Royal Flush

Aug 01, 2002 9:30 PM  By

Even seasoned cardsharps know that at some point, sleight of hand isn’t going to give them a strong suit — there’s just no substitute for luck. But check out a new, (virtually) magical picking system that vastly improves your odds. I will show you how to combine certain SKU characteristics with the correct picking and packing methods to establish an efficient and cost-effective picking operation for direct-to-customer orders.

Called the automated-warehouse-within-a-warehouse, or AWWAW, this method yields fulfillment costs of between 40 and 60 cents per order for two-line orders, which typically comprise 60% to 80% of all DTC orders. These orders do not have to be manually packed or manifested and can be shipped at industry-leading costs per line and per order. In addition, you can prune your automation expenditures by 30% or more.

A good deal

To understand how an AWWAW works, take a look at the sequence of events in a traditional picking process:

  • Release orders to the order management system.
  • Assign orders to cartons electronically.
  • Group orders of similar cube that use the same carton size and release them for picking.
  • An automatic carton erector builds the cartons and releases them upon demand to the shipping label print-and-apply system (it requires about 1,000 orders a day of the same carton size to justify automation).
  • Print the shipping label and apply it to the carton. (Or the order inductor/picker may apply the labels.)
  • Release the carton to the conveyor system for routing to pick zones.
  • Divert the carton to the applicable zones.
  • The picker scans several cartons at one time, creating a picking batch.
  • The picker gets an optimized path for picking the orders into the cart loaded with the batch of cartons.
  • The picker confirms the picks by scanning each SKU.
  • The picker confirms the shipping carton by scanning the carton label.
  • The picker places the shipping carton back on the conveyor.
  • After all picks are completed, route the shipping carton past the packing list print-and-insert station.
  • Next, route the shipping carton to the semi-automatic taping station.
  • Weigh the shipping carton en route to the shipping sorter using an in-motion scale; the carton is automatically manifested without stopping or being touched.
  • Sort the carton to the parcel carrier.

An automated-warehouse-within-a-warehouse system streamlines many of these functions to reduce labor costs and minimize equipment expenses. It achieves faster order turnaround because the bottlenecks and process queue associated with a separate packing function are significantly reduced or eliminated altogether.

Stack the deck

To make an AWWAW happen, you must have two main components: (1) a high percentage of orders that can be completed by a relatively small number of SKUs, and (2) software and some level of automated equipment.

To analyze the relationship between orders and SKUs, consider the following issues:

Order fulfillment requirements

Analyze your order volumes and patterns. Develop a table showing daily volumes of orders, lines, and quantities. Understand why there were peaks on some days and when similar peaks will recur.

If possible, separate orders for fashion or seasonal merchandise from orders for basics. This will assist you in deciding whether the same picking approach should be used for both segments of your business, and it will also affect the optimum configuration of storage media such as bin shelving, carton flow rack, and carousels.

SKU velocities and product characteristics

There is one SKU per order line, but there are potentially three SKU quantity types per line — eaches (piece picks), full cases, and possibly even full pallets for catalogers fulfilling orders for different marketing channels (such as retail accounts for select items). So, potentially, an order with one line could be picked from three different areas: forward eaches, full case, or reserve storage. Therefore, it is important to understand the composition of order lines by what may be called “sub-lines.”

Investment in improved order picking systems is usually justified only if the savings from the improved system are worth the incremental spending on systems over time. To evaluate such an investment, you need to identify those high-velocity SKUs that, as a set, can complete the majority of orders, to the exclusion of the remaining SKUs.

Full-time equivalents, including picking and packing FTEs

The acronym for the engineering term “full-time equivalents,” FTE, refers to worker headcount measurement. The efficiency of packing and picking systems is measured in costs per order and costs per line. These costs are primarily FTE costs, but should also include depreciation of capital investments.

Picking and packing are interrelated activities; much of the work performed by packers can be done by pickers using technology or by manifesting stations using automation. This is a major reason that AWWAW investments can be justified: The manual packing process and associated FTEs are significantly reduced or eliminated.

Flat payoff

I have mentioned the need to understand the sub-lines of each order. This type of information is available by comparing the order file with the item master file. Analyze each order line using the dimensions and other characteristics of the relevant SKUs and then summarize each line by SKU. Spreadsheets can provide a high-level view of the system, but beware. They tend to lead to calculations that overstate the forward pick areas, and they cannot show the duplication of pick faces caused by heavy seasonality. The best way to set up an AWWAW is to perform the simple mathematical calculations shown below. By categorizing SKUs by velocity, and checking the classifications to see what percentage of complete orders can be filled by each category or combination thereof, you can streamline your picking considerably.

The remaining orders are comprised of a wide variety of SKUs that require minimal automation, a factor that can reduce overall investment by 30% or more.

In the AWWAW system, picking is best accomplished by an operator using a cart or walkie rider. Overstock or reserve locations should be in the immediate area. Orders should be batched into smaller groups by the order management system and picked into totes or cartons. If the SKU is picked as a carton that can be shipped, then it can be sent separately. In this case, the order filler can use the pick-to-label method, applying a label at the time of order fulfillment. He then places the carton on a conveyor or manually transports it to the shipping area for disposition.

