Hit the Jackpot!

Aug 01, 2005 9:30 PM  By

Most industries tend to focus on how to install advanced technologies rather than improving processes — an oversight that greatly reduces the potential for cost savings. Managed and implemented correctly, a process improvement in an area such as product slotting can often help distribution centers hit the proverbial jackpot. Product slotting is the act of assigning SKUs to the most efficient and effective picking storage equipment type and specific location within the picking area. In particular, positioning the fastest-moving items in the most visible and easily reached area (known as the “golden zone”) is of great strategic importance. Upgrading product slotting methodologies can have a greater impact on reducing labor costs than investing in high-dollar automation.

At the Carter & Burgess Logistics Group, we often see poor product slotting techniques prevent expensive investments from reaching their full potential. For example, recently a retail client wanted us to identify why the company’s two-year-old pick-to-light (PTL) system wasn’t meeting productivity expectations. Our analysis proved that there was nothing wrong with the system design; rather, poor product slotting methods were the culprit.

Ken Creel, the C&B analyst on the project, recalls, “A product line activity profile, combined with a review of the current location assignments, showed that the most frequently picked products were located in non-golden-zone locations and that the positioning of slower-moving products was lengthening the travel time during picking. Lights weren’t going to increase productivity in that situation. We proved that by applying proper product slotting techniques alone, we could increase productivity 10%-15%.” Although installing PTL in this case was a sound strategy, the client had ignored the significant contributions to efficiency that well-organized product slotting could have made at the same time (see “Product Slotting Benefits,” below).

SLOT FROM THE START

When designing an optimal picking process, the best way to begin is to conduct a detailed analysis of your order and product profiles. Based on this analysis, select a picking strategy from a wide range of options, including discrete, cluster-batch, zone-batch, zone-pass, and multiple hybrid strategies. Move the detailed analysis forward by selecting equipment types, material handling methods, and suitable technologies. Don’t overlook product slotting at this stage — operations executives traditionally apply much analysis and effort to develop picking strategies but often ignore product slotting, without which most picking methods will not reach their potential productivity.

Product slotting should be considered from the beginning of the planning stage and should continue to be the most important part of the order fulfillment process. Ongoing use of appropriate storage equipment will prevent stock-outs during picking and reduce replenishment labor costs. Investing in the right slotting equipment will likely lead to the need for more floor space, but the tradeoff is less replenishment labor and fewer picker delays resulting from handling stock-outs. In our experience, it is safe to assume that space is cheaper than labor when deciding on the size of the picking area. Ultimately, product slotting makes the most of existing space by ensuring that the densest storage equipment is used.

Making the right location assignment within the picking area reduces the walking, searching, and picking that pickers have to do. It also improves ergonomics and safety and reduces the number of damaged goods during picking and shipping. Picking is a time-consuming task, and how you slot your merchandise will affect the four most time-consuming aspects — walking, searching, picking, and handling stock-outs (see “Time Allocation for Order Picking,” page 58).

SLOTTING MATH 101

Product slotting methodologies can range from very simple to very complex depending on the number of items and customers, product characteristics, product order commonality, and business seasonality. Finding the best slotting method for your facility requires calculating various parameters using product order profiles and product attributes. The product’s cubic velocity determines the type of equipment needed. The priority of location assignments depends on merchandise parameters such as quantity ordered, weight ordered, and order-line activity.

Order-line activity is the most common and effective measure for determining the priority of location assignments in a facility. It refers to the number of trips that a picker makes to a location to pick a given product. A comparison based on the other parameters also ensures that the right priorities are placed on slotting products.

The cubic velocity calculation used for storage equipment selection is a formula consisting of the average quantity ordered, the product’s dimensions, the desired pick location, the number of days on hand, and the pick unit of measure (full case or piece). Multiply the average quantity ordered by the product’s cubic dimension to calculate the cubic velocity per day. Then, to define the equipment location size required, multiply the days-on-hand inventory target by the cubic velocity per day.

