Linköping University | Department of Management and Engineering Master’s thesis, 30 ECTS | Operations Management Spring term 2020 | LIU-IEI-TEK-A--20/03629—SE
Improving the Material Handling
Performance through Redesigning
an Inventory Layout
- A case study on Proton Finishing Forsheda
Sindy Nguyen
Supervisor: Veronica Lindström Examiner: Ou Tang
i Copyright
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ii Abstract
The companies operating in today’s business environment are facing several challenges in meeting the demand of the customers due to globalization. Research has shown that by focusing on supply chain management and improve the business processes, benefits could be extended beyond the company. Through redesigning the warehouse layout, the supply chain could be strengthened, leading to value creation and reduced cost for the company.
The traditional manufacturing company suffers from departmental thinking where each function cares only for its department. The case company is not an exception, and what can be seen at the company is the sub-optimization of the overall process. Ad hoc solution has led to cost being shifted to another department, but the root problem remains at the company. Thus, the study aims to examine the effect on the material handling performance from inventory to the production lines when redesigning the inventory layout. Building on existing literature on double ABC classification, warehouse layout design, and lean principle, the current inventory layout of the case company will be evaluated based on its effect on material handling performance. This was measured by using the three parameters: travel distance, number of handlings, and non-value adding activities. In this context, the number of handlings refers to the movement of material in the material handling process to the production lines. Based on qualitative data collected, the study has described the current state of the inventory layout and the material handling performance at the case company. Furthermore, the study took on a quantitative study where data from the ERP system was collected to understand the impact of each article on travel distance. Analysis of the ABC classification of the current article placement showed that critical and less critical articles are allocated to the same location and may affect the travel distance more than anticipated. Furthermore, the analysis demonstrated that there exists a mismatch between the usage of the storage system and theoretical practice. The result indicates that through redesigning the layout, the largest reduction can be found for the overall travel distance and number of handling. Furthermore, the study highlighted that it is important to have a strategy for article placement, and in this study, a double ABC classification was proven to be a good fit. Lastly, having a customized storage system according to the need of the facility is essential for efficient material handling. Keywords: Inventory layout, material handling performance, warehouse layout design, double ABC classification, lean principle
iii Acknowledgement
Firstly, I would like to express my sincere gratitude to Michaela Spångberg and Roy Filén for allowing me to develop this master thesis at Proton Finishing. Also, I am tremendously thankful for all the support, help, and encouragement they have provided during the whole study.
I would like to thank my supervisor Veronica Lindström, for sharing her knowledge within Operations Management and for her guidance. I would also like to express my sincere gratitude to my examiner Ou Tang for his constructive feedback and encouragement. Lastly, I would like to thank my family and friends for their continuous support and love. Linköping in 2019 Sindy Nguyen
iv List of Figures FIGURE 1: THE ORGANIZATIONS STRUCTURE OF PROTON GROUP AB ... 2 FIGURE 2: THE GENERAL FACILITY LAYOUT HIGHLIGHTING THE PROBLEM AREAS AT THE COMPANY ... 3 FIGURE 3: THE SCOPE OF THE STUDY ... 4 FIGURE 4: THE STRUCTURE OF HOW THE ANALYSIS WILL BE PERFORMED ... 9 FIGURE 5: THE PULL PRINCIPLE IN A SUPPLY CHAIN CONSISTING OF THE SUPPLIER, THE MANUFACTURING COMPANY, AND THE CUSTOMER INSPIRED BY OSKARSSON, ET AL. (2013) ... 12 FIGURE 6: THE PUSH PRINCIPLE IN A SUPPLY CHAIN CONSISTING OF THE SUPPLIER, THE MANUFACTURING COMPANY, AND THE CUSTOMER INSPIRED BY (OSKARSSON, ET AL., 2013) ... 12 FIGURE 7: AN EXAMPLE OF BACKWARD- AND FORWARD SCHEDULING DISPLAYING THE START TIME AND END TIME OF THE WORK ORDER AND ITS OPERATIONS INSPIRED BY MATTSON & JONSSON (2003) ... 14 FIGURE 8: THE MATERIAL FLOW OF THE TRANSFORMATION OF RAW MATERIAL TO FINISHED GOODS INSPIRED BY (MATTSON & JONSSON, 2003) ... 15 FIGURE 9: THE PLACEMENT OF THE ARTICLES IN A FIXED PLACEMENT STORAGE AND RANDOM-LOCATION PLACEMENT STORAGE INSPIRED BY (DE KOSTER, ET AL., 2007) ... 18 FIGURE 10: AN ILLUSTRATION OF THE TRADITIONAL ABC CLASSIFICATION INSPIRED BY OSKARSSON, ET AL. (2013) ... 20 FIGURE 11: AN ILLUSTRATION ON ABC CLASSIFICATION BASED ON TWO CRITERIA INSPIRED BY (OSKARSSON, ET AL., 2013) ... 21 FIGURE 12: AN ILLUSTRATION OF THE LINEAR LAYOUT AND U-SHAPED LAYOUT AND THE MATERIAL FLOW INSPIRED BY (JONSSON & MATTSON, 2016) ... 22 FIGURE 13: THE PLACEMENT OF PALLETS IN A COMBINED BLOCK STACKING AND FLOOR STACKING STORAGE SYSTEM INSPIRED BY (JONSSON & MATTSON, 2016) ... 24 FIGURE 14: THE PLACEMENT OF PALLETS IN A PALLET RACKING STORAGE SYSTEM INSPIRED BY (JONSSON & MATTSON, 2016) ... 24 FIGURE 15: AN OVERALL VIEW OF THE PROCESS AND ITS FIVE ELEMENTS INSPIRED BY ANUPINDI (2012 P.5) ... 25 FIGURE 16: THE PROCESS MAP DISPLAYING INPUTS AND OUTPUTS, SEQUENCE, AND AN ENTITY OF EACH STEPS INSPIRED BY DAMELIO (1996) ... 26 FIGURE 17: THE CURRENT INTERRELATION BETWEEN THE SUPPLIER/CUSTOMER AND PROTON FINISHING IN TERMS OF FORECASTED PRODUCTION PLAN, MATERIAL FLOW, AND NOTIFICATION OF DELIVERY ... 29 FIGURE 18: THE DESIRED FUTURE INTERRELATION BETWEEN THE SUPPLIER/CUSTOMER AND PROTON FINISHING IN TERMS OF FORECASTED PRODUCTION PLAN, MATERIAL FLOW, AND NOTIFICATION OF DELIVERY ... 30 FIGURE 19: THE CURRENT LAYOUT OF THE FACILITY IN FORSHEDA WITH I/O POINTS OF THE MATERIAL ... 33 FIGURE 20: NUMBER OF INCOMING PALLETS DURING THE TIME PERIOD 2018-02-20 UNTIL 2019-02-20 BASED ON DATA OBTAINED FROM THE ERP SYSTEM ... 34 FIGURE 21: INVENTORY STORAGE FOR SURFACE TREATMENT MATERIAL INCLUDING THE STORAGE SYSTEM UTILIZED ... 35 FIGURE 22: TEMPORARY INVENTORY STORAGES FOR SURFACE FINISHING MATERIALS INCLUDING THE STORAGE SYSTEM UTILIZED ... 35 FIGURE 23: INVENTORY STORAGE COLOR COATING MATERIALS INCLUDING THE STORAGE SYSTEM UTILIZED ... 36 FIGURE 24: SHORT TERM STORAGE AT THE INVENTORY STORAGE AREA FOR SURFACE FINISHING INCLUDING THE STORAGE SYSTEM UTILIZED ... 37 FIGURE 25: SHORT TERM INVENTORY STORAGE AT THE P1 INCLUDING THE STORAGE SYSTEM UTILIZED ... 37 FIGURE 26: SHORT TERM INVENTORY STORAGE AT THE P2 INCLUDING THE STORAGE SYSTEM UTILIZED ... 