and r in
an attempt to reduce the number of alternatives to
compare. This search procedure generates an
approximate solution since the convexity property of
the cost function cannot be established for any type of
demand distribution.
In summary, various factors and policies affect the
performance of the order picking system, but none of
them consider the shortage in the DC. According to the
warehouse practitioners, shortage is frequently
experienced in daily order picking operation, especially
as the number of items grows, and inventory is tightly
controlled to a minimum level. Therefore, a planning
stage as to which set of received orders to pick today
has become an important issue, in addition to many
existing tools to improve the efficiency of order picking
in its execution stage. Chen and Wu [13] have
considered the case where an order is picked and
shipped only when all items in the order are available in
the inventory and the unfulfilled orders are transferred
to the next day with higher priority. However, they have
assumed daily initial inventory as normal distribution
and with a set of orders arrived during a day the
problem is to assign the inventory to the orders so as to
maximize the order fill rate (OFR). This problem is
considered in the present research. The search
procedure adopted by Harkan and Hariga [23] is used to
find the optimum (Q, r) value in which total cost of
inventory management is minimized. This model is then
combined with the order fill rate to maximize the
service level for efficient operation of the warehouse.

III. PROBLEM ENVIRONMENT
Consider a DC which supplies many items to many
retail stores. The customers (retailers) place orders to
the DC once a few days. The orders whose quantity is
available from the current inventory for all items are
picked and shipped to the customers on the next day.
The orders which are not picked and shipped due to the
shortage of at least one item in that order are carried
forward to the next day (called back order) and the back
orders will have a higher priority for the next day in
assigning the items so as to avoid excessively long
delay. In such a situation, the order fill rate can be
affected by how the inventory items are assigned to the
orders.
To illustrate, Table 1 shows a simple numerical
example where a DC deals with six items (A through F)
and initial inventory level is (5, 5, 7, 5, 4, and 5),
respectively. Suppose that four orders have been
received during the day in that sequence.

Table 1
Data for Numerical example

If the inventory is assigned to the orders in the
First-Come, First-Served (FCFS) basis, then the
stepwise reduction of the inventory will fill only orders
I and II, and orders III and IV will not be fulfilled so
OFR will be 50%. Note that, for order III, since the
shortage is found for item B and F, the entire order is
carried forward to the next day and no item (from A to
F) is assigned to that order today, so the remaining
inventory remains unchanged. It is clear that all four
orders cannot be fulfilled today because the total
demand is greater than todays initial inventory for
items A, B, and F. However, if we cleverly assign the
initial inventory to the orders I, III, and IV, then the
three orders can be fulfilled (OFR = 75%) because the
total demand of the three orders is no greater than the
initial inventory for all six items. This simple example
shows us the possible improvement of OFR, given the
same initial inventory level, that is, without increasing
the inventory holding cost.

3.1 The Mathematical Model

Consider a daily planning of orders, that is, orders that
have arrived during a day are collected and the daily
initial inventory is optimally assigned to the orders.
The objective of the work is to formulate a
mathematical model for maximizing the Order Fill Rate
(OFR). The model formulated is as follows:
Maximize OFR = ( ) 1
1

=
m
i
i
F

Subjected to,
( )
( )
( )
( ) 5 ; all for 1 or 0
4 all for 1
3 ; all for
2 all for
i F
i;
M
Q d
F
j S Q
i; B d Q
i
ij ij
i
j
m
i
ij
ij ij ij
=

s
s
+ s

Items
A B C D E F
Initial Inventory 5 5 7 5 4 5
Orders
I 1 3 2 0 1 2
II 2 2 0 4 0 2
III 1 1 2 1 1 2
IV 2 1 3 0 0 0
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where,
F = is 1 if order i is fulfilled; or 0 otherwise
i = order number (i = 1, . . .., m)
j = item number (j = 1, . . .., n)
S
j
= daily initial inventory of item j
d
ij
= daily demand of item j in order i
M = a large positive number
B
ij
= Back order of item j in order i
Q
ij
= assigned quantity of inventory item j to order i
(decision variable)

Eq. (1) maximizes the number of fulfilled orders; Eq.
(2) limits the assignment of inventory to be no greater
than the demand; Eq. (3) means that the total
assignment for item j cannot exceed the current
inventory of the item; and Eq. (4) forces F
i
to be 0 if
any one item of the order i is not fulfilled by the current
inventory. Due to Eq. (5) the above formulation
becomes a binary integer linear programming problem.

