Companies that make the best use of the basic principles of planning and managing warehouse operations and inventory management have a competitive advantage. Organizations that lack warehouse strategic planning and inventory operational excellence lose profits, market share, cost advantages, and market leadership. Traditional Supply Chain and Logistics channels are indeed changing. As organizations move from mass production and mass distribution to mass customization, creative approaches are needed in the management of warehousing and inventory. The challenge is always present, because different customers may demand different levels of service. Demand often cannot be forecasted, especially if one must deliver customized products or services exactly where the customer needs them. Businesses today must understand that they are competing on the basis of time more than on any other factor. The rigors of supply chain management require that you take action to meet your customers’ demand for faster, more frequent, and more reliable deliveries. Your suppliers need to meet increasingly precise inbound schedules. Tomorrow’s customers are more likely to be in another country or continent than they are likely to be from across town, in another state, or in another province. With a proven inventory management system and an A-B-C Analysis, you can transform your inventory into a proactive force that lowers your inventory investment, reduces carrying costs, boosts confidence in physical supply and distribution service levels, and increases customer and user satisfaction. From a storage and distribution perspective, you, as overseer of the supply management process, should also know how the warehousing layout design criteria and the space and storage schemes affect your material flow, service levels, computerization, and technology options.

1. Warehouse Operations and
Inventory Management:
A Supply Management Interface
© 2005 CATTAN Services Group, Inc.
A Joint NAPM/APICS Presentation
12 January 2005
to
NAPM- Tulsa
by
Thomas L. Tanel, President and CEO
CATTAN Services Group, Inc.
College Station, TX
cattan@cattan.com
979 260-7200

2. Process Owner Considerations
•
•
•
•
•
Receiving and Dock Operations
Order Picking and Travel Time
Cycle Counting
Productivity and Warehousing
Keys to Process System Reengineering

3. Inside Dock Space Requirements
DOCK
DOCK
DOCK
DOCK
LEVELER
LEVELER
LEVELER
LEVELER
DOCK MANEUVERING AREA--15-FT
CLEAR AISLE to UNLOAD/LOAD
Buffer & Staging Area
Buffer & Staging Area

4. What Consumes A Picker’s Time

5. Cycle Count Reports
ITEM
NUMBER
QUANTITY
LOCATION
ON HAND
CYCLE
COUNT
DOLLARS
CLASS
VARIANCE
UNIT COST
ON HAND
VARIANCE
1905
C-6
50
40
-10
50
2,500
-500
B
9232
M-10
100
110
+10
100
10,000
+1,000
A
488
A-4
500
450
-50
10
5,000
-500
B
4029
F-9
200
195
-5
2
400
-10
C
What should be done as a result of this cycle count?

6. Rate Yourself on Productivity
1. Do I understand the primary warehouse cost centers and
their relationship to throughput, transaction volume, and
order frequency?
2. Do the warehouse employees fully understand the
company’s goals and objectives?
3. Are other allied functional areas coordinated with the
warehouse on a periodic basis, and are warehouse
standards of performance understood?

7. Rate Yourself on Productivity
(continued)
4. Can we measure the efficiency and effectiveness of my
warehouse’s work?
5. Are all warehouse employees capable of performing tasks
assigned without constraint or limitation by other
business functions?
6. Does warehouse management make effective use of
warehouse assets (labor, equipment, space, and time) to
get the job done?

8. Rate Yourself on Productivity
(continued)
7. Do I encourage innovation and teamwork?
8. Do I have a plan to periodically evaluate my warehouse’s
productivity and continually seek improvement?
9. Are our people well-qualified to do their assigned jobs?
10. Is material handling equipment distributed for maximum
utilization?

9. Keys to Process
System Reengineering
•
•
•
•
Change is managed like day-to-day operations
Senior executive champions the program
Focus on real productivity and total costs
Use the “Little Plus” Method
What about the adage, “If it ain’t broke, don’t fix it”?
It is not as though you are safe where you are. Even in
biology, species which do not adapt risk extinction. Though
it may not be “broke” now, the last person trying to fix it is
in deep trouble. …But then again, the first person adapting
to change is taking risks, too!

10. The Warehouse’s Ultimate
Objective
The ultimate objective of the warehouse is to
hold the minimum operational inventory that
contributes the most profits or satisfies needs
—as long as that level is consistent with your
customer service or internal user
requirements and ordering and planning
philosophy.