Based on the resulting cubic velocities needed to support the days on hand in the picking area, you can identify the equipment required. Equipment types include modular drawers, bin shelving, standard shelving, carton flow racks, decked racks, pallet racks, and pallet flow racks. Once you match the cubic velocity with the equipment type, you can organize the equipment within the layout for efficient picking.

The line-activity calculation, used for layout planning and the placement of products within the equipment, is a formula that determines the number of times a product was ordered or visited. If you count the number of customer orders for an individual product during a historical data period, you will usually find that 20% of the products account for the top 80% of the order-line activity. These products are categorized as “A” products or “fast movers” and are the most important items to consider. While the A classification is the most critical, it is also important to understand the mix of A (fast movers), B (medium movers), C (slow movers), and D (slowest movers or dogs) classifications on orders. The slotting of all of your products has an impact on the total productivity of the picking area.

FAMILY TIES

In addition to cubic and line-activity profiling, other factors affect product slotting. Products can be arranged by family group or by customer and order commonality.

Family group slotting is common when the characteristics of the products dictate the equipment type and the picking methods. Products that fall within any such category are better slotted together to accommodate the material handling equipment.

Customer slotting is a method often used in manufacturing when certain customers are dominant. This method is suitable if your operation supplies large retailers regularly. For example, if Wal-Mart is one of your clients, you might set up a zone for Wal-Mart even if the products are duplicated in another zone.

These methods are both tied together with the idea of slotting by product order commonality. This technique is often overlooked but is an important strategy to consider. If certain products are continually ordered together, then it is a good strategy to store them together. The ultimate objective of product slotting remains the same: Organize products within the right equipment categories to reduce effort during picking. The less effort the picker has to make, the greater his or her productivity. Improved ergonomics reduces effort and enhances accuracy.

CASE STUDY CDW PLAYS THE SLOTS

Ranked No. 347 on the Fortune 500, CDW Corp. is a leading provider of technology for business, government, and education, and a principal source of technology products and services from top brands such as Adobe, APC, Apple, Cisco, HP, IBM, Microsoft, Sony, Symantec, Toshiba, and ViewSonic.

Founded in 1984, CDW today employs approximately 3,800 workers. Last year the company generated net sales of around $5.7 billion. CDW’s direct sales model offers one-on-one relationships with knowledgeable account managers; purchasing by telephone, by fax, and online; customized extranets; custom-configured solutions; same-day shipping; and pre- and postsales technical support, with more than 120 factory-trained and A+-certified technicians on staff.

The company operates a 465,000-sq.-ft. distribution center in Vernon Hills, IL. The products that the facility handles range from very small cables to large computers and monitors. In addition, a customer order can include anything from hundreds of new computers for a small business to a single mouse or keyboard for a home consumer. This mix of product sizes and order profiles creates a challenging slotting environment.

To improve its slotting techniques, CDW first had to profile its orders. A “snapshot” of the DC’s inventory and picking process looks something like this:

Orders per day: 22,300 on average

Number of SKUs: 19,300 averageon hand, with 100,000 available for order

Number of units handled per day: 100,000 on average

Number of pickers: 125

The facility uses two main operational layouts for order fulfillment: pick/pack and ready-ship. Pick/pack items are stored in carton flow racks, pallet racks, partial pallet racks, and shelving, depending on their volumes. The pick/pack items are picked and placed in CDW’s own corrugated shipping boxes, and a conveyor system routes orders appropriately. Ready-ship items, such as monitors and printers, are shipped from CDW in the box in which they are received.

Although CDW already had an advanced picking concept in place, the distribution center’s piece-pick area has many opportunities for product slotting enhancements. An initial thought was to install pick-to-light technology in this area, but the high number of products would have meant a very high cost. As Lisa Tegtmeyer, CDW’s senior director of distribution operations, says, “Our main issue is that we don’t know what we will receive in relation to what we will ship out each day. This leads to a constant mix of product consisting of what is on hand, what is being shipped out, and what is yet to be picked. Our stock is a constantly evolving, work-in-process mix, resulting in perpetual flow and movement of product through the warehouse.” A dynamic workflow such as this makes it impractical to set rigid slotting objectives; the solution lies in a flexible yet organized methodology.

