Warehouse Automation Efficiency Case Study

This paper examines warehouse automation efficiency by using special equipment and software. The case study of CCHBS will be looked at. Business is interested in automation but uncertain about cost effectiveness. Implementation of these projects is expensive. However, the spending is overlapped by savings and provides warehouse activity increase. Most of the previous works illustrated only one type/group of equipment or described several in brief without comparing them. In this thesis, the comparative analysis will be performed, and it will be defined which equipment is more preferred by technical parameters and expected performance. The findings of this paper are expected to simplify the process of choosing ways of warehouse automation facilities that allow to get competitive advantage on the market. Moreover, the method attached in this paper can be used by other companies where the warehouse is needed to be developed.

Keywords: warehouse logistics, warehouse automation

Introduction

Nowadays Industry 4.0 (the forth industrial revolution characterized by cyber-physical transformation of manufacturing) increases its impact for most parts of the business, including logistics. Modern technologies can improve processes of production, transportation, warehousing, etc. This paper focuses on methods of enterprise finished product storage automation.

Finished products are indispensable part of the manufacturing, but it is hard to keep products properly without the relevant warehouse. Storing is a very old process. We will research this process from the beginning if the last century, when the mass production appeared, and the logistics become a part of a business.

The evolution of modern warehouse logistics is characterized by 4 main periods (Lukinskiy, Lukinskiy & Pletneva, 2016). The first period was called “Fragmentation” and lasted from 1920 to 1950 year. The idea was to separate logistics activities for reducing costs, and the warehousing was separated as an individual business process. During the next period, “Emerging” (1950-1970), there was an intensive development of theories and practices in logistics. That has resulted in the logistics processes because storing and transportation was connected at the first time. Moreover, the concept was the basis for another period – Integration Logistics. But before this step of the warehouse logistics evolution the technologies made a leap forward which influenced on operational processes at a storage due to its automation.

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From these times to nowadays automotive technologies play significant role in logistics, including storing. That is why most of the modern large warehouses are complex technical buildings that consist of many various subsystems, such as compound, set of processed goods, infrastructure of information technologies, etc., and elements of the structure combined to serve as functions of material flow transformation. Put simply, warehouse is the starting and the final point of all logistics functional areas of manufacturers and wholesalers. That is the reason the logistics manages not the warehouse, but the material flow coming through the warehouse system.

Storage automatic systems can be roughly divided into two groups – Software and Hardware. The latter term defines not the computer details, but the mechanisms that improve the flow of goods, for example warehouse indoors vehicles.

There is a number of academic works on the subject. Dadzie, Johnston and Sadchev (2014) analyze three groups of automation technologies and suggest how they can influence on abstract warehouse, but there is no information about the storing subjects and the precise characteristics of the automatic products. Hamberg and Verriet (2012) have listed certain technologies and their opportunity for improving operational processes, but there is no a comparison of them. Baker and Halim(2010) show the cost efficiency of voice and light picking systems integrated on a finished goods warehouse

All previous works have only focused on illustrating current technologies or efficiency of one of them. However, how do different methods of warehouse automation effect on business indicators? Despite the expensiveness of the implementation, automation provides opportunities for improving the company activities because it increases warehouse efficiency and reduces logistics costs.

In this paper we will research automation of warehouse complex of the Coca-Cola HBS Eurasia example. At the current challenging moment storage plays a significant role for reaching the previous leading position.

Warehouse automation is generating considerable interest in terms of reducing cost due to the volatility of economic situation in Russia which causes instability of demand for fast-moving consumers goods. Implementing technologies helps to control the amount of finished goods and manage material flows. Moreover, decreasing the human factor provides the decrease in number of mistakes, which can move closer to the idea of 0 PPM. This is an indicator which shows that the operational process has no more than one mistake per million operations. Automation also modify logistics cost, reducing up to 35 %. (Petchina, 2018)

In previous studies researches learned the ability of decreasing risks and mistakes, methods of improving warehouse and different automation technologies. However, all of them are scattered and there are no comparative assessment modern instruments of storage automation.

In order to investigate the issue, it is necessary to explore three tasks:

• review current warehouse automation technologies;
• explore technical efficiency of them;
• analyze financial relevance of the implementation.

The first task will allow us to analyze and compare technologies that can be implemented in warehouse. The second one will help to understand which of them are truly useful. The solution of the last one will show appropriateness in a given situation.

Literature review

A considerable amount of valuable work on supply chain management in the field of economic and technical sciences has been done to accomplish the revision of the notion “logistics”. All these studies analyze material flow movements at a macro or micro level but some of them focus on different aspects of supply chain.