38 FIGURE 27: SHORT TERM INVENTORY STORAGE AT THE P3 INCLUDING THE STORAGE SYSTEM UTILIZED ... 38 FIGURE 28: ABC CLASSIFICATION ON FREQUENCY OF PICKING BASED ON DATA OBTAINED FROM THE ERP SYSTEM DURING FISCAL YEAR 2018 ... 39 FIGURE 29: ABC CLASSIFICATION ON TOTAL SALES VOLUME OF PALLETS BASED ON DATA OBTAINED FROM THE ERP SYSTEM DURING THE FISCAL YEAR 2018 ... 40 FIGURE 30: CURRENT ARTICLE PLACEMENT OF THE ABC CLASSIFIED ARTICLES DURING THE OBSERVATION DAY 2019-02-19 ... 41 FIGURE 31: THE MATERIAL FLOW AT THE FACILITY ... 41 FIGURE 32: MATERIAL HANDLING IN RECEIVING- AND STORING PROCESS OF MATERIAL ... 42 FIGURE 33: MATERIAL HANDLING IN ORDER PICKING PROCESS TO THE PRODUCTION LINES ... 44 FIGURE 34: THE FLOW OF MATERIAL DELIVERY TO THE PRODUCTION LINE 1 ... 46 FIGURE 35: THE FLOW OF MATERIAL DELIVERY TO THE PRODUCTION LINE 2 ... 46 FIGURE 36: THE FLOW OF MATERIAL DELIVERY TO THE PRODUCTION LINE 3 ... 47 FIGURE 37: NEW PROPOSED LAYOUT WITH CONSIDERATION TO STORAGE SYSTEMS ... 57 FIGURE 38: NEW PROPOSED LAYOUT WITH CONSIDERATION TO MULTIPLE ABC CLASSIFICATION ... 58
v List of Tables TABLE 1: THE PURPOSE OF THE MATERIAL HANDLING INSPIRED BY (TOMPKINS, 2010) ... 23 TABLE 2: CHARACTERISTICS OF THE FLOW UNIT BASED ON OBSERVATION FROM THE OBSERVATION DAY 2019-02-19 ... 33 TABLE 3: DOUBLE ABC CLASSIFICATION ON ORDER PICKING VOLUME OF PALLETS AND FREQUENCY OF PICKING BASED ON DATA OBTAINED FROM THE ERP SYSTEM DURING THE FISCAL YEAR 2018 ... 40 TABLE 4: DISTANCE TRAVELLED FROM THE INVENTORY STORAGES TO THE SHORT TERM STORAGES ... 45 TABLE 5: BENCHMARK OF THE CURRENT INVENTORY LAYOUT WITH THE NEW PROPOSED LAYOUT IN TERMS OF AVERAGE TRAVEL DISTANCE ... 58 TABLE 6: NEW PROPOSED LAYOUT COMPARED TO THE CURRENT INVENTORY LAYOUT IN TERMS OF PERCENTAGE OF GAINS ... 59
Table of Contents
COPYRIGHT ... I ABSTRACT ... II ACKNOWLEDGEMENT ... III LIST OF FIGURES ... IV LIST OF TABLES ... V 1. INTRODUCTION ... 1 1.1 THEORETICAL BACKGROUND ... 1 1.2 COMPANY BACKGROUND ... 1 1.3 PROBLEM DESCRIPTION ... 21.4 PURPOSE AND RESEARCH QUESTIONS ... 4
1.5 DELIMITATIONS ... 4 2. METHOD AND METHODOLOGY ... 5 2.1 RESEARCH APPROACH ... 5 2.2 CASE STUDY RESEARCH ... 5 2.3 DATA COLLECTION METHOD ... 6 2.3.1 Interviews ... 6 2.3.2 Observations ... 6 2.3.3 Literature Review ... 7 2.3.4 Data from ERP system ... 7 2.3.5 Mapping the material handling process ... 7 2.4 VALIDITY AND RELIABILITY ... 7 2.5 ANALYSIS METHOD ... 8 2.6 RESULTS AND DISCUSSION ... 9 3. FRAME OF REFERENCE ... 11 3.1 PRODUCTION PLANNING AND CONTROL ... 11 3.1.1 Pull- and push control system ... 11 3.1.2 Scheduling ... 13 3.2 MATERIAL FLOW SYSTEM ... 14 3.2.1 Inventory ... 14 3.2.2 Material flow types ... 15 3.3 WAREHOUSE LAYOUT DESIGN ... 16 3.3.1 Forecast ... 17 3.3.2 Article placement ... 17 3.3.3 Article classification ... 19 3.3.4 Linear layout and U-shaped layout ... 22 3.3.5 Material handling system ... 22 3.3.6 Storage system ... 23 3.4 PROCESSES ... 25 3.4.1 Process map ... 26 3.5 LEAN PRODUCTION ... 26 3.5.1 Non-value adding activities ... 27 3.5.2 5S ... 27 4. CURRENT STATE ... 29 4.1 BUSINESS ENVIRONMENT ... 29 4.1.1 The relationship between the PFF and the customer ... 29 4.1.2 Desired future state of the relationship between the PFF and its customer ... 30 4.2 THE MATERIAL FLOW ... 31 4.2.1 Production processes ... 31
4.2.2 The material flow type at Proton Finishing Forsheda ... 32 4.2.3 The flow unit ... 32 4.3 CURRENT FACILITY LAYOUT ... 33 4.3.1 Inventory storages ... 33 4.3.2 Short term inventory storages ... 36 4.4 ABC CLASSIFICATION AND CURRENT ARTICLE PLACEMENT ... 38 4.5 CURRENT MATERIAL HANDLING PROCESS ... 41 4.5.1 Material handling in receiving- and storing process of material ... 42 4.5.2 Production planning ... 43 4.5.3 Material handling in order picking process to the production lines ... 43 4.5.4 Material handling in delivering process to finished goods inventory ... 47 5. ANALYSIS ... 49 5.1 EVALUATION OF THE ARTICLE PLACEMENT AT THE PFF IN RELATION TO TRAVEL DISTANCE ... 49 5.2 INVENTORY LAYOUT AND ITS EFFECT ON MATERIAL HANDLING PERFORMANCE ... 50 5.2.1 Evaluation of the inventory layout ... 50 5.2.2 Material handling process activity mapping analysis ... 53 5.2.3 Material handling performance ... 55 6. RESULT ... 57 7. DISCUSSION ... 61 7.1 RESULT ... 61 7.1.1 Method criticism ... 62 7.2 GENERALIZABILITY OF THE STUDY ... 62 7.3 SUSTAINABILITY ... 63 8. CONCLUSIONS ... 65 8.1 RECOMMENDATIONS ... 65 8.2 FUTURE WORK ... 66 REFERENCES ... 67 APPENDIX A – CALCULATION INVENTORY STORAGE SIZE IN TERMS OF NUMBER OF PALLETS ... 71 APPENDIX B – FACILITY LAYOUT ... 72 APPENDIX C – NUMBER OF INCOMING PALLETS ... 73 APPENDIX D – DATA FOR THE ABC CLASSIFICATION ... 74 APPENDIX E – THE CURRENT ARTICLE CLASSIFICATION AT THE INVENTORY STORAGE ... 114 APPENDIX F – DISTANCE TRAVELLED MEASUREMENTS ... 122
1
1. Introduction
This chapter presents the underlying factors and problem environment leading to the study’s purpose and research questions. This chapter starts with a theoretical background, and it will transit to company background, problem description, purpose and research questions, and finally, the delimitation of the study. 1.1 Theoretical backgroundGlobalization has brought forth changes for companies that are operating in the business environment, such as the need to reduce costs and invest in production processes. The expectation of the customer regarding service and quality has also evolved, leading to companies who work with this can be differentiated from their competitors. (Jespersen & Skjott-Larsen, 2005) Supply Chain Management has become a vital part of a company that attempts to gain a competitive advantage in a highly competitive business market. At one end, the coordination of the supply chain consisting of material, information, and financial flow would give the benefits of reducing cost, and provide a better adaption to the fluctuating market demand. (Gautier, 2010) At the other end, since the companies are nowadays closely interloped, improving the supply chain in one’s company would bring benefits to the different actors in the whole supply chain (Li, et al., 2006). An essential piece in the puzzle for making the supply chain work is the warehouse (Faber, et al., 2002). Gu, et al. (2007) states some of the main functions of a warehouse are buffering for the fluctuation in the supply chain’s material flow, and storing products from multiple suppliers for the end-customer. A trend in designing or redesigning the warehouse is rising in an attempt to reduce the cost through a high throughput rate and productivity (Faber, et al., 2002). Essentially, when dealing with warehouse management, it is important to consider the usage of space but also labor and equipment in order to maximize productivity and minimize the cost. This since the capital- and operating cost associated with space, equipment, and labor account to the largest cost in the warehouse management. (Arnold, et al., 2007) Mohsen (2002) explains that designing a warehouse layout is an intricate issue since several factors and operations are involved, such as material handling and value-added activities. A warehouse layout design that considers the several costs- and time-consuming activities, e.g., distance travelled for a material, number of handling, and non-value adding activities such as searching for a product in an unknown area could bring benefits to the company. In addition, managing the internal processes at the company and performing activities at the warehouse in an efficient way could also create value for the customer (Arnold, et al., 2007) (Liker, 2013). 