Six Steps To Optimized Order Fulfillment: White Paper
Six Steps To Optimized Order Fulfillment: White Paper
Six Steps To Optimized Order Fulfillment: White Paper
Order Fulfillment
White Paper
How to properly classify, sort and store inventory in the correct storage systems—automated
and otherwise—to increase throughput and reduce costs associated with order fulfillment
Introduction
Although politicians may not be able to agree about whether or not the economy is improving, most
companies are seeing business begin to pick up, and their customers are demanding faster deliveries
than ever before. Distributors and e‐commerce companies in particular are seeking ways to improve
processes and cut costs without necessarily adding more labor to their existing workforce.
Yet, with warehouses filled with pallets, cases and pieces, filling orders can often be “the most labor‐
intensive and costly activity for almost every warehouse, where the cost of order picking is estimated to
be as much as 55% of the total warehouse operating expense.”1 That’s because travel time—the time it
takes a picker to walk from the point where they receive a pick order to the stored SKU, select the
required items, and transport them to the point of shipping—can account for as much as 60‐65%2 of a
facility’s direct labor activities.
The recognition of this time‐ and cost‐savings opportunity has pushed optimized order fulfillment to the
forefront.
This white paper proposes six steps designed to help warehouse and distribution center managers
establish the foundation of an optimized order fulfillment system that enhances both productivity and
accuracy. The six steps include:
1. Classify inventory
2. Match inventory to storage technology
3. Automate to reduce cost
4. Slot inventory within the storage technology
5. Map processes and workflow to maximize throughput and reduce labor
6. Integrate business systems to maximize visibility
1
Martin Murray, “Order Picking in the Warehouse,” About.com Logistics and Supply Chain Guide, accessed October
28, 2012, http://logistics.about.com/od/operationalsupplychain/a/order_pick.htm.
2
Lee Rector, “Warehouse Slotting,” Toolbox.com SCM Blogs, accessed October 28, 2012,
http://it.toolbox.com/blogs/warehouse‐planning/warehouse‐slotting‐6655.
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Step 1: Classify Inventory
Exactly how a facility’s inventory should be categorized depends on many factors, including the types of
products and picking sizes common to that business. At the highest level, classify inventory based on
picking size (by pallet, case or piece) and by frequency of picking/velocity of movement (fast, medium,
slow or very slow).
During the classification process, certain shared attributes will appear. For example, when comparing
pick velocity, group fast, medium, slow and very slow movers together. By cross‐referencing the time
associated with picking each of these parts against their order frequency, a cost‐to‐pick graph can be
created.
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The most dramatic improvements in order fulfillment optimization will come from applying solutions to
entire categories of products, as opposed to improving the movement of just a few SKUs. That’s because
of the Pareto Principle. Also known as the 80/20 rule, this principle observes that roughly 80 percent of
effects come from 20 percent of causes—or, otherwise stated, “most things in life (effort, reward,
output) are not distributed evenly; some contribute more than others.”3 For example, 80 percent of a
company’s sales often come from 20 percent of their customers, or, 80 percent of a warehouse’s picks
frequently come from 20 percent of its inventory (the fast movers).
Most companies focus their picking optimization efforts solely on their fast movers—which comprise just
20 percent of their inventory. Bear in mind, however, that tremendous gains in efficiency, throughput
and cost savings remain to be exploited in medium and slow movers, which likely represent nearly 80
percent of a facility’s floor space and picking labor demands.
3
Kalid Azad, “Understanding the Pareto Principle (the 80/20 Rule),” accessed October 28, 2012,
http://betterexplained.com/articles/understanding‐the‐pareto‐principle‐the‐8020‐rule.
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Step 2: Match Inventory to Storage Technology
After concluding Step 1, it should now be clear that all SKUs are not created equal. They vary in size,
weight, order popularity, and in a host of other ways. The material handling industry as a whole
recognizes these differences and supports them with a variety of different equipment and technologies
for effective parts storage. These include:
Pallet Rack ‐ Single or multi‐level storage that supports high stacking of single items or palletized
loads.4
Shelving – Storage for non‐palletized loads made up of upright posts, formed steel sheet panels
as horizontal shelves, and end and back braces or sheet steel back and side panels for support.5
Drawer Systems ‐ Storage drawers held in cabinets or within shelving systems that are ideal for
smaller items.6
Pick Modules – Gravity‐based flow storage of pallets7 or cartons8 that use elevated rails and
wheels or rollers within a rack‐supported structure. Loaded from behind, contents move toward
the pick face by the force of gravity for first‐in/first‐out (FIFO) inventory management.
