Nelson, Jody and Nigel (NJN) operates a warehouse and distribution centre, storing and distributing 5,000 product lines on behalf of its client, an overseas sports equipment manufacturer.
NJN receives goods in shipping containers, which should include a packing list of the items they contain. Sometimes, packing lists are lost in transit and the manufacturer is asked for duplicates. Packing lists are manually input into NJN’s warehouse information system (WIS) in batches, usually within 48 hours of the goods being received. Goods are first unpacked into a sorting area, and later moved to wherever there is available warehouse space once the packing list has been input. The WIS records the location within the warehouse where each item is located. The client’s customers, who are retail stores, place orders by email, and do not currently have access to real-time inventory levels in NJN’s warehouse.
Each morning picking lists are printed in the warehouse office. These lists show the quantities of items to be picked and the items’ 12 digit product codes. Staff use these codes to retrieve items from the warehouse locations for despatch to retailers. In 8% of picking lists, at least one item is not in the location or does not have the quantity specified by the WIS. As a result, the item is not despatched, or the wrong item is picked. A small team investigates these discrepancies, using special reports which the warehouse manager extracts from the WIS. The team manually reconciles quantities of missing items in the warehouse to the sports equipment manufacturer’s own records of the items which should be in inventory. If missing items cannot be found, the customer is informed via an email that they are unavailable.
The sports equipment manufacturer has a service level agreement with NJN, covering the accuracy of picking and the proportion of customers’ orders successfully fulfilled. NJN’s performance on these has deteriorated, especially when there is increased seasonal demand for certain products. At these times staff are under increased pressure to pick items quickly, and so picking accuracy deteriorates and absenteeism increases. There have also been accidents where goods have not been safely placed or safely picked from warehouse locations at busy times. These accidents have resulted in minor injuries to some employees.
The sports equipment manufacturer has threatened to end NJN’s contract if performance does not improve. In response, NJN has recruited more staff to investigate discrepancies between items physically in warehouse locations, and those shown on the WIS at busy periods. It has also begun a series of cyclical inventory counts where every product line is counted every month to correct the quantities and locations shown on the WIS. NJN has rented an additional nearby warehouse in which to sort incoming items before they are put away.
NJN has hired a management consultant who is an expert in ‘lean’ principles and the application of these to management information systems. She believes that the WIS is wasteful, not adding value to the business or to its customers, and has suggested that NJN would benefit from the application of lean principles to this system.
She has suggested three proposals:
– that NJN reorganise the warehouse by storing high volume items close to the despatch area,
– shut down the additional warehouse, and
– discontinue the cyclical inventory counts.
To help with the adoption of lean principles in the warehouse reorganisation, the management consultant recommends NJN apply the ‘5Ss’* of lean principles, and she has suggested performance metrics which can be used to evaluate NJN’s progress towards adopting these (Appendix 1).
*Structurise, Systemise, Sanitise, Standardise, Self-discipline.
Appendix 1 – Performance measures for 5Ss relating to warehouse reorganisation
1. Warehouse manager’s daily assessment of the tidiness of the warehouse on a scale of 1–10.
2. The proportion of inventory not stored in order of its alphabetical description with products with names beginning with ‘A’ nearest the despatch area and ‘Z’ furthest away.
3. The number of accidents caused by goods being incorrectly stored or picked
Required:
Assess whether NJN’s existing warehouse information system (WIS) is effective in reducing waste and adding value in NJN’s workflow.
Manual input
At NJN, at least some of the inputs to the WIS are manual, and that means they are prone to error. This is time consuming and costly.
The packing lists which are received in the shipping containers are input manually. If incorrectly input, the quantities of items in the locations in the WIS will also be incorrect. Incorrect information in the WIS wastes time by needing teams to investigate the discrepancies, reconcile inventory records with those held by the manufacturer, and correct the information held on the WIS.
Furthermore, customers will not receive the items they have ordered, as in 8% of picking notes, items are not in the location they should be, or are in insufficient quantities. This is a high proportion of errors. Staff will waste time looking for items stored in the wrong locations. This will cause customer dissatisfaction and mean that larger quantities of inventory will need to be held, which is a wasteful use of storage space. Fewer complete orders can be fulfilled per unit of warehouse space, than would otherwise be the case. Both of these are sources of waste.
In the longer term, this means NJN staff must undertake a series of cyclical inventory counts in order to correct the information held in the WIS. This is wasteful activity which does not add value to customers, and should be eliminated.
The provision of accurate inventory information will also be of value to the retailers who can place orders only for items which are available, rather than only finding out about unavailable items by receiving an email from NJN. This would lead to increased customer satisfaction by avoiding having stock outs of particular items by ordering alternatives.
NJN should consider the use of barcodes or radio frequency identifiers (RFIDs) on products, to ensure that accurate data is input into the WIS. Using these devices, the product numbers and quantities of goods entering and leaving the warehouse could be automatically read into the WIS, without any intervention from warehouse staff. This would reduce the time taken to manually input the data and improve its accuracy.
An effective information system may interface directly with the manufacturer’s and retail customers’ information systems through electronic data interchange (EDI). This would increase service levels by ensuring that all parts of the value chain had access to accurate and timely information.