1.2 Company background The Proton Group is a private-owned company which was established in 1990 in Värnamo. Since then the company has grown its business into four business areas; Proton Engineering, Proton Finishing, Proton Lighting, and Proton Technology. In Proton Engineering, the company offers products that consist of pipe bending, end shaping, sheet metal work and welding for the automotive industries. Proton Finishing supplies surface treatment for the automotive, construction and engineering industry, e.g., corrosion protective coatings and decorative
2 coatings. Proton Lighting focuses on the development and providing lighting solutions for industry, offices, schools, homes, and shops. Lastly, Proton Technology works with laboratory testing, in particular, corrosion testing. (Proton Group, 2017)
The Proton Group has a turnover of 666 million SEK with 381 employees in the fiscal year 2017 (Proton Group, 2018), making the company a large enterprise according to the European Commission (2003). The company’s vision is creating value for its customers through motivation and commitment of their worker. Continuous improvement and assimilating the employee’s past knowledge and commitment to new projects are the driving forces in their journey – what they can do better than today. (Proton Group, 2017)
The organization structure of the Proton Group is depicted in Figure 1, where the different business area is displayed. The highlighted area in the figures shows the main objective of the study, i.e., Proton Finishing which can be found in five different cities in Sweden. Their customer, who also acts as their supplier, can be mainly found in the surface treatment for the automotive, construction and engineering industries. Currently, Proton Finishing is going through a phase of reinventing its processes to gain a competitive advantage, and as a result, gain sustainable growth and viability. In recent years, Proton Finishing has invested in its surface treatment production process to meet quality requirements and in new competencies to move forward in their journey. (Proton Finishing, 2017) Figure 1: The organizations structure of Proton Group AB The logistics developer (personal communication, 22 January 2019) explains a step further in this journey is their identified area of improvement, i.e., changing how they have always worked to create increased customer satisfaction. An internal project attempts to create customer value and ensure higher delivery reliability and transparency between Proton, its customer, and their end-customers, in particular, the flow of material and information. The project is divided into two parts; implementing a work procedure for material resource planning and a pull system, and a warehouse management system. The actual implementation of the warehouse management system is expected to start during spring 2019 at the Proton Finishing Forsheda. However, almost no prior study has been performed on this production facility regarding the inventory layout and material handling performance, and thus, this study will be highly relevant time-wise. 1.3 Problem description Figure 2 displays the problem areas that the company has at their production facility regarding the inventory layout. Currently, the company faces challenges in integrating its business system and operational work regarding the inventory layout. No pre-defined inventory positions in their business system are given, leading to ad hoc solutions are created at the operational level. Thus, the company finds it challenging to understand whether the current
3 inventory layout meets the production processes requirements in regards to value creation for the customer. The company is also facing problems with ensuring a smooth material flow which has led to the creation of short term storages near the three production lines as depicted in Figure 2. In turn, it has limited the workspace available for the production personnel but also worsened the already high forklift traffic in this area. As a result, inter-crossing flows could be found, creating a risk for collisions and could pose a safety risk for the workers. Therefore, there exists an interest to investigate how the inventory layout affects production lines in terms of travel distance, the number of handling, and non-value adding activities. The company also struggles with the allocation of the articles efficiently, and decisions are only made when the material has physically arrived at the facility. Currently, there is a variation in demand for the articles where the materials could be in variating size and thus generate a variating amount of pallets. In the case of the high volumes of pallets, there seems to limited space at the inventory storage leading to the materials are placed far from the production lines. Thus, there exists an interest to investigate how the material can be stored to reduce travel distances. Figure 2: The general facility layout highlighting the problem areas at the company Capacity is of concern for the company as the production lines would incur high costs for the company if they are on a standstill. Depending on how the inventory layout affects the material handling process, waste could be generated and induce high cost for the company. Also, as previously mentioned, the customers take on the responsibility for supplying the material and owns it in the supply chain. As such, the customers bear the costs of the material handling process. Thus, there exists an interest in investigating how the material handling performance related to the inventory layout can be improved. Previous research has been focusing on the warehouse layout, as the warehouse has been of concern for the traditional manufacturing company that aims to gain a competitive advantage in the supply chain. The inventory storage is of interest for the Proton Finishing Forsheda rather than warehousing for later distribution since the company delivers the material directly after manufacturing. Drawing similarities with a warehouse layout design, the study aims to investigate how redesigning an inventory layout can provide benefits for the company.