3.2 Continuous review inventory model

The efficient order assignment model has to be
incorporated with the inventory model which tends
towards practical nature. So, a stochastic continuous
review (Q, r) inventory system was developed. An
order of size Q is placed whenever the inventory
position (on-hand + on-order backorder) drops below
the reorder point, r. The ordering quantity will be
received after a fixed time, L(Q), called the lead time
which is dependent on the lot size. A linear relationship
is assumed between lead-time and lot size as in [20].
( ) 6 P Q) ( L(Q) + =

where,
= setup time in days,
P = unit production time in days, and
= shop floor queuing factor with > 1.
Note that the lead-time is computed as a multiple of
the productive time, which is generally expressed as the
sum of the setup and processing times. The shop floor
factor takes into account the remaining portion of the
lead-time such as moving and waiting times. It is
assumed that any demand that cannot be satisfied
directly from stock is backordered. The problem is then
to determine the optimal ordering quantity and reorder
point that minimizes the total annual system cost
composed of the ordering, holding, and backorder costs.
The Total Cost (TC) is mathematically formulated as:

( ) ( ) 7
2
B Q L r
Q
h
Q
DS
) TC(Q, r Min + |
.
|

\
|
+ + =

where,
D average annual demand,
S fixed ordering cost,
H unit holding cost per year,
mean daily demand
stock out cost per backorder,
Q order quantity,
r reorder point,
L(Q) lead time dependent on lot size,
B Total number of backorder occurred.

A total cost function is used in optimising search
procedure to find the least-cost ordering quantity and
reorder point.
IV. SOLUTION METHODOLOGY
Based on the data presented in [23], the data for the
problem are as follows:
- (Mean daily demand) = 25 units per day,
- h (Holding Cost) = Rs.2 per unit per day,
- (Shortage Cost) = Rs.100 per Back order,
- (Setup Time in days) = 0.125 day,
- S (Ordering Cost) = Rs.125,
- P (Unit Production time) = 0.025 day per unit,
- (lead time factor) = 1.5; > 1
The initial inventory was used as the sum of lot
size and reorder point, in which Q was taken as the
economic order quantity and r as the cumulative
amount of demand during the lead time and safety
stock. Safety stock is taken as 2 where is the
standard deviation of the demand. Both the demand in a
particular order and the number of orders in a day
follow a Poisson distribution with a mean of 5
respectively.
4.1. Determining the parameters of the continuous
inventory policy
A continuous review system is coded in MATLAB
software for simulating the performance of inventory
system, by repeating it for 250 days. The model
developed is shown in the Fig. 1.
Fig. 1 Flow chart of Continuous review system
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A search procedure is used to find the least-cost
ordering quantity and reorder point. The search
procedure used here is a partial enumeration method
that exploits the convexity feature of the cost function
in the variables Q and r in an attempt to reduce the
number of alternatives to compare. The algorithm
searches for the least-cost ordering quantity over the
interval [aQ
o
, bQ
o
], where Q
o
is the economic ordering
quantity. Note that we used a search interval for Q
containing the economic order quantity (EOQ) value,
Q
o
, since it was established in the literature that the use
of the EOQ as the order quantity of the classical (Q, r)
model does not lead to substantial deviation from the
optimal cost [24]. In the first step of the algorithm, the
parameters a, b, and m
Q
can be selected to make the
search very exhaustive (small value of a and large value
of m
Q
and b). However, this type of selection will be at
the expense of the computational effort. In the second
step of the algorithm, the search for r is made over the
values that are larger than the expected lead-time
demand. In the same step, a call is made to the previous
model for each combination of Q and r. The last two
steps are improvement steps after finding an initial best
solution in Step 2. (a = 0.2, b = 2, m
Q
= m
r
= 20)

The steps of the search procedure are as follows:
Step 0: Set
h
S
Q
o
2
=


TC = M, M is a very large number.

Step 1: Q
min
= a Q
o
, with 0 < a < 1
Q
max
= b Q
o
, with b > 1
Q = (Q
max
- Q
min
)/m
Q
, where m
Q
is the
number of Q values to be tested.

