Warehouse reorganization – how to create efficient logistics

Many companies carry out warehouse reorganization on an ongoing basis. According to what is needed at a particular moment. On the one hand, the results are achieved faster this way.

On the other hand, solutions are not always designed with an awareness of limitations that can only occur under certain conditions.

From my own experience in supply chain management, I know that warehouse processes are becoming more and more complicated. Not only in terms of the technology used. Also because of the type of demand they fulfill.

Several years ago, depending on the industry, the demand was more static. Today, we all operate on shorter delivery times. In many cases, not only in the B2B but also in the B2C channel.

In addition, we have to take into consideration the increasing variability in the volume of orders throughout the year.

Investments in logistics

Warehouse reorganization should always be planned in several scenarios. A decision-making process should precede all major investments. In such a case, the analysis should include not only alternatives but also different variants of the same solution.

However, in most of the companies I have dealt with, the investment process does not look like this. The “greatest” effort the companies make is to support the selected solution by the so-called business case.

Let’s not mention the timing of the calculations, which can be performed before or after selecting the target solution. Most often, companies simply select the cheapest offer for the required solution.

Dilbert market requirements
Source: Dilbert by Scott Adams

I have recently found confirmation of my observations in scientific literature. The article “Mastering logistics investment management” presents a semantic analysis of the vocabulary used in professional texts on logistics investments.

Only 20% of the recent publications contain phrases such as risk, Return on Investment, payback period, or investment boundary conditions. No wonder that as logisticians, we have a problem with convincing a CFO or CEO to our point of view.

Note: This analysis includes publications only up to and including 2017. Scientific papers always contain a delay of several years. Despite this, I think the conclusions drawn still adequately reflect the thinking about warehouse or logistics reorganization in most companies.

Since most of them operate this way and do not go bankrupt, is it possible and worthwhile to approach the warehouse reorganization differently?

Simulation and warehouse reorganization

You probably know the common meaning of simulation. However, I will offer a more business-like explanation of the term for our needs.

For me as a person managing logistics operations, simulation is a quick and relatively low-cost solution to meet complex process problems.

If you are wondering, for example:

  • will the new technology solve the problem of the flow of goods?
  • how many employees are needed in a given location?
  • how to change the layout of a logistics center?

It is the simulation of processes that is the most reasonable first step before the start of investment and employment of people. This is also the best option before freezing the capital and engaging in design work for several months.

Depending on the complexity of the process to be reflected, the simulation allows you to check various scenarios and detect nonobvious limitations of the work system within a couple of days.

For example, it allows you to create such models.

Source: Materials provided by FlexSim Intermarium

Of course, you can detect many bottlenecks of solutions analyzed during warehouse reorganization, even at the stage of preliminary calculations in Excel.

In spite of this, I believe that due to the dynamics of the workflow in modern warehouses and the number of variables that must be taken into account, it is also worthwhile to use more specialized software. 

We simply cannot check 23! (factorial) scenarios without the right tool. Most often, based on experience, we choose a few variants. We compare them with each other and choose the best one. Whereas in simulation software, we have the chance to explore millions of solutions in several minutes.

The possibility to visualize the created model is also important. A picture is worth a thousand words. I experienced it personally when trying to convince company management that servicing an eCommerce channel from the current warehouse is not the best solution.

It was only the dynamic computer visualization showing the differences between the current and the target method of warehouse operation that allowed everyone to make a decision.

How many forklifts should I rent?

So far, it’s been mostly about theory. However, to better present how the simulation approach can affect the reorganization of a warehouse, I asked Łukasz Księżopolski to share an example.

Łukasz has been professionally involved in process simulation for many years. Over the last 6 years, he has carried out many projects as a representative of FlexSim InterMarium – a leader in the simulation software market.

Warehouse reorganization is a practical problem

Reducing the risk associated with warehouse reorganization was a key argument in favor of using process simulation in the project. I will describe this issue in more detail below. The case study deals with a prosaic problem — what type and what number of forklifts to equip a warehouse with.

The model was created for a production company in the automotive industry. The first step of building the simulation involved recreating the current process. The warehouse floor plan in CAD format was used.

We also collected historical delivery orders to operate on real data ranges. And the delivery schedule was treated as a variable. This way, working on the model, we can examine how a warehouse can function under various order fulfillment scenarios.

The logic behind the operation of a simulated warehouse is not complicated. It all starts with the arrival of trucks, which are unloaded with the use of VNA forklifts. After unloading, the pallets are placed on racks – or transferred directly to AGVs, which deliver the pallets to specific locations.

An essential part of the model is a control panel that was built during the creation of the model. It is an individually selected by the client list of variables and statistics. The described model includes the following parameters:

  • forklift braking rate
  • forklift acceleration
  • number of VNAs
  • number of AGVs
  • unloading time
  • average speed
  • charging time
  • loading time
  • battery life

The model input data included: the maximum number of pallets per hour, the minimum and a maximum number of truck entries per hour, as well as the percentage of non-standard pallets.