Warehousing and stocking definition improve due to the evolution in research papers and academic works. In the first half of the 20^th century the warehouse was firstly described as not the place of storing goods, but also a part of company which can give a profit to it (Lukinskiy et al., 2016). Keeping raw materials and finished goods has a direct effect on the logistics efficiency, especially on economical part.

The warehouse is the most important element of the infrastructure of commodity markets and logistics systems actively developing in our country. Therefore, in addition to transportation costs, the costs of storage, inventory management and cargo handling account for the lion’s share of total logistics costs. With the introduction of various information innovation systems, it can be reduced to 30%.

Comparing to the manufacturing sphere, the automation process has implemented less rapid in warehouse logistics. According to the survey by Coimbra (2013), the amount of storage logistics companies using automotive technologies had fall behind for years and only in the beginning of 1990s reached that in manufacturing. She believes the two main problems were the lack of appropriate corporative IT tools and the insufficient attention to the warehousing as the business function

Due to technological development, these problems seemed to have been solved. Costs increase have made directors to pay attention to warehouse processes, so automation has become an important option. That is why there were expectations about growth in adoption decisions. Many companies have started to improve this part of logistic activities.

Hybrid lift trucks, horizontal transfer systems, and automated storage and retrieval systems were the most popular kind of staff in case of storage automation (Coimbra, 2013). The main purposes of their usage are horizontal movement, storage and orders item picking. That is the reason why main warehousing activities can be assisted by automation.

Researches of the ending of XX century concerned that warehouses could not be fully automated due to the inability of avoidance of manual phases. For example, Kerremans, Thunessie and Drury (1991) highlight the difficulty in making a difference between automatic and manual processes during the survey. Baker and Naish (2014) have contributed four levels of automation: manual, mechanically assisted, simple automation, and complex ones.

According to Coimbra (2013), there is a typical situation when the company partly automize storage processes. However, there is a tendency for improving this situation among multinational companies (Dotoli, Epicoco, Falagario, Costantino & Turchiano, 2015)

There is a variety of benefits which may be achieved by storage automation. These include labor costs reduce, accuracy and processes speed increase, the storage capacity growth. According to Kerremans et al. (2015), labor cost decrease is the most popular reason and key performance indicator in the automation – cited by 89 percent of their respondents. Other arguments which are less obvious and complex to measure include damaged units decrease, better quality of service and less mistakes of staff activity (Naish & Baker, 2014).

However, the improvement always come with costs. The main disadvantage is a long-time period of implementation and commission (Naish & Baker, 2014). While the new equipment would be installed the level of service may decrease significantly. Moreover, at the first time the flexibility of logistics processes may be lost. Both may significantly influence on supply chain of the company. That is the reason why automation must be held with a high-calibrated implementation plan.

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It is known that the goal should be measurable to achieve it. Nevertheless, many automation effects are difficult to measure (Naish & Baker, 2014). That is the reason why directors often get difficulties with automation project decisions. Naish & Baker argue that the main reason of such project failure are undefined or unrealistic indicators. The claims that objectives ought to be set quantitatively, for example, the level of cost decrease. Unrealistic expectations in amount of spending are the main financial problem in this situation.

Furthermore, the number of warehouse equipment and software is so huge, that the choice of them tends to be challenging. According to Speranza and Stahly (2012), automation oversees the following tasks, which are needed to be covered and controlled:

• formation of all required reports and documentation;
• registration of goods receipts to the warehouse and the issuance of products from the warehouse;
• registration of product shipments from the warehouse, as well as returns from the customer;
• inventory, calculation and adjustment of balances;
• accounting of product balances on stock and quality control;
• movement between warehouse units and placement of goods for storage;
• product return on production, if a marriage is found;
• assembly, packaging, packing documents for goods and formation required licensed and certified sets.

Improving these warehouse processes is important to the whole business. Reducing time for each operation duration, the number of them and the amount of staff effects positively on risks and efficiency of the company.

METHODS

The goal of this research will be achieved by choosing appropriate warehouse equipment. To reach it the recommendation model will be formed.

Before giving recommendation the current situation and suggestions from the supplier of equipment companies should be analyzed. Market analysis will provide information about warehouse products available now. To create the system, it is needed to understand, which products will help in each case. For this reason, information about storage characteristics will be collected, such as:

• warehouse volume and capacity;
• amount of SKU;
• cargo turnover;
• type of cargo;
• current equipment and software.

For equipment analysis it will also include:

• capacity;
• capability;
• average and max speed (for vehicles and some kind of rack systems);
• availability for integration to WMS system.