4 1.4 Purpose and Research Questions
The purpose of this project is to investigate and analyze how Proton Finishing Forsheda can improve its material handling performance related to the inventory layout. The aim is to examine how the inventory layout should be designed to provide the production lines with material handling efficiently, i.e., how can the travel distance, the number of handlings1 , non-value adding activities connected to material handling be reduced. The following research questions are used to fulfill the purpose and aim. RQ1: What is the current state of the inventory layout, and how does it affect the production lines in terms of travel distance, number of handlings and non-value adding activities? RQ2: How can the material be stored at the inventory to reduce the travel distance based on an ABC-classification? RQ3: How should the inventory layout be designed to improve the performance in terms of travel distance, number of handlings, and non-value adding activities connected to supplying the production materials? 1.5 Delimitations The scope of the study is depicted in Figure 3 and includes receiving incoming material at the inventory, storage of the incoming material at the inventory, and transportation of the material to the short term storages at the production lines 1-3. The reason for excluding production lines 4-5 is explained in Chapter 4.3.1. For the reception of the incoming material, the study will only consider the area needed for the receiving goods since its location is in the same area as the storage for the incoming material. Figure 3: The scope of the study The underlying logic of the production planning will also be out of the scope of this study. However, data from the production processes and production planning, which will affect the layout and material handling process will be considered. Based on the findings of the study, the company will decide on the implementation of the inventory layout. Therefore, it would not be possible to validate the study’s results. 1 The number of handlings is defined as the number of movements of a pallet with material from one storage to another in the material handling process to the production line.
5
2. Method and Methodology
This chapter describes how the study overall will be conducted and the reasoning for the chosen method and methodology. The Method and Methodology comprise of research approaches, data collection method, validity and reliability, analysis method, and result and discussion.
2.1 Research approach
At the initial stage of the study, the study took on a descriptive approach as the emphasis, was on describing process while having a basic knowledge of the research area (Björklund & Paulsson, 2012). In the latter part of the study, the study took on a normative approach. The reason being after sufficient information on the research area was collected, the study will provide the company with guidelines and suggestions (Björklund & Paulsson, 2012).
A combination of quantitative and qualitative research approaches was utilized to answer the research questions. In the quantitative approach, measurable data is being collected and analyzed to define or explain a phenomenon through mathematical reasoning (Yilmaz, 2013). On the other hand, the qualitative approach deals with understanding an event through the emphasis on the word rather than numeric (Bryman & Bell, 2017). The study took on a qualitative approach to capture the overall processes and its requisites for the layout design. In the latter part of the study, existing models and theories from the literature were used for article placement. Also, a numerical calculation was performed, making the last part of the study a quantitative approach. For this study, a combination of deductive and inductive approach was used, making it an abductive study (Björklund & Paulsson, 2012). The advantage is that using the abductive method could mitigate the shortcomings of both approaches (Bryman & Bell, 2017). A deductive research approach is often associated with the quantitative approach, where the research originates from existing theories to define the real world. An inductive research approach instead is often associated with the qualitative approach, where the aim is to build an understanding of the real world and later couple it with existing theories. (Bryman & Bell, 2017) The starting point of this study was to investigate the current state of the company and the problem they faced, making this part of the study inductive. Later on, the study incorporated deductive elements where literature studies helped in defining the real world. 2.2 Case study research In this study, the focus was to gain a profound knowledge of the material handling processes at the production facility in Forsheda, and therefore, a single case study was applied. Voss, et al. (2002) explain a single case would enable the researcher to study several aspects of the main objective, leading to a dynamic understanding of a research environment. However, a single case study can simultaneously make the results of the study to be inapplicable in other fields of study. On the other hand, multiple cases can help in mitigating the risk of not obtaining the generalizability of a study. (Leonard-Barton, 1990) Voss, et al. (2002) explain using multiple case could instead lead to a risk of the study only briefly dealing with the research objective. Furthermore, the data collection for every case could be time-consuming, leading to data being uncollectable. Since this study concerns with understanding
6 dependencies within internal processes, the risk that the multiple case study would bring outweighs its benefit. Thus, a single case is deemed more appropriate. 2.3 Data collection method In this study, both primary and secondary data were collected to answer research questions 1 and 2. Primary data refers to data that has been collected by the researcher to enhance the qualitative aspects of the study but could be simultaneously rather time-consuming to collect. On the other hand, secondary data is acquired by someone else for other reasons which could save time in the data collection but instead be inapplicable in the study if the aim of the data collection is unclear. (Kothari, 2004) The collected primary data, i.e., interview and observation, answered research question 1 and the collected secondary data, i.e., literature review, answered the research question 2. Furthermore, data retrieved from the company’s ERP system will also be used in this study to gain an understanding of how much storage is needed. 2.3.1 Interviews In this study, a semi-structured and non-structured approach was used to gather primary data. While a structured approach would let the answer provided by the respondent be comparable (Bryman & Bell, 2017), its disadvantage includes that a limited understanding of the objective (Gillham, 2005). On the other hand, the non-structured interview enables more flexibility to the study, where questions that arise during the meeting could quickly be resolved, leading to a deeper understanding (Bryman & Bell, 2017).
During the first phase of the study, the non-structured method was utilized to gain an understanding of the practices at the company but also identify possible research areas. A semi-structured approach was used continuously during the project to gain in-depth knowledge. The interviews were held in short sessions, and the answers were written down and reviewed directly after the meeting. These measures were performed to mitigate the risk of change in the interviewer’s perception and memory (Bell, 2016). When it was applicable recordings of the interview were used to ensure the correctness of what has been noted down (Bryman & Bell, 2017). 2.3.2 Observations
To gain an understanding of the material handling processes at the company observation method was also used. The advantage of this method is the elimination of bias from a respondent, and objectivity of the research could be enhanced. It could also mitigate the risk of the respondent’s unwillingness to participate in an interview, and therefore, the study would be less reliant on the respondent’s active participation. (Kothari, 2004) Björklund & Paulsson (2012) states that even though the objectivity in the study could be enhanced on some occasions, observation methods are in general time-consuming.
Observation methods were primarily conducted to understand the material flow at the production facility. The information on the material’s travelled distance was obtained through observations, while the actual metric was obtained from a measurement tool. The number of
7 handlings was also observed from the work order is initiated until the material arrives at the production line. The number of handlings was measured based on every time the material was moved from one storage to another. Furthermore, observations were used to validate information on the work process obtained from the interviews. 2.3.3 Literature Review A literature review was applied to provide a different point of view to the study and in essence, to widen the perspective of the study. In the literature review method, the researcher will collect data and theories presented by other researchers in the form of scientific articles, books, reports, and so on. Thus, time and effort to collect these data could be reduced. (Bell, 2016) Bryman & Bell (2017) raise the importance of formulating suitable search parameters. For this study, the search engines such as Google Scholar, Science Direct, and the LiU library search engine were primarily chosen. In obtaining suitable literature, the input words such as layout, layout design, warehouse layout, article placement, article classification, ABC classification, production planning, lean production, warehouse management system were utilized. Lean production was mostly used in defining non-value adding activity at the company.