11. Optimize Inventory Performance
• Fine tune forecasting to reflect changes in
information to:
– Alter ordering and delivery frequency
– Smooth out flow of materials and information
• Use an A-B-C Inventory Stratification Analysis
to:
– Look at demand patterns
– Determine stocking policy
– Set customer service levels

12. Forecasting versus Prediction
• Forecasting estimates future events by casting forward past data:
• Past data is combined in a system to estimate the future
• Prediction estimates future events based on subjective
material
• These criteria need not be combined systematically
• Forecasting is a judicious combination of:
• Statistical analysis of historical data
• Marketing/Service plans and strategies
• Analysis of market competition
• Current market or internal customer needs
• Selected economic and industry trends
Remember to forecast in units, not dollars. We don’t ship or issue
dollars, we ship or issue units (pieces, weight, pallets, gallons etc)

13. Demand Chain—Pull Vs Push
PHYSICA
L
TO
BOOK
REPLENISHMENT
S
U
P
P
L
Y
Forecasted
Demand
I
N
V
E
N
T
O
R
Y
Actual
Demand
PULL
VS
PUSH
DEMAND

14. Inventory: The $upply Management Dilemma
CO$T
Tradeoffs
Purchasing Inv Control
& Supply & Operations
Inventory
Versus
Procurement
Inbound Freight
Versus
Procurement
Inventory
Purchasing
& Supply
Procurement
Versus
Quantity
Traffic &
Distribution
Inventory
Versus
Operations
Storage Space
Versus
Inventory
Procurement
Versus
Inbound Frt.
Inventory
Versus
Storage Space
Shipping
Versus
Customer Svc
Inv Control Procurement
Versus
& Operations
Traffic &
Distribution

15. Flow
Supplier
Purchased
Parts &
Material
Work in
Process
Factory
Finished
Goods
Warehouse
Warehouse
Warehouse
Customer
Demand
Customer
Demand
Customer
Demand

16. ABC Classification and Pareto’s Law-Volume versus Number of Items
100
80
A
Volume
(Percent)
B
C
15
5
0
20
50
Number of Items (Percent)
100

17. Applied Pareto’s Law--ABCD
% of Items
% of
Activity
% of
Inventory
Volume
Class
Cum
Cum
A
20
20
80
50
50
B
50
30
15
83
33
C
80
30
4
95
12
D
100
30
1
100
5

18. Microsoft Business Solutions—
ABC Layout by Location
Source: Microsoft Business Solutions—Winning Strategies for Distribution

19. Warehouse Layout and Inventory Profile

20. Satisfaction Guaranteed
— What Is the Cost?
• It is 5 times more expensive to gain a new customer than it
is to satisfy an existing one.
• 7 out of 10 customers who switch from one supplier to a
competitor cite poor service as the reason.
• A 1% increase in customer service can increase sales by
the same amount.
• Dissatisfied customers tell twice as many people about
poor service than satisfied customers do about good
service.
Source: Customer Care Institute

21. Inventory Stocking Types
CYCLE
STOCK
SAFETY
STOCK
ALLOCATED
STOCK
RISK/INSURANCE
STOCK
IMPAIRED
STOCK
“CLOAKED”
STOCK

22. Inventory Cycle Time

23. Cost of Carrying Inventory—
Order Quantity Least Cost Example
Order
Quantity
Average
Lot Size of
Inventory
Average
Inventory $
Investment
Carrying
Costs in $
Number of
Orders per
Year
Order
Cost in $
Total
$ Cost
1000
500
80
20
10
180
200
2000
1000
160
40
5
90
130
3000
1500
240
60
3.3
60
120
5000
2500
400
100
2
36
136
Let us assume an annual demand of 10,000 units with four order quantity options.
Each unit costs $.16/unit with an order placement processing cost of $18 per order
and an inventory carrying cost of 25%. What Order Quantity is Least Cost?

24. Service Level-Safety Stock Cost Index
Cost of
Safety
Stock
400
300
200
100
85
90
95
Relationship between Service Level
and Cost of Safety Stock
100
Customer
Service
Level

25. Service Level and MAD
Service Level %
“K” Factor Needed
50
—
84
1
93
1.5
97
2
98
2.5
99.9
3
99.999
4

26. Service Level and Costs-a 24%
Inv Carrying Cost Assumption
Service
Level
Stock out
Frequency %
Extra Inventory
Investment %
50
50
—
84
16
14
93
7
21
97
3
28
99.9
0.1
43
99.999
0.001
57

27. Service Level Impact on Safety
Stock and Inventory Carrying Costs
This assumes a value of $1.00/unit and a 24% Inventory Carrying Cost