According to WMS systems, it will need:

• current ERP system usage;
• automated equipment existence;
• server’s location.

Automation in general increases the efficiency of logistic operations. However, different companies have different purposes. The main part of collecting and analyzing data will be identification the reasons of warehouse automation. To get it, there will be analysis of the possible aspects to be improved, for example:

• operational time reduce;
• amount of staff decreases;
• operational process optimization.

Parameters outlined above will help to illustrate the expected efficiency of the processes, but there is another part of the research – economic impact on the company after the warehouse automation. Because of that during the market analysis the preliminary prices of each tool should be requested.

After analysis there will be clustering of the information about equipment and warehouses parameters. It will be presented in a table or matrix with groups in the horizontal line and products in the vertical. At the cross there will be binary values: 1 if the current product is appropriate for the parameter and 0 if not.

Information about warehouse will be formed as a table with only one horizontal line. The groups should be the same as in the 1st table. Comparing the required parameters of the warehouse and the possibility of chosen equipment will help to form short list of equipment.

Next step will be the comparison of their implementation effects by using expert method. Each financial and logistics parameter will be defined due to analysis. After that each of them will get the weight for the next comparison with equal values. The sum of the tool value illustrates the amount of effect it may give to warehouse system: the more summary provides better effect.

The information about a warehouse will be formed as a table with only one horizontal line. The groups should be the same in the 1st table. Comparing the required parameters of the warehouse and the possibility of chosen equipment will help to form short list of equipment.

The next step will be the comparison of their implementation effects by using expert method. Each financial and logistics parameter will be defined due to analysis. After that each of them will get the weight for the next comparison with equal values. The sum of the tool value illustrates the amount of effect it may give to warehouse system: the more summary provides the better effect.

RESULTS ANTISIPATED

Speaking about the future result of this research it should be stated that at the stage of preparing the project proposal there is a number of uncertainty factors. However, the recommendation model will facilitate the process of choosing the rack and picking systems, indoors vehicles and WMS systems. It will illustrate the appropriate equipment in the current situation. Moreover, there will be captured the anticipated effect on the warehouse and the company.

The analysis described in the previous part of proposal will provide us the information about economic and technical efficiency. It is important both for logistics department and the director of the CCHBS Russia company because of the possibility to compare the amount of costs and the profit with the payback period that is important due to current economy situation.

CONCLUSION

Automation has already become a significant part of business for companies which want to save and improve the competitive advantage on the market. Sometimes the price for the equipment seems too expensive but the savings after implementation might be the best investments of the company. Moreover, it highlights ways for the improvements to follow by providing employees more time to solve not routine but complex tasks.

The system may be used for different duration periods and types of warehouse as long as the company change their needs or infrastructure. Furthermore, it might be implemented at all their plants providing the synergy of warehousing at the company.

References

1. Lykinskiy, V., Lykinskiy, V., Pletneva, N. (2016). Logistika I upravlenie tsepyami postavok [Logistics and Supply Chain Management]. Moscow: Urait
2. Hamberg, R., Verriet, J. (2012). Automation in Warehouse Development. London: Springer-Verlag
3. Dadzie, K., Johnston, W., & Sadchev, H. (2015). Organizational Characteristics and the Adoption of Innovative Warehouse Automation Technologies. In Proceedings of the 1993 Academy of Marketing Science (AMS) Annual Conference (pp. 581-583). Springer, Cham.
4. Baker, P., & Halim, Z. (2010). Method and system for optimized logistics planning. Supply Chain Management: An International Journal, 12(2), 129-138.
5. Petchina, D. (2018) Metody snizheniya logisticheskih zatrat na prozvodstvennom predpriyatii v sovremennyh usloviyuah [Methods of decrease logistics costs at manufacturing enterprise in the current context
6. Kerremans, M., Thunisse, H., & Drury, C. (1991). Impact of Automation on Logistics Cost. Accounting and Business Research, 21(82): 147-155.
7. Baker, P., & Naish, S., (2004). Evaluating the efficiency of 3PL logistics operations, Transport & Logistics Focus, Vol. 6: 18-23.
8. Coimbra, E. A. (2013). Kaizen in logistics and supply chains. New York, NY: McGraw-Hill Education.
9. Speranza, M. G., & Stahly, P. (Eds.). (2012). New trends in distribution logistics (Vol. 480). Springer Science & Business Media.
10.                     Dotoli, M., Epicoco, N., Falagario, M., Costantino, N., & Turchiano, B. (2015). An integrated approach for warehouse analysis and optimization: A case study. Computers in Industry, 70, 56-69.