Time delays
The packing list batches are not available until up to 48 hours after receipt of the goods. The information held in the WIS will therefore be out of date. Items which are required for sales orders may be unavailable for picking. The use of automated input, where possible, will increase the timeliness of the information input into the WIS. This will reduce the labour cost of correcting the system and improve the number, accuracy, and completeness of orders despatched to customers.
Currently, all picking notes are printed in the warehouse office, which may be some distance from the area where items are picked. This also implies the existence of a bottleneck in the provision of information to the staff picking the items and wastes staff time moving to and from the warehouse office to pick up the reports. An improvement would be to ensure that information is available when and where it is needed, using terminals in the warehouse, or portable devices such as tablets. This would reduce time spent collecting picking information.
Similarly, in order to investigate discrepancies, staff have to obtain special reports which the warehouse manager extracts from the WIS. Again, this is a bottleneck which could delay staff getting the correct information, and may mean that the reports are inconsistent depending on the parameters set to run them. An effective system would eliminate these problems by providing standardised reports when requested, and in an optimal location.
Complex presentation of information
Effective systems add value to information when they organise and present the information in a clear way, without excessive detail. This allows the users to easily and quickly identify the information they need. It prevents wasting time obtaining the information in the first place, and correcting errors caused by interpreting it incorrectly.
The picking sheets show the 12-digit product codes which can easily be misread and increases the likelihood of errors. A better system would present the information in a more accessible way and prevent information overload, for example, showing product descriptions, or product codes, only for the items to be picked.
Advise whether the three proposals suggested by the management consultant will help to eliminate the different types of waste identified under lean principles.
There are two main types of waste at NJN which can be identified using lean principles: waste which does not add value to the customer and waste which occurs due to variations in demand and demands on staff.
Reorganising the warehouse to place high volume items near to the despatch area will help reduce the type of waste where the movement of staff to pick goods is more than should be required. Less movement, which means less staff time and cost, will be required by staff to pick these items and bring them to where they are to be despatched. It may be, however, that large and bulky items should be placed nearer to the despatch area instead, to save on the time spent transporting them to the despatch area. This may also address the increased seasonal demand for certain types of product as products which are popular for that specific period could be stored more closely to the despatch area.
The cost of absenteeism is a waste caused by demanding too much of staff at busy times to compensate for inefficient organisation in the warehouse and errors in the WIS. The cost of searching for items which have been put in the wrong physical location at busy times is a waste due to variation in activity levels.
Another type of waste which does not add value to the customer is holding excessive inventory, for example, the additional warehouse space which NJN has rented. By not making efficient use of the warehouse space it has, NJN is reducing its level of output, and revenue, relative to the resources available to it. In addition, the extra warehouse space means more time spent by staff moving through the warehouses trying to locate goods.
The cyclical inventory counts which the management consultant has suggested do not add value to the customer and are also more demanding for staff. This is a wasteful activity, correcting the errors which have occurred in the WIS. NJN should instead concentrate on ensuring that errors do not occur in the first place, which will cost less than correcting them.
Evaluate whether the application of each of the 5Ss following the warehouse reorganisation at NJN is adequately measured by the performance metrics in Appendix 1.
The 5Ss in the adoption of lean principles during the warehouse reorganisation are Structurise, Systemise, Sanitise, Standardise and Self-discipline.
Structurise
This involves introducing order where possible, for example, by ensuring that items in the warehouse are arranged so that they are easy to find. This would also include segregating damaged or obsolete inventory, or discarding it from the warehouse.
The management consultant has suggested the measure of the proportion of inventory not stored in order of its alphabetical description, with ‘A’ nearest the despatch area and ‘Z’ furthest away. This may measure how easy to find each product is, but would not necessarily make best use of all available space or make the picking process more efficient. It may also be subjective and prone to errors caused by the interpretation of the product description, for example, in deciding if cricket balls be measured under ‘C’ or ‘B’.
Systemise
This principle involves organising items so that they are easy to use. At NJN, this means being able to accurately pick the correct items in the shortest possible time. It could also cover access to other resources, such as having computer terminals close to where they are needed.
The measure relating to the storing of goods alphabetically seems to conflict with the consultant’s recommendation to place the high volume lines close to the despatch area. Whereas storing goods alphabetically may make items easy to find, it does not necessarily make them easy to use (pick). By storing the high volume items near to the despatch area, the average time taken to pick orders would be reduced.
Sanitise
This principle means to be tidy and avoid clutter. This helps make things easy to find, allows easy access of staff around the warehouse, and helps make a safe working environment. The warehouse manager’s daily assessment of tidiness is a suitable measure of this principle, which is a subjective assessment.
There is the possibility that the assessment will be biased, especially if the warehouse manager who is undertaking the assessment is also having his performance evaluated on the tidiness of the warehouse. The characteristics of what constitutes a tidy warehouse, compared to an untidy one, will need to be defined. There is the possibility of inconsistent measurement if someone other the warehouse manager does the assessment, or the assessment is done at different times of the day.
Standardise
This principle involves finding the best way of undertaking a process or task, and applying it consistently. The suggestion of the number of accidents caused by goods which have not been stored or picked in the correct way would measure this. As NJN should aim to have no accidents, this should be a performance measure with a target level of zero.
Self-discipline
This principle relates to sustaining the other Ss by motivating employees. Motivation is subjective, and hard to measure. None of the performance measures the management consultant has suggested directly measure this principle. The consistency in which specific tasks or processes are performed could be a measure of how well they are being sustained.