28. Optimize Inventory Performance
• Establish inventory target performance levels
• Delay inventory commitments as long as possible
to:
– Commit in stages (Available-to-Promise postponement)
– Result in more accurate forecasting
– Lower levels of safety stock
• Optimize inventory performance rather than
minimize inventory

29. Optiant’s Supply Chain Design—
View of Inventory Impact

30. Inventory Bottom Line—Improvement of ROA
Potential Reduction in Inventory Levels
Inventory as a % of
Total Investment
10%
20%
30%
40%
50%
10%
3%
5%
8%
11%
14%
20%
5%
11%
17%
23%
29%
30%
8%
17%
26%
36%
47%
40%
11%
23%
36%
51%
67%
50%
14%
29%
47%
67%
89%
60%
17%
36%
59%
84%
114%

31. Warehouse Mechanization
and Automation
• Tendency to automate whatever used to be
manual or simple
• Involve your people in redesign of:
– Storage equipment layouts
– Material flow paths
• Demands fundamental changes in behavior
• People make them succeed or fail

32. Warehouse Layout Design Data
Product data:
•activity level
•requested quantities
•product properties
•supplier types
Order data:
•number of line items
•number of items
•cubic volume
•shipping priorities
•product correlation
Managerial requirements /
company strategy
• Definition of major functional
areas / departments
• Definition of departmental subsystems
• Storage and material handling
modes
• Operational policies
• storage policies
• replenishment policies
• order picking policies
• batching
• sorting
• zoning
• routing
• receiving & shipping
policies

33. Work Simplification—6 Basic Questions

34. Block Layout and Conceptual
Flow

35. Block Layout—
U-Shape Material Flow
Replenishment
Case
Picking
Reserve Storage
and
Pallet Picking
Replenishment
Broken
Case
Picking
Accumulation, Sortation & Packing
Direct
putaway
to reserve
Direct
putaway
to primary
Receiving
Shipping
Cross-docking

36. Block Layout--Straight Line Material Flow
SHIPPING
SHIPMENT STAGING
SORTING AND
ASSEMBLY
AREA
TEMPORARY
HOLDING
AREA
RECEIVING CHECK-IN
RECEIVING

37. Warehouse Layout—L-Shape Flow Configuration
RECEIVING & SORTATION
CASE
Packing
Hanging
Merchandise
Active Storage
C
O
N
V
E
Y
O
R
CONVEYOR
S
H
BOXED
I
MERCHANDISE
P
FLAT MERCHANDISE
P
ACTIVE
I
STORAGE
ACTIVE
STORAGE
N
G
RECEIVING & STAGING

38. Space and Storage Schemes
Space requirements are directly related to:
• Volume of material to be stored
• Use of space characteristics
– Honeycombing allowance
– Aisle allowance
• Cube and thinking “vertical”

39. Bulk Storage from
Floor
Steel Structural Shapes—Floor Storage
Steel Wire—Floor Storage

40. Warehousing Equipment Diversity
Standard Racking
Double Deep
Narrow Aisle
Mobile Racking
Drive in Rack
Live / Flow
Source: ATLET

41. AS/RS Cutout View

42. Storage and Equipment Correlation
Space
Type
Picking
Unit
Size
Material
Handling
Option 1
Material
Handling
Option 2
Material
Handling
Option 3
Bulk Storage
Low Bay
Pallet
Standard Fork
Trucks
Clamp Truck
Pallet Jack
Selective Pallet Rack
Low Bay
Pallet
All Fork Trucks
Walkie-Stacker
AGV
Bulk Storage from Floor
Low Bay
Case
Pallet Jack
Most Fork
Trucks
Pick to
Conveyor
Selective Pallet RackSystem
High Bay
Case
Order Picker
Trucks
All Fork Trucks
Mezzanine
Pick-to-Belt
Double Deep Rack
High Bay
Pallet
Reach Truck
Drive-in/Drive Thru Rack
High Bay
Pallet
Narrow Pallet
Truck
Pallet Flow Rack
High Bay
Case
Pick Module to
Conveyor
Case Flow Rack
Low Bay
Case
Manual to
Conveyor
Pushback
Rack
Standard Fork,
Wide Slave
Pallets
Floor Level
Picks to Pallet
Only
Robotic
Extractor
AS/RS
High Bay
Pallet
AS/RS Shuttle
N/A
Storage
Equipment/Methodology
N/A
N/A
Most Standard
Fork Trucks
Auto Release
to Conveyor
N/A