2.3.4 Data from ERP system
Data retrieved from the company’s database can be seen as secondary data since the data has been collected for another purpose (Kothari, 2004). There exists some inconsistency in the information registered in the company’s ERP database where data retrieved could have different values depending on the specific search key. Therefore, when retrieving the data from the system, the values were validated together with a system expert. The information which was extracted from the ERP system includes order history, sales, stock levels, financial results, and information on the customer. 2.3.5 Mapping the material handling process
Information obtained from observation and interviews will be assimilated to describe the material handling process. The process will be described using a process map since the method can help with facilitating the communication and understanding of the current system. The process map will show the work procedure from the point of view from the material handler, and give an overview of the whole material flow. Also, its advantages are that the company can showcase how value creation is performed to its customers but also identify unnecessary steps that do not add value to the customer. (Damelio, 1996) 2.4 Validity and Reliability Voss, et al. (2002) stress the importance of assessing reliability and validity when conducting a case study. Reliability refers to the level of degree in which the results of a study is replicable (Bryman & Bell, 2017). The validity refers to the level of degree of performing measurements to ascertain the measured value (Björklund & Paulsson, 2012). The nature of a single case study makes the study have a lower external validity than a multiple case study. The external
8 validity concerns the generalizability of other research areas than the one at hand and can be increased by studying several cases. On the other hand, internal validity deals with changing one variable that could have an impact on another variable. (Yin, 2014) Since a single case enables the researcher to dive into the depth of a research environment, and the underlying logic could be obtained, internal validity could, therefore, be increased through the method. One standard tool to increase the validity and reliability of a study is the usage of triangulation. In essence, triangulation is the method of applying several sources for one study object, e.g., interviewing different people on the same subject. Another way to increase the validity is to define what the aim is precisely and who is the reception to formulate questions leaving no room for misinterpretation. For increasing reliability, another method is to check if the answer provided is repeatable after a confirmation. (Björklund & Paulsson, 2012) Measures taken to increase the validity is using the triangulation through interviewing the personnel at Forsheda on the same topic but also compare the information obtained from an interview with direct observation. For reliability, if a possible misinterpretation is identified, confirmation of the information gathered is performed. 2.5 Analysis method
The analysis method aims to ensure sufficient and correct data is collected to provide an answer on the purpose of the study, but also to proceed with the planned comparison and analysis. A prior essential step is a processing of the collected data, e.g., through editing or classification. Editing was used in the study to detect errors and omit out of the scope data. Correction is also performed when it was needed. All in all, to make sure that the data obtained is accurate and coherent when transitioning to the analysis part. (Kothari, 2004) The structure of the analysis is depicted in Figure 4 and shows the underlying process of how the analysis will be performed. In the first phase of the study, data regarding the layout and material handling process was collected from interviews and observations. The data retrieved from the ERP system such as production planning data, the volume of a customer order, and data related to the material was also collected. These data described the current state and material handling performance and answered the research question one. In the second phase of the study, the collected data were analyzed together with the data obtained from the literature reviews on ABC classification to answer the research question two. The last phase of the study used the framework for the warehouse layout design and process mapping activity to form the structure of the analysis. The results of the previous research questions formed an input to the research question three, together with the findings from the literature reviews. The analysis was carried out through a comparison of literature reviews on the topics within the domain of the mentioned framework and the process mapping activity.
9 Figure 4: The structure of how the analysis will be performed 2.6 Results and Discussion The outcome of the analysis will be the basis for the result chapter and provide an answer on how a new layout should be designed for the production facility in Forsheda. A benchmarking of the performance of the new layout with the current one was performed. From this, it is possible to conclude three kinds of scenarios: 1. The current layout proves to be well suited for providing material to the production, and the proposed layout will only provide marginal benefits. 2. The current layout proves to be adequate for providing material to the production, and the proposed layout will provide benefits. 3. The current layout proves to be ill-suited for providing material to the production, and the proposed layout will provide significant benefits. From one of the possible outcomes, a discussion will be performed on the generalizability of the study’s result. In addition, the implication from a sustainable point of view which the result brings forth will also be discussed. Lastly, recommendations will be given based on the findings and the results of the study.
10
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3. Frame of reference
This chapter consists of different systems and processes at a manufacturing company that is related to the inventory layout. Firstly, the production planning and control is being introduced and sets the frame of this study. Then, the Material flow system, including inventory, is presented to give an understanding of the study’s environment. The Article classification and Warehouse layout, which this study will focus on, are then shown. Lastly, Processes and Lean Production is described.
3.1 Production planning and control
Chapman (2006) states planning principles play a central part in managing the business operations effectively and efficiently at any manufacturing company. Thus, incorporating the fundamental planning principles at the company would steer the process into producing what it aimed to produce. In a production planning and control system, one of the most important factors to consider is the customer desired outputs. Depending on the volume and variations of the desired outputs, different expectations are put into the production processes and their supporting processes. (Chapman, 2006) Another aspect of the customer’s impact is the competition in the business environment between different companies. Here, the so-called order qualifier, the minimum requirement to compete in the business market, and order winner, the deciding element to win an order, are some factors which are often considered. When studying the criteria for competing and/or winning an order, consideration should be put on the four major factors which are quality, price, delivery, and flexibility. (Olhager, 2013) (Chapman, 2006) 3.1.1 Pull- and push control system There exist two approaches in synchronizing the supply at the company with the demand from its customer, i.e., the pull- and push approach (Chapman, 2006). Oskarsson, et al. (2013) add the two methods are the most used control principle within the production and logistics environment. The difference in the two approaches is whether an external or internal factor, e.g., customer’s demand or forecasting at the company, is triggering the production operation at the company (Oskarsson, et al., 2013). Mattson & Jonsson (2003) further elaborates the difference being which actor who is responsible for initiating the material flow and the value-creating process. Pull principle The pull principle in a supply chain with several actors is depicted in Figure 5 and shows the demand in the supply chain being initiated by the customer, creating a signal for the downstream actors. When the signal is released the work order for the production is started (Mattson & Jonsson, 2003), and implies that the amount produced corresponds to what is needed by the customer (Chapman, 2006). A further implication is that material flow may be sensitive to variations and uncertainties, e.g., if a machine breaks down occur, it will affect the whole material flow. However, the advantage is a low cost associated with the logistics, e.g., administration- and personnel cost, due to a reduced throughput time than producing more than needed at hand. (Oskarsson, et al., 2013)
12 A central part of the pull principle is to raise the awareness of underlying problems in a process through minimizing the inventory and buffer storage. The idea behind this derives from the so-called Japanese lake where issues are lurking in the water, i.e., hidden by the inventory, making it difficult to understand the nature of the problems at a company, e.g., quality-, personnel-, and machine issues. Through removing the issues at the company, the material flow will be less sensitive to any interruptions. (Oskarsson, et al., 2013) Figure 5: The pull principle in a supply chain consisting of the supplier, the manufacturing company, and the customer inspired by Oskarsson, et al. (2013) Push principle In contrast to the pull principle, the signal of the work order derives from a forecasted plan (Chapman, 2006) (Oskarsson, et al., 2013), which is depicted in Figure 6. Since there always exist some uncertainties in the forecast as described in Chapter 3.3.1, the number of articles produced may end up in inventory storage due to the difficulties in synchronizing the plan with the customer’s need (Chapman, 2006). Oskarsson, et al. (2013) also state inventory storage is prone to exist due to the material is being pushed forward in the supply chain.