Horizontal Carousels – Consist of bins mounted on an oval track that rotate horizontally to
deliver storage locations to an operator. These automated storage and retrieval systems
eliminate unproductive travel and search time by delivering the product to an operator.9
Vertical Carousels – Comprised of a series of shelves that rotate around a track—similar to a
Ferris wheel—these automated storage and retrieval systems deliver stored items safely and
quickly to an ergonomically positioned work counter at the operator’s command, eliminating
walk and item search time.10
Vertical Lift Modules (VLMs) – An enclosed automated storage and retrieval system that
consists of two columns of trays with an inserter/extractor in the center. The inserter/extractor
automatically locates and retrieves stored trays from both columns and presents them to the
operator at a waist‐high pick window, eliminating travel and SKU search time.11
4
Material Handling Industry, Order Fulfillment Solutions Industry Group, “Pallet Rack,” accessed October 28, 2012,
http://mhia.org/industrygroups/ofs/solutions_palletRack.aspx.
5
Material Handling Industry, “Glossary>Shelving,” accessed October 28, 2012,
http://mhia.org/learning/glossary/s#shelving.
6
Material Handling Industry, “Glossary>Drawer Storage,” accessed October 28, 2012,
http://mhia.org/learning/glossary/d#drawer‐storage.
7
Material Handling Industry, Order Fulfillment Solutions Industry Group, “Pallet Flow Rack,” accessed October 28,
2012, http://mhia.org/industrygroups/ofs/solutions_palletFlowRack.aspx.
8
Material Handling Industry, Order Fulfillment Solutions Industry Group, “Carton Flow,” accessed October 28,
2012, http://mhia.org/industrygroups/ofs/solutions_cartonFlow.aspx.
9
Material Handling Industry, Order Fulfillment Solutions Industry Group, “Horizontal Carousels,” accessed October
28, 2012, http://mhia.org/industrygroups/ofs/solutions_horizontal_carousels.aspx.
10
Material Handling Industry, Order Fulfillment Solutions Industry Group, “Vertical Carousels,” accessed October
28, 2012, http://mhia.org/industrygroups/ofs/solutions_vertical_carousels.aspx.
11
Material Handling Industry, Order Fulfillment Solutions Industry Group, “Vertical Lift Modules,” accessed October
28, 2012, http://mhia.org/industrygroups/ofs/solutions_vertical_lift_modules.aspx.
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Each type of storage methodology offers different benefits, including the amount of space/footprint it
requires, how easily it can be expanded, and the levels of throughput, productivity, accuracy, inventory
control and ergonomics it supports, as shown in Table 1.
TABLE 1: Storage System Comparison Ranked by Their Benefits
Rankings: 5=Best, 4= Great, 3=Better, 2= Good, 1=Fair
Drawer Pallet Pick Horizontal Vertical
Benefits Shelving VLM
Systems Rack Modules Carousel Carousel
Space/Footprint 3 1 2 2 4 5 5
Throughput 1 1 3 2 5 3 4
Productivity 1 1 1 2 5 3 4
Accuracy 2 2 3 2 5 4 5
Inventory Control 3 1 3 3 3 4 4
Ergonomics 1 1 1 2 4 5 5
Expandability 5 5 5 4 4 3 4
By correlating the specific benefits of each type of storage available with the inventory classified in Step
1, it should be relatively easy to determine which types of methods are most appropriate to meet the
picking needs of each category. Using pick velocity (fast, medium, slow and very slow) again as an
example, the ideal storage method for each type of pick size (pallet, case or piece) typically breaks down
as follows:
TABLE 2: Storage Method By Pick Size
Pallet Picking
Pallet Rack (fast and medium movers)
Pallet Flow Rack (fast and medium movers)
Case Picking
Carton Flow Rack (fast movers)
Horizontal Carousels (medium and slow movers)
Pallet Rack (slow and very slow movers)
Shelving (slow and very slow movers)
Broken Case/Eaches Picking
Carton Flow Rack (fast movers)
Horizontal Carousels (fast and medium movers)
Vertical Carousels (medium movers)
Vertical Lift Modules (slow movers)
Shelving (very slow movers)
Drawer Storage (very slow movers)
Step 3: Automate to Reduce Cost
Automated storage and retrieval technologies can support further optimization of order fulfillment as a
“next‐step” component of slotting. As mentioned in Step 1 above, most companies focus the majority of
their attention and equipment investments on handling their fast movers. But that leaves 80 percent of
their remaining inventory—including medium and slow movers—unoptimized, and a prime area for
additional labor, time and cost savings.