43. Warehouse Layout-Combo Storage Methods

44. Honeycombing Allowance and
Warehouse Location

45. Stock Location Methodology
Comparison
INVENTORY
ITEM #
LOCATION
COMMODITY
LOCATION
RANDOM
LOCATION
COMBINATION
LOCATION
POOR
POOR
FAIR
EXCELLENT
EXCELLENT
EXCELLENT
GOOD
EXCELLENT
GOOD
FAIR
CUSTOMER SERVICE
FAIR
FAIR
GOOD
GOOD
GOOD
FLEXIBILITY
FAIR
POOR
FAIR
EXCELLENT
EXCELLENT
EXPANSION
FAIR
POOR
FAIR
EXCELLENT
EXCELLENT
FIXED
LOCATION
SPACE UTILIZATION
TRAINING TIME

46. Common Storage Utilization
Allowances
TYPE OF STORAGE
DEPTH
HEIGHT
NORMAL STORAGE
UTILIZATION
ALLOWANCE
FLOOR OR DRIVE-IN RACKS
More than 3
More than 3
30—40%
1.3—1.4
FLOOR OR DRIVE-IN RACKS
Up to 3
Up to 3
25—30%
1.25—1.3
DOUBLE DEEP RACKS
2
Any
20—25%
1.2—1.25
SELECTIVE RACK
1
Any
10—15%
1.1—1.15
Source: Warehousing Education and Research Council
SLOTS TO BE
PROVIDED PE
PALLET STORED

47. Warehouse Configuration--Double Deep Rack
Storage Module and Aisle Allowance

48. Warehouse Layout-3D “Cube”—Thinking Vertical
Multiple Storage Methods

49. Real Time Information
• Use automatic data collection (ADC) techniques
• Insure flow of information is both:
– Seamless and at the source
– Parallel to the flow of material
• Seek opportunities to utilize EDI, E-Com, RF,
and ASNs
• Must support warehouse floor process—not
dictate it
• Provide flexibility to meet change in marketplace
and customer requirements

50. Information and Material Flow

51. Process Mapping

52. Process Flowchart– Order Fill Example

53. WMS Integration
The WMS must integrate with other
warehousing components, namely:
•
•
•
•
•
•
Radio Frequency Systems
Bar Code Scanners and Printers
ADC, RFID & Voice Recognition Technologies
Data Exchange with ERP Systems
Database Supply Chain Event-Driven or Time-Driven
Synchronization Rules for Application Programs

54. Cadence Warehouse Centric Fulfillment—
Example from Cadre Technologies

55. Available-to-Promise Functionality
• WMS ability to drill down for detailed
information on specific orders
• WMS ability to facilitate an answer to the
question, “Where is the product?”
• WMS ability to do any of the following:
–
–
–
–
Determine availability in storage
Cross-dock to reach a customer quickly
Place allocation against inbound material
Determine when goods will arrive at facility

56. Crossdocking and Warehousing
No stock!
No stock!
Storage!
Storage!
Customer Order
Customer Order
Ship
Ship
Receipt
Receipt
Cross-Docking
Cross-Docking
•
Cross Docking helps to achieve the key logistics objectives of:
• Stock reduction
• Fixed resource reduction
• More responsive operating systems

57. Warehouse Layout--Crossdocking

58. Total Cost of Ownership
• You need to study, learn, and evaluate known
solutions.
• Then compare and explain the costs and benefits
of each.
• If you reduce your internal cost profile, you can
provide the same or better service at a lower cost
to your internal and/or external customer.

59. Building Cube Comparison Money Chart
Rack Cost/Pallet
$29.00
$32.00
$40.00
Build @ Cost/SF
$14.72
$17.99
$26.11
Clear Height
22 ft
31 ft
51 ft
Tiers
4
6
10
Aisle Width (feet)
Cost/Pallet
5.00
$128.25
$113.00
$110.50
8.00
$150.29
$130.95
$126.16
12.00
$179.73
$154.87
$147.05

60. Building Cube Comparison Space Chart
Clear Height
22 ft
31 ft
51 ft
Tiers
4
6
10
Aisle Width (feet)
Area/Pallet (square feet)*
5.00
6.74
4.50
2.70
8.00
8.24
5.50
3.30
12.00
10.24
6.83
4.10
* NOTE: Area/Pallet = The footprint divided by the number of pallets in a stack.

61. THANK YOU FOR COMING
CATTAN Services Group, Inc.
© 2005 CATTAN Services Group, Inc.