The 12 Principles of High Performance Warehousing #3. Match storage systems with inventory and order profile

Choose storage systems that match the order and inventory profiles of your value stream to maximise space utilisation and picking efficiency

Part 3 of a series on the 12 Principles of High Performance Warehousing.  The eBook can be downloaded for free by joining the High Performance Warehouse Network on the Logistics Help website.

Your inventory and order profile will derive from the value chain of the market you are serving.  For example an online business serving individual customers will usually have many orders selecting from a large range of SKUs with only one or two lines per order and usually small to medium sized items that are easily shipped door to door and internationally.  A manufacturer may only make a small range of products (less than 50 SKUs) but ship them in volume to wholesalers and markets around the world.  These two extremes demand very different solutions in the warehouse.

I have identified two dimensions of inventory profile - (total number of SKUs and size of SKU), and three dimensions of ordering pattern - (order frequency, average lines per order and average units per line).  Each different combination of inventory and order dimensions will require a particular storage solution that will provide the best fit for storage density and process productivity in the warehouse.

Different types of products selling through different channels will require different
warehousing solutions.  It sounds simple but the answer is not always obvious.

There is an additional inventory dimension that I have left out for the sake of simplicity.  This is storage conditions.  Storage conditions requirements are typically temperature (cold chain, cool and frozen for food and pharmaceuticals, security for bonded items or dangerous drugs and high value items like electronics or jewellery and dangerous goods such as flammables, toxic chemicals, corrosives, explosives etc.  These are not insignificant factors in the design of warehousing operations but are beyond the scope of this eBook.  I will address them in future updates and the extended version of this work.

The table below indicates a recommended storage system for each of the thirty two combinations across the five dimensions of inventory and order profile.  This is a simplification but will serve as a guide to what you might need when setting up a new business channel you may not be familiar with.  The reality is there is a continuum of inventory and order profiles from bulky pallet based activity through to high volume orders for a long tail of small items.  There is also a very wide range of racking, shelving and storage equipment that can be configured specifically to suit any conceivable range of product sizes and volume.  The detailed selection of a storage system should be considered very carefully to ensure that you get the best fit without sacrificing flexibility to grow or adapt the system as both your inventory profile and order profile changes over time.

It is also quite common for a company to have a SKU range that requires different categories of storage systems.  So for example the same customers might be ordering full pallet loads of a high volume bulk item as well as case picks of moderately sized items and unit picks from a long tail of small items.  In these cases the warehouse will need to be configured in different zones for each different storage system.  As the picking methods and equipment will be different then these picks are usually split so that they can be processed separately and then consolidated on the dock for delivery.

I have summarised the use of the most commonly used storage systems below.

• Block stack: (the original storage system!) fast to access storage for bulk quantities of a limited range of SKUs. Fairly dense storage but beaten by drive in racking for maximum space utilisation. Usually configured as Last In First Out (LIFO) access which means that lanes must be emptied before refilling to ensure stock rotation.
• Drive in racking:  Same use as block stack, slightly slower to use due to the need to drive the forklift carefully.  Very good storage density.  Can be set up as LIFO or FIFO as for block stack if access aisles are provided at each end.
• Pallet flow & push back racking: pallet shuttle systems:  These are also dense storage for bulk palletised stock.  They ensure that stock is always at the rack face and so speed access for picking over drive in racking.  Push back is LIFO access only.  Pallet flow is FIFO only and requires an aisle each end.  Shuttle systems can be configured either LIFO or FIFO and are expensive but do provide very dense and fast access bulk storage.
• Pallet racking (single selective): The near universal warehouse pallet storage solution.  Provides good storage density and complete selectivity of each pallet.  Allows the height of the building to be used to increase density.  Fast to access and very flexible.  Normally accessed with a reach type forklift it can also be accessed with a man-up stock picker for fast case picking of a large SKU range.
• Pallet racking (double deep).  Significantly more dense storage than single selective racking above whilst also maintaining good selectivity.  Each location holds two pallets of the same item with LIFO access.  Good for pallet and case picking of bulk high volume items.
• Long span shelving: Pallet racking with shelves, this is a good storage method for shelving bulky but slower moving items.  Two to three levels can be set up or access by pedestrian pickers for case and item level picking.  Good storage density and selectivity.   Good for creating a unit or inner picking area for items that are normally case picked out of pallet racking or block stack.
• Steel shelving:  Along with single selective pallet racking steel shelving is the most commonly used warehouse storage system.  Available in abundant sizes and shelf configurations and can be obtained very cheaply second hand.  Used for storage of small items accessed by pedestrian pickers.  Use of carefully matched shelf spacing and dividers within shelves can provide very dense storage.  Shelf storage can be stacked as a multi-level pick module of typically 2-3 levels to use the building height and store a large range of SKUs.
• Carton Live Storage:  Good for medium to fast moving items with a wide range of SKUs.  Perfect stock rotation with FIFO replenishment from the rear of the unit.  Not so good for very high volume items as replenishment will be required too frequently.  Often used with Pick To Light systems to speed order picking.
• Drawer systems: very high density storage for a large range of SKUs with generally low movement frequency.  Excellent for spare parts and long tail small items.  Fairly expensive but provides good stock protection as items are enclosed in the drawer units.
• Vertical carousels:  The next level up from drawer systems and for a similar purpose.  Good storage density if they are tall and use the building height. The main aim of a carousel is that if provides automated goods to the storeperson put-away and picking for highly productive picking of long tail large SKU range such as spare parts. Carousels have their own proprietary control systems that guide the operator through put-away and picking functions.  These systems require an interface to a business system or warehouse management system.