The majority of the CDW facility’s product slotting challenges could be found in the pick/pack area. They included:

  1. Product equipment assignments lead to pick location stock-outs and delays.

  2. Constant replenishment activity causes labor costs to escalate.

  3. Eighty percent of orders are picked and travel through more than one pick module.

  4. Sixty-five percent of line activity is picked from non-golden-zone levels.

  5. Sixty percent of line activity is squeezed into three of the six pick modules.

CDW’s information technology group understood the slotting issues but needed some support in identifying the key algorithms for making improvements happen. IT project manager Richard Lytle had been working with Carter & Burgess in designing the layout of the company’s new western distribution center and felt that there were opportunities to leverage that relationship to make improvements in the Vernon Hills facility. Noting that an outsider could bring fresh perspectives to the process, Lytle, along with C&B, set out to improve CDW’s picking processes with a view to boosting its productivity and efficiency.

The team established the following product slotting objectives:

  1. Allocate product to a pick location size/type based on the product’s cubic velocity.

  2. Allocate product to a location that considers the product order commonality to complete more orders within one pick module.

  3. Allocate product to the most ergonomic pick location (the golden zone) based on the product-line velocity (or hit frequency).

  4. Allocate product to the location that minimizes travel distance from picking area to packing and shipping.

  5. Allocate product to different locations to balance workload.

The slotting program we tailored for CDW was designed to support the company’s specific slotting challenges and objectives — yet few of these challenges and objectives are unique. Direct-commerce companies with piece-picking operations often face the same problems that CDW identified. The trick was to customize the solution to CDW’s particular set of challenges by coming up with algorithms that would quickly and effectively address slotting issues. By improving the efficiency of its product slotting techniques, CDW expects to increase the efficiency of its entire operation.

SLOTTING VS. AUTOMATION

There’s no question that several factors such as the operation’s picking strategy, materials handling equipment, technology, layout, and people make a difference to a picker’s productivity. But none of these factors, taken individually, have as great an effect on quality and extent of output as product slotting. When searching for opportunities to reduce labor costs within the distribution center, spend time studying the product slotting methods used in the picking area. Even slight changes in the slotting assignments can lead to great improvements in productivity. For that reason, you should review any slotting changes you make every month, to take into account seasonality, product promotions, and new product releases.

It is tempting to ignore the rigors of slotting management in favor of high-tech solutions. The plethora of materials handling and warehousing systems available makes it all too easy to consider automation a cureall. In the picking area, the newfound popularity — and increasing affordability — of robotic and automatic storage and retrieval systems carries the danger of taking the DC manager’s focus away from the essentials of inventory management. Although automation can be highly effective and is often a necessity in high-volume facilities, it cannot be a substitute for common sense. As C&B’s Creel notes, “I have been in too many distribution centers that have invested in automation to increase productivity when a simple product slotting change would have given them the gains needed.”


Norman Saenz Jr. is the manager of the logistics group at distribution consulting firm Carter & Burgess, based in Fort Worth, TX.

Product Slotting Benefits

OBJECTIVE BENEFIT
Match product cubic velocity to equipment type Prevent stock-outs and related delays Reduce order cycle time Reduce replenishment labor costs
Position fast movers on most-ergonomic levels (the so-called golden zone) Reduce potential injuries Reduce order cycle time Reduce search time Increase productivity
Reduce walking (and search) during picking Reduce order cycle time Increase productivity
Balance work zones Reduce order cycle time Increase productivity
Consider weight of products Reduce product damage Reduce potential injuries

Time Allocation for Order Picking

PICK TASK % PICK TIME
Walking 25% to 50%
Searching 19% to 15%
Picking products 10% to 15%
Handling stock-outs 1% to 5%
Working with technology 5% to 10%
Handling pick-to-container 1% to 5%