Design and operation of an order-consolidation warehouse: Models and application

Abstract

A warehouse is a service facility, often comprising the only view that customers actually have of a manufacturing firm. The management of this facility has significant leverage over order leadtimes and fill-rate reliability. As with other service facilities, system design and operation are decision problems that are closely interlinked. In this paper we describe and model in general terms the composite design and operating problems for a typical order-consolidation warehouse. These problems include warehouse layout, equipment and technology selection, item location, zoning, picker routing, pick list generation and order batching. The complexity of the overall problem mandates developing a new multi-stage hierarchical decision approach. Our hierarchical approach utilizes a sequence of coordinated mathematical models to evaluate the major economic tradeoffs and to prune the decision space to a few superior alternatives. Detailed simulation employing actual warehousing data is then used for validation and fine tuning of the resulting design and operating policies. We describe the application of this analytical approach to an automotive spare-parts distribution centre. The case study demonstrates substantial savings in operating costs and highlights several generic management tradeoffs.