Step 2: For Q = Q
min
to Q
max
step Q

L (Q) = (PQ + )
r
min
= L(Q),
r
max
= 2 r
min
,

r
= r
min
/m
r
,
where m
r
is the number of r values to be tested.
TC (Q) = M

For r = r
min
to r
max
step
r

Call the Continuous Review System
with initial inventory position equal to
Q + r and compute TC (Q, r) as the
average total cost from 250 iterations.

If TC (Q, r) < TC (Q)
Set TC (Q) = TC (Q, r),
Q
o
= Q, and
r
o
= r
Else: exit the r Loop
Next r

If TC (Q) < TC,
set TC = TC (Q),
Q* = Q
o
, and
r* = r
o

Else: exit the Q Loop
Next Q

Step 3: Set Q
min
= Q*-Q,
Q
max
= Q* + Q,
m
Q
=m
Q
/2, and
Q= 2Q/m
Q


Repeat step 2.

Step 4: Run the model for 250 iterations using (Q*, r*)
to get a better estimate of TC (Q*, r*)
By running this model we determined Q* and r*
values which were used in the inventory management of
the warehouse. This model was used to determine (Q*,
r*) values of all the items.
4.2. Planning Order Picking
Here, the objective is to incorporate inventory level in
order picking planning. The LP Model was formulated
using a MATLAB program which follows the
procedure as shown in the Fig. 2.

Fig. 2 Flow chart for planning order picking
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For each item, the maximum order combination
which can be picked in a particular day is as shown in
Table 2. Customer orders and initial inventory (table 1)
are used as the input for generating these combinations
of orders.
Table 2
Combinations of orders which can filled
Item Combinations of orders which can filled
A
[{1,2,3},{1,3,4},{2,3,4},..,{1,2},{2,3},
, {1},{2},.]
B
[{1,3,4},{2,3,4},..,{1,2},{2,3},
, {1}, {2},.]
C
[{1,2,3},{1,3,4},{2,3,4},..,{1,2},{2,3},
, {1}, {2},.]
D
[{1,2,3,4},{1,3,4},{2,3,4},..,{1,2},{2,3},
, {1}, {2},.]
E
[{1,2,3,4},{1,3,4},{2,3,4},..,{1,2},{2,3},
, {1}, {2},.]
F
[{1,3,4},{1,2,4},{2,3,4},..,{1,2},{2,3},
, {1}, {2},.]

From Table 2, it can be found that there are many
combinations of orders for each item. Among them,
some of the combinations are recurring. Since our
objective is to maximize order fill rate we select the
combination {1, 3, 4} for fulfillment, similarly {2, 3, 4}
can also be considered.
This model was run for 250 days as a continuous
review inventory policy with Q* as the lot size and r*
as the reorder point. The demand in a particular order
follows a Poisson distribution with a mean of 6 and the
number of orders in day follows a Poisson distribution
with a mean of 4.
This model is compared with the FCFS order
filling method using same inventory policy and the
demand distribution as mentioned in the previous
model.

V. RESULTS AND DISCUSSION

As mentioned in the previous section, there is a
sequence of procedure followed to increase order fill
rate with an efficient inventory system. The sequence
which has been followed in this paper is described
below:
- A continuous review system is developed with
lot size as economic order quantity and
checked how the inventory system performs.
- Next step is to find the best (Q*, r*) policy for
which total cost of the inventory is minimized.
These values are found using an optimization
search procedure by partial enumeration
method.
- Using this policy in the inventory system,
efficient order fill rate model has been
incorporated into the warehouse operation.
- This model has been compared with the FCFS
system.