Source: Model provided by FlexSim Intermarium

In the control panel on the right, you can see the fill level as a percentage. It affects the efficiency of operations because the transporters stack pallets starting with the first free space. The more filled a warehouse is, the longer the travel time of a single forklift.

Below you can see statistics on the use of warehouse resources. In this section, you can observe the effects of the changes introduced. Among other things, these include information on what percent of the time the transporters travel with the goods, what percent of the time they spend on empty runs, and how much time they spend on loading.

There is also a main chart showing the number of pallets waiting to be placed in the warehouse at any given time. The client determined that this parameter is of key importance to him. He decided that he would check what type and how many vehicles he needed according to this criterion.

In the background, there are more than a dozen other parameters of the model that we do not see. They were necessary to map the behavior of the forklifts. However, they did not constitute variables when making decisions.

Simulation allows a new perspective

After building the base version of the model, which was established on the description of the current situation, we checked how the system behaved with the given parameters.

Then we changed the parameters, at the same time analyzing the impact of the changes. In the described case, it turned out that it was the AGV that constituted the bottleneck. So we added a second AGV and ran the model again to check the effects. 

With the two AGVs, the number of pallets waiting to be unloaded in the warehouse did not exceed the acceptable level anymore. There happened situations when more than 20 pallets were waiting to be unloaded. 

As can be seen in the graph below, which is part of the control panel, blockages could be discharged in less than an hour.

Pallets waiting
Source: Model provided by FlexSim Intermarium

Of course, we subjected the system to further testing with the two AGVs. We changed the warehouse fill level, the maximum quantity of custom pallets, the number of deliveries, etc.

Each time we recorded the results. The collected information made it possible to calculate the costs of various variants and the probability of the occurrence of unfavorable bottlenecks in each of them.

It didn’t end there. We also asked ourselves several questions – what if? Such questions are crucial in the context of process simulation. Among other things, we checked what would happen if we changed the number of the second type of forklift. 

Warehouse reorganization - simulation first variant
Source: Model provided by FlexSim Intermarium

However, by increasing the number of VNA forklifts from 3 to 4, we did not achieve a significant improvement in warehouse efficiency. Below are the statistics on the occupancy of AGV transporters with 4 VNA forklifts still in operation.

You can see that the load on the transporters was relatively even. It oscillated between 35% and 47%. So we introduced an alternative scenario. We checked the use of AGVs with fewer VNAs.

In this scenario, we limited the cost of renting and maintaining a forklift and limited the number of operators needed. As you can see in the chart below, with 3 VNAs, the pallet unloading efficiency was still at an acceptable level. 

Warehouse reorganization - simulation second variant
Source: Model provided by FlexSim Intermarium

In FlexSim, we do not have a built-in database of specific devices (trolleys, transporters, racks). However, we can define the parameters of any object in the created model. This way, we can check whether it is reasonable to invest in any technology.

As a result, we allow our clients to build simulation models that meet various needs depending on the scope of responsibility and the perspective on the modeled process.

Some, as operational managers or logistics managers, build models to prepare multi-variant proposals for the management board. From the perspective of an owner or financial manager, others can test a project’s profitability. 

Quite often, the need to reorganize a warehouse and make investments is obvious. The challenge is, however, as in the case described above, how to perform that operation so that it ends with a success and not a failure.

Start creating your future

Of course, FlexSim is not the only provider of process simulation solutions. Warehouse reorganization may also be supported by other companies. 

Below is a list of vendors I know that offer software or process simulation services in logistics. 

In each case, I provide information on whether a given company uses its software or whether it simply makes use of analytics, using software from other suppliers. 

Simulation and process visualization software
Source: Own study based on suppliers’ information

Before choosing any software, it is worth considering what your real needs are and how intensively you plan to use simulations of your logistics processes.

The largest organizations buy permanent licenses for simulation programs because they build internal teams working on the effectiveness of logistics. An example is Zalando, which published the advertisement shown below.

Source: Ad posted on LinkedIn

In the case of many smaller companies, significant reorganization of a warehouse or the way of fulfilling orders does not occur frequently enough for the entire process to be carried out by the companies themselves.

Generally, in such cases, I recommend using the support of experts. I will write more about when to choose logistics consulting and when to work on the development of your logistics on another occasion.

If you want to learn more about how to plan investments in your logistics – write to me directly or leave a comment below.

In the meantime, I also encourage you to sign-up for ‘Logistics Simply’ newsletter. You will always be up to date with what I am doing on the blog and with the business as well as logistics news which will help you run your business more effectively.

See you next time!

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