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Automation offers the following benefits:
Increased Productivity – Boosts picking rates by as much as 600 percent while reducing labor
costs
Space Savings – Saves between 30 to 85 percent of floor space by utilizing the vertical cube of a
facility
Improved Throughput – Speeds order turnover and lengthen cut‐off time
Better Accuracy – Utilization of supporting technologies, such as pick‐to‐light systems, reduces
errors with up to 99.9%+ picking accuracy
Enhanced Inventory Control – Improves the quality of information about current inventory
status, as well as locations
Improved Ergonomics – Significantly reduces bending and reaching by presenting items to the
operator at the correct ergonomic work height, called the “Golden Zone” (waist‐high to
eliminate bending down to retrieve an item stored low, or stretching up to grab an item stored
high)
Step 4: Slot Inventory within the Storage Technology
The slotting process determines the most appropriate place to store each SKU in a warehouse, and
further within a storage technology, to meet a variety of goals, typically seeking to achieve maximum
efficiency and storage capacity. Common goals can include:
Improve Space Utilization
Minimize Handling Of Parts
Increase Productivity
Balance Workflow
Improve Inventory & Accuracy
Enhance Worker Ergonomics
Minimize Travel Time To Product
Reduce Search Time
Slotting, however, is widely recognized as a “thankless job.”12 That’s because slotting requires inventory
data. Lots of data—at least a full year’s worth, including any seasonality and projected inventory growth.
For companies with a warehouse management system (WMS), slotting software or functionality is often
included or can be added‐on as an additional module. For companies without a WMS, a standalone
slotting software application can be purchased, or, in certain cases, a spreadsheet program like Excel
may be all that’s needed. Alternatively, a third‐party consultant can be engaged to perform the data
analysis and make slotting recommendations.13
12
Bob Trebilcock, “Should you reslot your warehouse?” Modern Materials Handling, May 11, 2011, accessed
October 28, 2012, http://www.mmh.com/article/resolve_to_reslot_your_warehouse.
13
Ibid.
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Collected inventory data should encompass:
SKU picking methodology
Number of pallets, cartons and broken case eaches of each SKU
SKU hits (the number of times a product is picked)
SKU numbers and descriptions
Pick quantities (number of SKUs picked per order)
SKUs that are frequently picked together
SKU sizes and weights
Total SKU quantity, reorder point and reorder quantity
Armed with inventory data that was previously classified by velocity, it’s time to create a slotting plan.
First, slot each SKU in the proper equipment (outlined in Step 2) based on pick velocity. This means fast
and medium movers should be located in the most accessible areas, while slow and very slow movers
should be stored in areas that are less accessible, or farther away.
Then, determine where within each storage equipment or technology each SKU should be placed.
Certain constraints may factor into the slotting plan. This is where the information about SKU size and
weight particularly comes into play, for example, if the product’s dimensions or volume make it
impossible to store it in the ideal equipment. Also consider how the product is accessed—by hand,
ladder, fork truck or scissor lift, for example)—and whether there are opportunities to group SKUs that
are commonly picked together in close physical proximity, known as kitting.
For medium movers, a general rule of thumb is to maintain a 20 day supply. Less than a 20 day supply
requires excessive time for replenishment. More than a 20 day indicates the space could be better
utilized for other SKUs.
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Step 5: Map Processes and Workflow to Maximize Throughput and Reduce Labor
Now that inventory has been slotted, it’s important to look for potential alternative picking
methodologies for further enhancing order fulfillment workflow. These could include:
Batch Picking – Grouping multiple orders into small batches, typically including 4 to 12 orders.
Order pickers pick all orders in the batch at the same time, working from a consolidated pick list.
“Batch picking systems may use extensive logic programmed to consolidate orders with the
same items. In operations with low picks per order, batch picking can greatly reduce travel time
by allowing the picker to make additional picks while in the same area.”14
Zone Picking – Breaking up the picking area into individual sections, or zones. Order pickers are
assigned to a unique zone and only pick items located in that area. Orders move from one zone
to another, which is why this method is also known as “pick and pass.” This approach “is most
effective in large operations with high total numbers of SKUs, high total numbers of orders, and
low to moderate picks per order. Separate zones also provide for specialization of picking
techniques such as having automated material handling systems in one zone and manual
handling in the next.”15
14
Dave Piasecki, “Order Picking: Methods and Equipment for Piece Pick, Case Pick, and Pallet Pick Operations,”
accessed October 29, 2012, http://www.inventoryops.com/order_picking.htm.