Step 1: A continuous review system is developed with
lot size as economic order quantity and checked how
the inventory system performs.
Initial input values:
Order Quantity = 950 units
Re-order Point = 600 units
Initial Inventory = 1700 units
Lead Time = 24 days
Continuous review system results have been shown in
Table 3
Table 3
Results for continuous review system
Day Demand
Backorder
Quantity
Order
Quantity
Inventory
Position
1 54 0 0 1646
2 24 0 0 1622
3 48 0 0 1574
4 34 0 0 1540
5 53 0 0 1487
6` 40 0 0 1447
67 4 0 0 632
68 17 0 0 615
69 27 0 950 588
70 23 0 0 565
71 63 0 0 502
72 5 0 0 497
150 4 0 0 5
151 51 47 0 1
152 13 60 0 1
153 35 95 0 1
154 50 145 0 1
155 42 0 0 764
221 0 0 0 645
222 38 0 0 607
223 26 0 950 581
246 37 212 0 1
247 48 0 0 691
248 28 0 0 663

Step 2: Total cost of the inventory is minimized for
different Q* and r* values. These values are found
using an optimization search procedure by partial
enumeration method. Input data is the same as given in
section 4.
Table 4
Results for Total Cost for each (Q*, r*) policy
Sl.
No.
Q* (Order
Quantity)
units
r* (Reorder
Point)
units
TC (Total
Cost)
Rs.
1 199 214 5293.20
2 264 271 4185.40
3 329 310 3460.30
4 393 342 3028.30
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5 458 405 2736.60
6 523 437 2533.30
7 588 492 2435.90
8 653 533 2286.20
9 718 565 2213.70
10 783 628 2163.90
11 847 660 2131.60
12 912 724 2113.20
13 977 755 1342.80

Best (Q*, r*) policy:
Q (Order Quantity) = 977 units
R (Reorder Point) = 755 units
TC (Total Cost) = Rs. 1342.8
Lead Time = 34 days

Fig. 3 shows the decrease in TC value using the
algorithm to find the optimum Q and r value.


Fig. 3 Variation in TC (Q*, r*)

Step 3: Using the above optimum policy in the
inventory system, efficient order fill rate model has
been incorporated into the warehouse operation. This
model has been compared with the FCFS system. Table
5.3 shows the comparison of order fill rate.

Table 5
Comparison of order fill rate (OFR) results


30
2 100 100
3 85.6 93.4
4 42.7 54.2
5 29.7 41.7
40
2 100 100
3 83.8 90.8
4 38.0 47.7
5 24.8 35.8
50
2 100 100
3 80.4 86.5
4 30.8 39.8
5 22.4 31.8

Fig. 4 shows the increase in the OFR using the LP
Model compared with FCFS policy for different items.






No.
of
Items
No. of Orders
per day
Order Fill Rate (%)
FCFS LP Model
4
2 100 100
3 100 100
4 83.9 96.8
5 65.4 71.2
6
2 100 100
3 97.2 100
4 72.4 80.2
5 55.2 65.4
10
2 100 100
3 92.4 98.8
4 65.2 74.2
5 33.2 52.4
20
2 100 100
3 89.9 97.8
4 55.4 62.2
5 30.2 45.8
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Fig.. 4 Comparison of OFR between LP and FCFS rule.

Fig. 5 shows a comparison of OFR in relation with
the number of items for FCFS rule and Fig. 6 shows a
comparison of OFR in relation with the number of
items for LP Model. This comparison of OFR in
relation with the number of items shows that as the
orders per day increases, the OFR decreases with the
number of items. But the OFR for LP Model is more
compared to FCFS policy.

Fig. 5 Comparison of OFR in relation with number of
items for FCFS rule


Fig. 6 Comparison of OFR in relation with number of
items in LP Model.

VI. CONCLUSION

In this work, a continuous review (Q, r) inventory
system with lead-time depending on lot size is
considered. The objective of this work is to minimize
the total operating cost as well increase the efficiency of
order fill rate (OFR). An integrated optimization model
is developed for minimizing the total cost of the
inventory system. Order fill rate of a Distribution
Center is considered with inventory and backorder
scenario. The mathematical model of the OFR problem
is formulated as an LP Model. The performance of the
proposed LP model is compared with the First-Come,
First-Served (FCFS) rule, which assigns the inventory
to the order in the order of arrival. This is explained
with a numerical illustration of the problem. The total
cost of the inventory has been minimized and the OFR
is increased using the LP Model. Hence, the total
efficiency of the warehouse operation has been
improved through the two main factors affecting the
warehouse operation i.e. reducing the inventory cost
and increasing the service level by efficient order
picking. The present work can be extended by
experimenting with order batching policies. Inventory
storage allocation and assignment can also be analysed.

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