Inventory Profile		Order Profile			Storage System
No. SKUs	Item Size	Order Frequency	Lines/ Order	Units/ Order line
Low	Small	High	Low	Low	Carton live storage
Low	Small	High	High	Low	Carton live storage
High	Small	Low	High	Low	Carton live storage, vertical carousel, drawer systems
High	Small	High	Low	Low	Carton live storage, vertical carousel, drawer systems
High	Small	High	High	Low	Carton live storage, vertical carousel, drawer systems, multi-level shelving
High	Small	Low	Low	Low	Drawer systems, multi-level shelving installation, shelving
Low	Large	Low	Low	Low	Long span shelving
Low	Large	Low	High	Low	Long span shelving
High	Large	Low	Low	Low	Long span shelving
High	Large	Low	High	Low	Long span shelving
Low	Large	Low	Low	High	Pallet racking, double deep racking
Low	Large	Low	High	High	Pallet racking, double deep racking
Low	Large	High	Low	Low	Pallet racking, double deep racking
Low	Large	High	Low	High	Pallet racking, double deep racking
High	Large	Low	Low	High	Pallet racking
High	Large	Low	High	High	Pallet racking
High	Large	High	Low	Low	Pallet racking
High	Large	High	Low	High	Pallet racking
High	Large	High	High	Low	Pallet racking
Low	Small	Low	Low	High	Pallet racking, long span shelving or shelving
Low	Small	Low	High	High	Pallet racking, long span shelving or shelving
Low	Small	High	Low	High	Pallet racking, long span shelving or shelving
Low	Small	High	High	High	Pallet racking, long span shelving or shelving
Low	Large	High	High	Low	Pallet racking or long span shelving
High	Small	Low	Low	High	Pallet racking or long span shelving, multi-level shelving
High	Small	Low	High	High	Pallet racking or long span shelving
High	Small	High	Low	High	Pallet racking or long span shelving
High	Small	High	High	High	Pallet racking or long span shelving
Low	Large	High	High	High	Pallet racking, block stack, drive in racks
High	Large	High	High	High	Pallet racking, block stack, drive in racks
Low	Small	Low	Low	Low	Shelving
Low	Small	Low	High	Low	Shelving

Need some help to set up your warehouse for high performance?

The 12 Principles of High Performance Warehousing - 2. Design your processes around value chains

Design your warehouse processes around the streams of value delivery for your business

Part 2 of a series on the 12 Principles of High Performance Warehousing.  The eBook can be downloaded for free by joining the High Performance Warehouse Network on the Logistics Help website.

A new online strategy could mean a change from case pick to unit pick
requiring a new and additional warehouse strategy

The current reality of global supply chain and the corresponding variety of distribution channels is illustrated in the universal model of supply chain.  Whilst this is a simplified diagram the important point is that any agent in the supply chain could be located anywhere in the world.  The myriad variations and possibilities create a growing number of possible distribution channels and value chains for any of participants.

Whereas a company may have gone for years with just a single distribution channel; for example; supply to a small selection of manufacturers or wholesalers in a local market.  Now they may now have developed their own brands for selling to retail stores and direct to customers in multiple markets.  Now they may sell to manufacturers  and wholesalers all over the world.  Each of these markets and distribution channels represents a different value chain  with a unique set of customer requirements, ordering patterns, shipping methods and consequently requiring a unique mode of operations within the warehouse to support them.

Some of the common distribution channels with differing warehousing requirements are:

• manufacturer to wholesaler, 
• manufacturer to retailer
• manufacturer direct to business customer
• manufacturer direct to home customer
• wholesale to retail,
• wholesale to business
• retail DC to retail store replenishment,
• trade supply store to contract tradesman
• trade supply store to large business 
• trade supply store online direct to tradesman or business
• trade supply store to retail customer
• retail store to walk in customer
• retail store online direct to home customer
• pure-play online retailer

Whilst having some things in common, each of these channels will be different and will also vary depending on the industry context, countries and businesses strategy.  Each variation will need a different approach to warehouse design and operation to best support the particular value chain.

Top tips for process design around value chains

• Identify your value chains.  What product/service/ distribution channel combinations do you have?  Do they require specific support and configuration in your warehouse?
• Speed and accuracy must be built into the process design.  Bolting a small order process onto a warehouse operation designed for bulk case and pallet picking will work in the short term for the start-up of a new online channel, but will crack under the pressure of volume; becoming costly and unable to meet service expectations.
• If you are serious in developing a new distribution channel then the warehouse process must be specifically designed to suit.
• Process design should take full advantage of available technology for greatest productivity.  The technology must suit the order and inventory profiles and generate a return on investment for the expected business volume.  (More on this later).
• The process must be optimised for the entire value chain and not just the warehouse.  Inbound logistics, ordering methods, customer service, delivery, billing and customer experience of the product and service must all be considered. The warehouse can be a key supporter in all of these from maintenance of stock availability, delivery or customer pickup experience, service support, installation through to the returns process and recycling of products at the end of life.
• The more your value chain can be integrated with your customer’s streams of value creation the more you will develop unchallengeable value delivery to your customers.  This approach can make it very hard for your competitors to replace you in the market and usually takes price competition out of the equation.  
• The classic example of this is Vendor Managed Inventory (VMI) where the small additional service you provide is highly valued by the customer who keeps buying your product because of the service.

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