Figure 6: The push principle in a supply chain consisting of the supplier, the manufacturing company, and the customer inspired by (Oskarsson, et al., 2013)
The advantage of the push principle is the company is less dependent on an external actor. Furthermore, there exist the possibility to utilize the capacity of the company more effectively. However, this puts higher stress on the planning system at the company. Another
13 disadvantage is the higher cost associated with the logistics due to a longer throughput time. (Oskarsson, et al., 2013) Hybrid of pull- and push principle Chapman (2006) explains, in reality, it is often difficult to follow either the pull- and push principle rigidly due to the business environment. Depending on the market- and product attributes in the business environment, the selection of principle is more appropriate than the other. E.g., a push principle is more suitable if there exists variation and uncertainty of the product and its demand, where the pull principle is the opposite. (Chapman, 2006) Oskarsson, et al. (2013) also state that rather than using each principle in their purest form, a hybrid of the two principles is more common. The authors further explain a common method is dividing the material flow with a customer order decoupling point, where the downstream is based on the push principle, and the upstream is based on the pull principle. 3.1.2 Scheduling
Scheduling refers to planning at the operational level and deals with when the actual execution of activities is to be performed. At the operational level, everyday operations are relatively volatile since unexpected events could occur, leading to the actual production diverging from the production plan. In these cases, several scheduling rules such as the due date and first come first serve, which is often used in the push and pull system respectively, could be utilized to prioritize activities. (Chapman, 2006) Backward scheduling and forward scheduling The two most common approaches in scheduling the activities in a production environment are backward scheduling and forward scheduling, which is depicted in Figure 7. In backward scheduling, the work order is planned from the due date or the promised lead time and the start date is calculated using the information on the internal lead time at the company (Mattson & Jonsson, 2003) (Chapman, 2006). Mattson & Jonsson (2003) suggest that there exists a possibility of the start of the actual production is earlier than the planned start date of the work order. On the other hand, Chapman (2006) explains since this scheduling is based on the customer’s promised lead time, the company will have a possibility to match its internal operations with the customer’s requirement. In contrast to the backward scheduling, the forward scheduling calculates the end date of the work order from a planned start date using the information on the internal lead time at the company (Mattson & Jonsson, 2003) (Chapman, 2006). Mattson & Jonsson (2003) explain that there exists a possibility of the actual production diverging from the planned delivery date of the customer order due to the variation in the production environment. Chapman (2006) further elaborates on this topic and states that there exists a risk in the planned delivery date that could diverge from the promised lead time to the customer.
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Figure 7: An example of backward- and forward scheduling displaying the start time and end time of the work order and its operations inspired by Mattson & Jonsson (2003)
3.2 Material flow system
The material flow can be defined as any transportation, be it internal or external transportation, of tangible and intangible goods. On the system level, the material flow can be described as raw material are being transported from the supplier to the company, and later reaches its end-destination, i.e., the customer. The material flows are rarely seen as continuous since there exist different variations along with the flow, e.g., problems with transportation from the supplier. Also, the flow rate could differ significantly in the different sub-flows and could lead to a delay in the overall flow. To reduce the impact of the variation and essentially making the streams less dependent on each other, an inventory is introduced (Mattson & Jonsson, 2003). 3.2.1 Inventory The main function of an inventory is creating intermittent steps in the material flow system to reduce the impacts of any potential disturbance. E.g., delay in the material flow from the supplier leading to the production not able to operate as planned. The three most common types of inventory are inventory storage, work in progress inventory, and finished goods inventory. Depending on which part of the material flow is studied, these inventories can act as an intermittent step to the different entities in the material flow. (Mattson & Jonsson, 2003)
The inventory storage usually consists of raw material and semi-finished goods which are waiting for being planned and processed. The aim of the inventory storage is creating an intermittent step for the production processes at the company. The work in progress inventory consists of material which has entered the processing or has left the processing and is waiting for being processed in another. A high amount of work in progress inventory could highlight a slow production process. The finished goods inventory (FGI) consists of as the name states of material which has left the production process and is ready to be delivered to the customer. From a time-perspective, the FGI creates an intermittent step to delivery without delay to the customer. (Mattson & Jonsson, 2003)
15 3.2.2 Material flow types
Mattson & Jonsson (2003) states it is important to gain an understanding of the problem environment in order to recognize where the focus should be applied when solving the problem. When describing the problem environment, characterization, and classification of the material flow could be conducted in order to facilitate the understanding of the current state. Depending on the transformation process of the production system at the company, there will be different types of material flow. Therefore, it should be clarified before moving onto different material flow types. (Mattson & Jonsson, 2003) The most common transformation processes types which can be found in different industries are: • Transformation through the separation of input material into several outputs • Transformation through combining several input materials into one output • Altering the physical form of the material through the removal • Altering the physical form of the material into a new physical form
• Altering the chemical properties of the material with the physical form remaining (Mattson & Jonsson, 2003)
Figure 8: The material flow of the transformation of raw material to finished goods inspired by (Mattson & Jonsson, 2003)
I-type
The input which enters the transformation process and leaves with the same amount of output is described as I-type material flow. The transformation process which is dealing with altering the physical forms or the chemical properties of the material, i.e., the last three transformation processes mentioned in Chapter 3.2.2, are often stated as I-type material flow. Since the transformation process needs only one kind of raw material at hand, the material flow can be seen as simple. It is therefore relatively easy when planning for this type of flow compared to V-, A-, T-, and X type since several raw materials are not involved in the transformation process. The I-type material flow is often found in the subtractive manufacturing industry, metalworking industry, and surface treatment industry. (Mattson & Jonsson, 2003)
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V-type
V-type material flow is denoted by one flow of raw material, which is split into several sub-flows, leading to a high amount of finished goods. This type of material flow coincides with the transformation through separation and can be found in the sawmilling industries. (Mattson & Jonsson, 2003)
A-type
A-type material flow is the opposite of the V-type, where a higher amount of input materials is needed in order to obtain one output. This type of material flow coincides with the second transformation process described in Chapter 3.2.2 and can be found in the engine manufacturing industry. (Mattson & Jonsson, 2003) T-type T-type material flow can be visually seen as a mixture between an I-type and V-type. The inputs follow an I-type of material flow when producing the semi-finished goods, and later are diverging into several finished products. Typical T-type material flow can be found in the paint manufacturing industry. (Mattson & Jonsson, 2003) X-type X-type can be visually seen as a mixture between A-type and V-type of material flow. The inputs are converging into a semi-finished good and later are diverging into several finished products. This material flow can commonly be seen in the automotive industry, in particular when manufacturing customized cars. (Mattson & Jonsson, 2003) 3.3 Warehouse layout design A layout design that considers several aspects of a manufacturing system could bring benefits to its overall performance (Yang & Hung, 2007). Zhang, et al. (2002) also state a well-structured warehouse layout could bring benefit to the logistics system, and reduce the several costs associated with the warehouse. When designing the warehouse layout, Mohsen (2002) raises the awareness of several issues that should be considered, and have summarized important steps in the designing process which is presented below. 1. Determine the purpose of the warehouse. 2. Estimate the expected demand through forecasting, see Chapter 3.3.1. 3. Establish operating policies of the inventory, e.g., decisions regarding article placement, see Fixed placement vs Random-location placement in Chapter 3.3.2. 4. Determine the inventory levels based on step two. 5. Classify the articles, e.g., with the use of ABC classification from Chapter 3.3.3. 6. Divide the primary function of the warehouse in departments and determine the overall layout, see Chapter 3.3.4. 7. Dividing the storage into several sub-storages depending on the characteristics of the article, see Placement of correlated articles and Placement at ground level or at higher level in Chapter 3.3.2 for further detail. 8. Design the material handling- and storage systems, see Chapter 3.3.5, Storage system in Chapter 3.3.2 for further detail. 9. Design the aisles.