15
Ibid.
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Wave Picking – Also known as parallel picking, zone picking is a variation of the previous two
methods where all zones are picked simultaneously and the items from each zone are later
matched, or consolidated, to make complete orders. “Operations with high total number of SKUs
and moderate to high picks per order may benefit from wave picking. Wave picking may be used
to isolate orders by specific carriers, routes, or zones.”16
16
Ibid.
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Slotting can also be used to eliminate bottlenecks in work zones and throughout a facility. Although it
might appear on paper to be a good idea to consolidate all of the fast movers in a single aisle in one pick
zone, in practice it might produce time‐wasting congestion. Instead, it might be wiser to spread the fast
movers throughout the facility, not only for improved throughput but also to maximize usage of low
activity areas, or “dead zones.”
Step 6: Integrate Business Systems to Maximize Visibility
To the extent possible, integrate any business systems already in place—such as enterprise resource
planning (ERP), warehouse management systems (WMS), warehouse control systems (WCS) and
workforce performance management (WPM) or labor management systems (LMS)—with the slotting
software to better streamline picking processes and inventory management. This can result in extended
order cut‐off times and increase visibility to key business partners, including suppliers and shippers.
Additionally, integrating these systems yields tremendous time savings in managing the inventory data
so necessary to optimizing order fulfillment (as outlined above in Step 4). By ensuring that these
software systems are inter‐connected for ongoing communication, repetitive—and potentially error‐
prone—data entry can be avoided, while enabling broader inventory visibility. Integrated business
systems aggregate information to create a single report with the click of a mouse, avoiding manual
retrieval and assembly of pertinent datasets.
Finally, this integration will enable the software to facilitate routine reslotting as needed to
accommodate changes in inventory, special promotions or seasonal peaks.
Regardless of how often a facility reslots, slotting software is often integrated with a warehouse
management system and a labor management system to get the most out of the tool. The labor
management system can calculate the cost of the labor associated with the slotting plan based
on the labor standards used for that facility. That process provides for an accurate cost/benefit
analysis before deciding whether the gains from reslotting are worth the effort. If a warehouse
accepts the slotting plan, the warehouse management system executes the plan by interweaving
the reslotting tasks with other putaway, picking and replenishment tasks that have to be
performed during a shift.17
By implementing automated storage and retrieval systems—such as horizontal carousels, vertical
carousels and VLMs—to handle fast, medium and slow movers as part of an overall order fulfillment
optimization process, a warehouse or distribution center can achieve tremendous gains in throughput
while simultaneously reducing costs associated with processing customer orders. To learn more about
how automated storage and retrieval technologies can help your facility achieve optimized order
fulfillment, contact your Kardex Remstar representative today.
# # #
17
Bob Trebilcock, “Should you reslot your warehouse?” Modern Materials Handling, May 11, 2011, accessed
October 28, 2012, http://www.mmh.com/article/resolve_to_reslot_your_warehouse.
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SIDEBAR A
Optimized Order Fulfillment in Action: Aftermarket Parts Picking Gains Boost in Speed, Accuracy with
Profiled Inventory, Zone Picking and Horizontal Carousels
Located in Kansas City, Kansas, American Crane & Tractor Company manufactures and distributes
aftermarket parts for Caterpillar® equipment, often using overnight or two‐day shipping service.
Previously, the company used standard mezzanine shelving, pick carts and paper pick tickets to fill
orders. Order pickers crisscrossed the warehouse, moving from location to location searching for parts to
fill an order. When complete, they would bring the order to shipping and start on another one, often
retracing steps repeatedly.
To keep up with growing demand, the company implemented zone picking, dividing the warehouse into
nine zones and assigning pickers to each zone instead of to individual orders. However, American Crane
wanted to find a more efficient storage solution for picking the most popular, faster moving SKUs.