Orders that need SKUs from the AWWAW start there, with the necessary SKUs picked into totes or cartons, which are then routed by conveyor to other zones for the additional, slower-moving SKUs. Thus, the picking efficiencies achieved for faster-moving SKUs still apply. Non-conveyable and other slower-moving SKUs picked from reserve are consolidated in a packing area.

Key hand

The second major qualification for the AWWAW system involves installing the correct technology. All of the software you need is usually found within a warehouse management system (WMS) or a more advanced application, a warehouse controls system (WCS).

Cartonization software calculates the optimum shipping carton size. This is more complicated than just using the cube of the item; for example, the cubic space of a broomstick will fit in a carton the size of a breadbasket, but the broomstick itself will not fit into it.

If you can reduce the number of shipping carton sizes used for the AWWAW to two or three, you may be able to justify the use of an automatic carton erector.

Order management software manages the pool of orders to be fulfilled. It can modify the pool and change the priorities of individual orders. If it has wave-building capabilities, it can manage the release of orders to balance the picking demands on the various picking zones, and it can aggregate orders for one carton size.

Print-and-apply software controls shipping label printing and application.

Zone routing software controls the conveyor system to ensure that shipping cartons are taken only to the picking zones needed to complete a specific order. The program tracks the status of each carton and takes the carton to the next available zone if the one currently sought is full.

Paperless picking, batching, pick path optimization, and productivity tracking software groups multiple orders into a batch so that one picking trip will pick all the lines in the most efficient manner. Radio frequency, pick-to-light, or voice recognition technologies instruct pickers on the optimum pick path and confirm that they are picking the correct product from the correct location. The software confirms that the right quantity of each line goes into the appropriate shipping carton, eliminating manual checking and packing of 100% of these orders.

Once the order is completed, the software generates real-time data about the components of each shipping carton. It times packing-list printing to coincide with the carton’s arrival at the dunnage/taping station for insertion of the packing list.

Manifesting software combines the packages’ physical characteristics, including weight, to calculate the carton’s shipping cost. The completed data is sent electronically to the parcel carrier or to the LTL carrier.

Shipping software ensures that the carton is sorted to the correct carrier and confirms that the carton was transferred to the shipping company.

Equipment can include a combination of the following: case erector, print-and-apply labeler, conveyors, storage media, RF equipment, sortation equipment, semi-automatic taper, dunnage dispenser, in-line scales, and picking carts. Before investing in any of these, however, evaluate order and SKU data to make sure your decisions are based on sound information. The payoff will be improved system performance, enhanced customer service, and a better bottom line.

Peter Counihan is president of West Reading, PA-based Fortna Inc., which provides professional services, software, and equipment for distribution centers. He can be reached at (800) 367-8621 or petercounihan@fortna.com.

fast shuffle

SKU CATEGORY FULL ORDERS PERCENTAGE CUMULATIVE PERCENTAGE
A 119,812 79 % 79 %
B 19,792 13 92
C 9,216 6 99
D 2,266 2 100
E 0 0 100
F 0 0 100
SKUs are categorized by velocity, with A through D representing the fastest to the slowest movers; E and F have no activity in the period shown.

slim pickings

Propositions
Average lines per order 2
Average burdened cost per hour $18
Picking productivity, lines per hour 90
Dunnage and taping, orders per hour 480
Assume that dunnage and taping (employing one worker) are the bottleneck of the system.
Conclusions
Maximum lines per hour 2 × 480 = 960
Number of pickers required 960/90 = 11
Total FTEs 1 dunnage + 11 picking = 12
Total direct labor cost per hour 12 × 18 = $216
Total direct labor costs for fulfillment $216/480 = $0.45

The calculations above show how to justify direct labor costs of 40 to 60 cents for picking and packing an AWWAW order.

Pick of the Pack

The following are the top picking methods applicable to the direct-to-customer business: Radio frequency (RF) This picking method uses real-time technology. Common equipment includes an integrated hand-held terminal/scanner. The terminal directs the picker by displaying order and location, and the scanner allows the picker to confirm the accuracy of the pick.

Batch cart This method can be paper-driven or paperless. A picking cart is outfitted to hold multiple shipping containers, with a location identifier for each carton position. An order filler uses a hand-held RF device or paper document that routes him/her through the picking zone, completing all the orders in one pass. If the same SKU is needed for more than one order, the picking information indicates which cartons get the SKUs.

Pick-to-light An LED assembly is typically mounted to carton flow rack and displays the location and quantity of SKU(s) to be picked for an order. The order filler simply pushes a button to confirm the pick process.

Carousels Orders are downloaded to the carousels that have picks from a specific storage location. The software drives the carousels, allowing a picker to process batches of orders (typically six to 15 orders at a time). Light trees indicate the location and quantity of a SKU to pick. The operator puts the product into the appropriate carton(s) based on an LED indicating which cartons get that SKU.

Pick-to-label In this method, an order filler receives a stack of shipping labels printed in location sequence for SKUs to be shipped in the current carton configuration. Cartons can then be scanned for manifesting and loaded directly into the shipping trailer.

Voice-activated picking Order information is downloaded from the host/WMS to a controller, which directs pickers through a headset.
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