17 10. Estimate the space needed and determine the requirements. 11. Determine the number of input/output points and their location. 12. Determine the number of docks and their location. 13. Arrange the storage. 14. Divide the warehouse into zones. In general, the steps 1-8 deal with some form of analysis which creates the basis for the next coming steps. The steps 9-14 can provide guidelines on how the layout can be designed on a detailed level. 3.3.1 Forecast Forecasts are utilized to predict future customer demands when the production at hand is incapable of meeting the customer’s expected lead time. The production is initiated from the forecasted demand rather than the actual one, leading to shorter lead time to the customer. (Jonsson & Mattson, 2016) (Chapman, 2006) There exist primarily two categories of the forecast, i.e., a qualitative forecast and a quantitative forecast. In the former, the estimate is often based on judgment and experience of either internal or external data. While in the latter the estimate relies on mathematical models. (Chapman, 2006) Anupindi (2012) has summarized four important characteristics that should be acknowledged when dealing with the forecast. Chapman (2006) also considers the fifth characteristic, which is important to be aware of and is presented below. • A forecast is mostly wrong. • An aggregated forecast is more accurate. • A short-range forecast is more accurate. • Estimation of forecasted error is important. (Anupindi, 2012) (Chapman, 2006) • The forecast should be utilized only if the actual demand is unavailable. (Chapman, 2006) Mattson & Jonsson (2003) further elaborate on the last mentioned characteristics that if the demand is dependent or independent, it will make a forecast a suitable choice. Dependent and independent demand refers to the effect the demand for an article has on the demand for another article. E.g., it could be an article that is a subcomponent for another article or an end-articles which is to be delivered to the market. In the case of a dependent demand, a forecast may not be needed since the demand can be derived from the production plan of the product. However, if there exist any difficulties in obtaining information on the end-product, forecasting will be still needed. (Mattson & Jonsson, 2003)
3.3.2 Article placement
In a warehouse where the articles are not arranged in any seemingly visibly pattern, most of the material handler’s time is occupied by searching for material (Bragg, 2004). When considering an efficient material handling at the warehouse, article placement could be used to minimize the total distance travelled of the articles. E.g., allocating the high runner articles near the production lines while keeping the low runner articles at a longer distance. (Bragg,
18 2004) (Jonsson & Mattson, 2016) Three different aspects to take into considering when designing the physical warehouse layout are fixed placement or free placement, placement of correlated articles, and placement at the floor or higher level. (Jonsson & Mattson, 2016) Fixed placement vs Random-location placement The difference between the two placement is the level of flexibility of storing the articles at the warehouse. The fixed placement is rigid in the sense of allocating the articles to a pre-determined place, leading to a higher need for inventory storage than a random-location placement. This since the storage is designed according to the maximum possible stock volume of the articles. (Jonsson & Mattson, 2016) (Oskarsson, et al., 2013) The advantage of being the administration of the articles is low, and a simple administration system could be used (Oskarsson, et al., 2013). The random-location placement refers to the allocation of the articles could be any available space, and thus leading to a smaller storage requirement due to the high flexibility. (Jonsson & Mattson, 2016) (Oskarsson, et al., 2013) In addition, a random-location placement would support the FIFO principle and thus removing the waste in storing the material for a long period. However, this emphasizes having an advanced IT system supporting material handling and displaying where the articles are located for an efficient order picking. (Oskarsson, et al., 2013) A mixture of both systems could be used, e.g., a buffer storage with random-location placement and order picking storage with fixed placement. The advantage is an efficient order picking could be achieved through replenishing the order picking storage with goods from the buffer storage. (Jonsson & Mattson, 2016) (Oskarsson, et al., 2013) Bragg (2004) proposes to combine fixed placement and random-location placement of articles with an ABC-classification. The idea is concentrating the A classified article to a fixed placement, and the rest is allocated to a random-location placement to utilize the space in an optimally. Simultaneously the benefits from ABC classification as described in Chapter 3.3.3, i.e., the company could ensure that appropriate management is being applied to the articles, could be achieved. (Bragg, 2004) Figure 9: The placement of the articles in a fixed placement storage and random-location placement storage inspired by (de Koster, et al., 2007)
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Placement of correlated articles
Another way to achieve an efficient material handling is placing articles with the same characteristics together, i.e., articles belonging to the same customer order (de Koster, et al., 2007) (Jonsson & Mattson, 2016). Similarly, articles arriving from the same supplier could be allocated close to each other to reduce the number of handlings. However, the disadvantage of placing correlated articles is the risk of picking the wrong articles. (Jonsson & Mattson, 2016) In addition, de Koster, et al. (2007) discuss the disadvantage of clustering similar articles together is the inefficient use of space. 3.3.3 Article classification ABC classification An ABC-classification is a method that aims to facilitate decision making regarding how the article should be managed efficiently, i.e., allocate the right resources to the right articles. This can be achieved by differentiating the articles and clustering similar articles. (Jonsson & Mattson, 2016) According to Oskarsson, et al. (2013), one of the most common usages of ABC-classification is the differentiation of the articles based on the volume and price. The price could be based on different values, such as purchasing cost and contribution margin. The sales values are, however, discouraged to be utilized since this value does not reflect the profitability of the articles. (Oskarsson, et al., 2013) Besides the ABC classification based on the total volume value, another standard criterion is the demand value (Teunter, et al., 2010). However, the author argues that utilizing the demand value could lead to a sub-optimality of the interaction between cost and service. This since the demand value does not take into consideration of the holding cost and could interpret a high holding cost as important. According to Oskarsson, et al. (2013) when constructing the ABC classification, the following steps should be followed: 1. Determine the purpose of the classification and select suitable classification criteria based on this purpose 2. List the articles in decreasing order with the highest value first 3. Translate the selected classification criteria value into the portion of the total value 4. Translate the chosen classification criteria value into the percentage of the cumulative total value 5. Translate each article into the portion of the total amount of articles 6. Translate each article into the percentage of the cumulative total articles 7. Determine the classification of the articles
After the steps have been completed, an illustration of the could be generated similar to Figure 10. The A article could be determined using the 80/20 rule, i.e., the Pareto principle, where 20 % of the total articles amount to 80 % of the total value. Therefore, a higher emphasis on the A-articles should be put than the C-articles, which consist of 60 % of the total articles but amounts to approximately 5 % of the total value. (Oskarsson, et al., 2013)
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Figure 10: An illustration of the traditional ABC classification inspired by Oskarsson, et al. (2013)
The traditional approach has been criticized by Hatefi, et al. (2014) for not being an appropriate criterion when classifying the inventory items on a practical level. Olhager (2013) further elaborates on this topic and states since an article classification can be depending on the purpose have different outputs, a clearly defined purpose is advocated. ABC classification based on multiple criteria The one-dimensional ABC classification may not always be suitable to utilize in every business environment due to the difference in characteristics of the articles (Flores, et al., 1992) (Ramanathan, 2006) (Oskarsson, et al., 2013) (Guvenir & Erel, 2015). Oskarsson, et al. (2013) explain one of the several reasons could be there exists some dependency between an A article and a C article. E.g., when the customer buys an A-article, there exists a need to buy a C-article, and thus the same amount of care should be put on both articles. Guvenir & Erel (2015) give another example where utilizing the one-dimensional ABC classification could create a potential financial loss. The authors explain if e.g., the C articles have low sustainability, it could delay the production and thus shortage cost could incur if the company cannot provide delivery on time.