The company installed six Kardex Remstar horizontal carousels configured as two zones (called pods) of
three double stacked carousels to handle these items. Two pickers—one per pod—pick SKUs for as many
as eight orders simultaneously, directed by pick‐to‐light bars on both the carousels and at a batch station
where items are put to a separate tote for each order. While the operator picks from one carousel, the
other carousels pre‐position the item needed for the next pick, eliminating dwell time. The carousels
store more than 47% of the facility’s total SKUs (about 11,000 part numbers), with more than 60% of the
parts picked for an order coming from these two zones.
In order to accommodate those volumes, inventory in the horizontal carousels has been slotted using a
banding approach. Parts that are picked most frequently are stored in the golden zone area of the
carousels; less frequently picked parts reside in the upper levels. When new SKUs are introduced to the
warehouse, management reviews their profiles to determine if they are carousel eligible—that is, high
volume, small‐ to medium‐sized parts. To improve operational efficiency, the company tries to
concentrate the highest number of picks in every zone on one shelf or group of shelves.
Pickers in the seven non‐automated zones use RF guns that direct them to parts in their assigned area.
Once all parts from a specific zone are picked, the order totes are sent to the consolidation area via
conveyor where the completed order items are matched up and then sent to packing and shipping. The
new zone picking system only requires 22 order pickers, 25% fewer than the previous system that
required 29 order pickers. Even with only one picker per carousel zone, the non‐automated zones have
trouble keeping pace with their pick rates. Overall, the optimized inventory and picking process have
decreased overall order pick time to an average of 20 minutes per order.
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###
SIDEBAR B
Optimized Order Fulfillment in Action: Same‐Day Shipping of CNC Parts from OEM Gains 95% Increase in
Storage Capacity and 99.67% Jump in Accuracy with Inventory Profiling, VLMs, and Pick‐and‐Pass
Techniques
Mazak Corp.’s 45,000 square foot parts center in Florence, Kentucky is home to an inventory of more
than $65 million in parts. More than 46,000 different SKUs, including ball screws, linear guides, motors,
spindles and more, are maintained to stock and handle parts distribution for every Mazak CNC sold in
the Western Hemisphere. Previously, the stockroom consisted of pallet racks and small, manually
operated vertical lift modules (VLMs). Orders printed out in the stockroom, and workers used forklifts,
skyjacks, ladders and manual VLMs to pick parts for individual orders; they then carried completed
orders to the packing area for shipping.
Because part orders typically arrive in the afternoon and required same‐day shipping, nine workers
struggled to fill just 95 percent of up to 1,200 orders in what amounted to a 6‐hour window. Because it
was not feasible to increase manpower, the company elected to automate the parts center and
transition to a pick‐and‐pass batch picking process. Their complete system includes 13 Kardex Remstar
Shuttle VLMs grouped in four zones (called pods). It also incorporates parts identification with bar
coding, pick‐to‐light, inventory management software, and computerized order monitoring and tracking.
The new system assigns each order to a tote with a fixed license plate, and routes the tote via conveyor
to one of four pick workstations. Upon arrival, the operator scans the tote and a corresponding light on a
batch station capable of holding up to eight totes for simultaneous order picking. The VLMs move to
deliver the product to the operator, lighting pick‐to‐light bars that direct the appropriate SKU and
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quantity to be selected. Upon completion of an order, the lights direct the operator to return the tote to
the conveyor, where it is routed either to packing or to another workstation for further fulfillment.
Because each VLM tray can hold up to 1,100 pounds, the company was able to profile its inventory and
now places heavier parts that previously had to be stored on pallet rack in the VLMs. This transition
enabled an increase in storage capacity by 95 percent. The old, manually operated VLMs handled 20,000
individual part numbers; the Shuttle VLMs now hold 39,000 parts, while just 7,000 oversized part
numbers are stored on racking in the warehouse.
Additionally, because parts are now presented ergonomically to operators who work in stations and
batch process orders, the new system requires only five workers (instead of the previous nine). Orders
picked per person per hour have increased by 80 percent (13.9 picks per labor hour before, and 25 picks
per labor hour now). Further, thanks to enhanced inventory monitoring and tracking—as well as the
pick‐to‐light technology employed throughout the picking process—picking accuracy has increased from
98 to 99.67 percent. Finally, same‐day shipping is no longer a challenge, with 97.5 percent of orders
easily shipping same‐day.
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About Kardex Remstar
Kardex Remstar, LLC, a company of the Kardex Group, is a leading provider of automated storage and
retrieval systems for manufacturing, distribution, warehousing, offices and institutions. For information
about the company’s dynamic storage solutions, call 800‐639‐5805 or visit www.KardexRemstar.com.
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