Are Your Warehouse Operations Lean?
By Ken Gaunt
Universal Advisor, 2006 Issue No. 3

It wasn’t long ago that lean operating principles were synonymous with manufacturing environments. Today, however, the concepts have spread to offices, administrative environments, and service organizations, increasing efficiencies and yielding significant financial returns. Yet there’s one area that tends to be overlooked in these new environments: warehouse and distribution operations.

A Significant Opportunity for Cost Savings

Warehouse and distribution operations are relatively simple from an operational perspective, which may be why they’re so often overlooked when it comes to lean applications. Despite their simplicity, however, there’s often significant opportunity for cost savings. Warehouse and distribution operations tend to be associated with high levels of activity — people and products in constant motion. But activity should not be confused with productivity.

Although people and products are in constant motion, customer orders tend to move through the system slowly. Rather than proceeding in a smooth flow, they tend to stack up and sit in queues in between processing steps. These delays lengthen order cycle time and contribute to an inefficient use of resources. In addition, this method of processing orders causes clutter and consumes valuable floor space. There are also many problems causing delays that can occur within picking, packing, and loading process steps.

In one analysis of a distribution operation, data revealed that the overall order processing cycle time was extremely inefficient. Of the total order cycle time, it was actually being worked on only 37.9 percent of the time. Six percent of the time was wasted while people dealt with problems such as waiting for lift equipment, computer issues, interruptions, and blocked aisles, and the remaining 56.1 percent of the time orders sat idle. This is a low productivity ratio by any standard. While it’s unrealistic to expect a productivity ratio of 100 percent, an increase to 75 percent efficiency would double productivity. How can this opportunity be captured?

Capturing Opportunity

Effectively applying lean operating principles in a warehouse or distribution operation takes a fundamental change in perspective. The concept is to “assemble” orders in a similar fashion as products flow in an assembly line. To implement lean principles, begin with a time study and analysis of the order fulfillment process. Determine the average cycle time to process orders from beginning to end. Identify value-added and nonvalue-added work elements, and determine the time consumed by each. Calculate the value-added ratio as an overall indicator of the potential improvement. Then, assess workflow for delays, inefficient picking paths, wasted motion, congestion, and equipment availability.

To improve efficiency in order processing, it’s important to redesign the workflow and how work is allocated. Instead of assigning whole orders to pickers, assignments should be allocated in standard units of work based on time. From the time study it can be determined how much product (number of lines on a pick list) can be picked in certain increments of time. Ideally a unit of work should be allocated in increments of an hour or less, which becomes a standard picking “batch” size.

Pickers now work in time increments that keep orders flowing. They return in predictable intervals, feeding work stations where product is sorted into complete customer orders, packed, and loaded. This is a more efficient use of resources than pickers disappearing into the warehouse for hours while packers and loaders wait for work to do. Picking assignments should be organized in a visual system called a “heijunka” box (similar to the mail slot system used for advanced scheduling in manufacturing operations). Picking assignments are arranged in each picker’s mail slot in the order they’re needed and by product line. Pickers are assigned to certain zones in the warehouse to make their travel paths through the aisles efficient. In turn, each picker completes their assignments in the sequence they’re arranged, gathers the product, returns it to the staging area, and then repeats the process in a constant flow.

Organization Is Key

Further improvements can be gained by organizing the warehouse so that product is easily found and retrieved. Review warehouse layout and product storage, and make improvements to the overall layout and product storage strategy including:

• Modify aisle and rack layout to improve space utilization.
• Arrange products ordered most frequently closest to the shipping dock to reduce travel distance.
• Implement visual identification systems for aisles, racks, products, and workflow.
• Employ put-away processes that prevent cluttered and blocked aisles.
• Establish organization and housekeeping systems to improve efficiency by ensuring tools and equipment are available when and where they’re needed (a place for everything and everything in place).

Because rearranging an entire facility and changing workflow is a monumental task, it’s recommended that only a portion or zone of the warehouse be selected as a pilot. A product family or customer can also be selected for a manageable pilot.

Once the pilot is complete, conduct another time study to validate the results, and make adjustments as necessary. An important success factor in transforming a warehouse or distribution operation is measuring and monitoring performance. It’s important to establish performance targets such as lines or orders processed per labor hour. Measure them consistently to drive continuous improvement.

Are Your Warehouse Operations Lean?

Implementing lean operating methods yields multiple benefits. Not only do orders flow more efficiently, but other forms of waste and inefficiency are reduced or eliminated:

• Resources are better utilized as a result of more efficient work load, better flow, and elimination of issues causing delays.
• Through-put improves, enabling more volume without additional labor.
• Inventory accuracy improves because product is handled, moved, and counted less.
• Damaged and lost product is reduced as a result of less handling.
• Floor and storage space are better utilized.

With careful application of traditional lean operating methods, improvement efforts can reap multiple benefits with significant financial impact.