On the other hand, an ABC classification based on multiple criteria could provide a more comprehensive result. This since there is a possibility to utilize another critical factor, which is significant relevant to the company from a managerial perspective. (Flores, et al., 1992) (Oskarsson, et al., 2013) The implication of adding another dimension to the traditional classification is the articles can be classified into several groups leading to the most relevant articles that can be further distinguished.
21 An ABC classification based on two criteria generating nine categories is depicted in Figure 11, where A is the most important from a revenue perspective, and one is the most important from the criticality perspective. As such, the interpretation of Figure 11 is that more focus should be put on managing the A1 articles while C3 articles receive the least attention. (Oskarsson, et al., 2013)
Figure 11: An illustration on ABC classification based on two criteria inspired by (Oskarsson, et al., 2013)
The impact of article classification on travel distance
Constructing an article classification could be a beneficial strategy to shorten the travel distance but also the picking time (Mohsen, 2002). This is also supported by Glock & Grosse (2012) who further elaborates on other benefits of article classification such as obtaining a higher space utilization at the warehouse.
According to Bragg (2004), the method could be used for frequently used articles, and reduce the distance travelled for these articles. In particular, when decentralized decisions are allowed, the articles can be allocated to a distant place in the warehouse. Time spent on the non-value added activity, i.e., transport (see Chapter 3.5.1 for detailed definition), can be reduced through article placement based on an ABC classification. In practice, the most frequent articles should be allocated close to the input- and output points of the warehouse. (Bragg, 2004)
Another way to reduce the distance travelled of the articles is, according to Petersen II & Schmenner (1999) through article placement based on the order or picking volumes. The author further state, in this case, the articles should be allocated close to input- and output points of the storages to benefit from the article classification. This strategy is also supported by Roodbergen, et al. (2015). Bragg (2004) expresses, however, while the company could benefit from reduced travel distances in terms of labour and equipment costs, the implementation process could result in labour cost due to rearrangement of articles. Furthermore, Petersen II & Schmenner (1999) expresses a drawback with the article classification based on volume is congestion at the storages could occur.
22 3.3.4 Linear layout and U-shaped layout The primary function of a warehouse layout is to support the operations at the company and to create structured material flow while retaining a high space utilization. There exist two primary types of warehouse layout: linear layout and U-shaped layout. (Jonsson & Mattson, 2016) The two layout are depicted in Figure 12 and displays the material flow in each layout. Figure 12: An illustration of the linear layout and U-shaped layout and the material flow inspired by (Jonsson & Mattson, 2016) The linear layout is characterized by the receiving and shipping are located at the opposite ends of each other. This layout generates the same travel distance for the articles which could hinder the effects of article classification based on the frequency of picking. While the space utilization is low, this layout would enable a more structured flow and is suitable for a few articles with a high volume. (Jonsson & Mattson, 2016) In the U-shaped layout, the receiving and shipping are located on the same side of the facility, creating a high space utilization. The material flow is considered to be a U-shaped flow where there exists a possibility to utilize the benefits of the article classification. From a material handling perspective, the U-shaped would enable efficient use of resources since the receiving and shipping can utilize the same space, equipment, and labor. (Jonsson & Mattson, 2016) 3.3.5 Material handling system Tompkins (2010) expresses when designing a layout, an important aspect is to consider the material handling system since the two systems are often closely interloped. Material handling can be defined as all the internal movement and handling of goods from the arrival to the departure of the facility (Jonsson & Mattson, 2016). Another definition of material handling is looking at the purpose of material handling, which is described in Table 1 below (Tompkins, 2010).
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Table 1: The purpose of the material handling inspired by (Tompkins, 2010)
Right amount Delivering the required amount of material rather than what is
forecasted.
Right material
Reducing the error in order picking operation, e.g., through radio-frequency identification based system, or merely maintaining the database system.
Right condition Providing the material in the state that the customer desires, e.g.,
repackaging the customer order into several pallets.
Right sequence Adapting or simplifying the operation sequences affecting the
material handling process.
Right orientation Refer to accessing the material quickly through the positioning of
the material.
Right place Transportation and storage of material with to transport to its end
destination. Also refraining from storing material which would hinder the forklift operations.
Right time Delivery just in time to reduce the production cycle time.
Right cost Refer to from a customer’s point of view utilizing the resources
efficiently to the most appropriate cost. Right method (s) Using the most appropriate method in regards to the requirements at hand, rather than using the best resources. 3.3.6 Storage system There exist several storage systems which aim is to either maximize the space utilization or increase the accessibility and flexibility in the order picking process. The two most common storage aiding system is explained in the following chapter. Block- and floor stacking The method which utilizes the space efficiently from a theoretical perspective is a combination of floor stacking, and block stacking. In this method, the pallets are organized in a row and are stacked directly on top of each other. (Jonsson, 2008) (Lumsden, 2012) While space can be utilized optimally, the accessibility of the individual articles is affected. If accessing the material which is allocated in the deepest end is required, it would result in several movements. Thus, the articles which are suitable for this method are articles arriving in high volumes and have the same characteristics. Also, articles with a low risk of obsolescence due to the durability of the materials would be more suitable. Due to the characteristics of the methods, the LIFO principle would be more appropriate to utilize rather than the FIFO principle. This since the last articles would be easier to pick first from the viewpoint of material handling. (Lumsden, 2012) (Jonsson, 2008)
Derhami, et al. (2017) explain that implementing block stacking of articles in lanes, i.e., a combination of floor stacking and block stacking is a relatively inexpensive storage system. This, since additional storage facilities, is not needed, and the storage system can be directly implemented at the company. However, if the purpose is to manage the space efficiently, it would require time spent on planning the space. (Derhami, et al., 2017)
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Figure 13: The placement of pallets in a combined block stacking and floor stacking storage system inspired by (Jonsson & Mattson, 2016)
Pallet racking
The method which creates high flexibility and accessibility of articles is pallet racking, where pallets are stored at multiple levels and is depicted in Figure 14. Pallet racking would, therefore, contribute to an efficient material handling process, in particular, if there is a high variation of articles and the articles are in lower volumes. Furthermore, the method would facilitate the use of the FIFO principle since the items can be easily picked from the aisle. However, while the pallet racking enables an easier order picking process for the material handler, space is not fully utilized as in the floor stacking- and block stacking method. This since there is often a need to construct aisles for the material handling equipment such as forklifts. (Lumsden, 2012) Derhami, et al. (2017) also express the process of implementing pallet racking could infuse additional facility costs for the rackets. Figure 14: The placement of pallets in a pallet racking storage system inspired by (Jonsson & Mattson, 2016)
