Metrics responsible to measure the performance of warehouse processes

Assessment Instrument Cover Sheet

Course Code: BSCL 304    Course Title: Warehousing and Materials Handling

Semester: Spring    Academic Year: 2014– 2015

Assessment Instrument: Group Project        Due Date: 1June 2015

Course Instructor:

College/Department: College of Business Administration

This instrument assesses the following Course Learning Outcomes (CLO):

Tick    Course Learning Outcomes (CLO)*    Marks
?    #1
?    #2
X ?    #3    /10
X?    #4    /10
X?    #5    /10
Total from 30    /30
*Linkages to Program Outcomes and Concentration Outcomes are provided in the Syllabus.

Project title: Metrics responsible to measure the performance ofwarehouse processes

Read the instructions very carefully before proceeding further:
1. Form groups consisting of at least 3 students. In this class we should have two groups (Group – A consisting of three students and Group – B consisting of 3 students).
2. Group name and respective student names (including student ID) must be indicated in the cover page of the project report.
3. Read the details of the project description first.
4. Generate a project report for each of the groups.
5. The project report should be written using any standard word processing software. However, the hard copy of the project report should be submitted on the due date.
6. The group project consists of a total of 30 marks. Project report will be marked out of 20 marks whereas the rest 10 marks are dedicated for group presentation and question & answer session.
7. Clear elucidation of the steps must be present in the project report.
8. Any realistic assumption is welcome. However, the assumption must be written clearly.
9. No bullet point will be entertained in the report unless the bullet points evolve from a specific paragraph.
10. Use of grammatically correct English is strongly recommended.
11. A “Table of Contents” may be included illustrating the contents of the report corresponding to the page numbers.
12. The report should contain identifiable sections with section numbers (different section names may be used as per your choice). The following are the examples of section names:
1. Introduction
2. Project Objectives
3. Analysis of the Results
5. Managerial Significance of the Problem
6. Conclusions
13. During the presentation the entire group should present the project outcome. PowerPoint slides should be used during the presentation. Maximum presentation time is 15 minutes. Each of the members of a group should participate during the presentation which will follow a question-answer session.
14. PowerPoint presentations should be uploaded on to Moodle.

Project Title:“Metrics responsible to measure the performance ofwarehouse processes”

The choice of methods for measuring performance is acritical activity for identification of inefficiencies in processes.A suitable set of metrics can be used as a protection againstloss of quality or loss of customers. Performance indicators inthe warehouse process area can generally be summarized byone of the following:
• Operating costs, such as warehouse costs as a percentageof sales.
•Operating productivity, such as pick-lines, orders, cartons,pallets handled per person per hour.
• Response time, such as order-cycle time (minutes perorder).
• Order accuracy, such as fraction of shipments withreturns.

Typicalwarehouse performance indicators are listed in Table 1 below:

Table 1: Typical warehouse performance indicators
Measure    Type    Calculation    Typical value
Cost as % ofSales    Min    (Total Warehouse Cost)/(Overall Sales)    3.82
Cost per Order    Min    (Total Warehouse Cost)/(Total Orders Shipped)    5.23
Items per Hour    Max    (Items Picked (Packed))/(Total Warehouse Labour Hrs)    120 pickeditems / hour
Order per Hour    Max    (Orders Picked (Packed))/(Total Warehouse Labour Hrs)    5 orders / hour

Table 1 shows that Cost per Order is calculated from thetotal warehouse cost. Other metrics are also calculated fromtotal (aggregated) values. If we look at how the warehousecosts are usually monitored in companies we find that they areeither not monitored at all or are expressed by one total value. This meansthat most companies cannot know the structure of warehousecosts or manage them effectively. In other words this meansthat metrics based on total cost values do not allow us to findopportunities for cost reduction.

The procedure of process cost allocation is as follows. First,based on the analysis of activities, sub-processes (SP) areestablished in existing costs pools (e.g. purchase department).Cost drivers and process quantities for individual sub-processesare simultaneously defined. The data are obtainedfrom the statistical analysis of repetitive warehouse processes.The next step is summarization of several related sub-processeswhich exceed cost pools into a few main processes.

Determination of sub-process cost and cost rates is asfollows:
1) Selection of allocation basis.
2) Total cost of cost pool is divided into so-called lmi-processes(they are quantity variable and depend onprocess quantities) and lmn-processes (they are quantityindependent). Allocation basis is used as a scale fordistribution.
3) Lmi and lmn sub-processes are displayed in the cost pooltable.
4) Lmi sub-processes costs are calculated. The total cost ofthe cost pool is divided between individual sub-processes.Allocation basis is used as a scale.
5) Establishing surcharge. In this step lmn sub-processescosts are assigned to the lmi sub-processes cost.
6) Sub-processes cost rates are established for lmi+lmn sub-processesas a proportion of the cost of sub-processes andcorresponding process quantity.

The calculation procedure described in the previous sectionis shown at first in general and then numerically for the sub-processcalled picking. The individual steps ofcalculation are as follows:
1) Personal capacity is selected as allocation basis. Pickingprocess depends on process quantity; therefore it is an“lmi process”.
2) For example we know (from statistical data) that pickingprocess quantity was 15,000 in the previous time period.The total warehouse cost was 10,000 AED in the sameperiod.
3) Calculation of lmi sub-process cost:

SP lmi cost = (Total Cost)/(Total number of employees)x No. of employees of SP    …(1)

4) Calculation of lmi sub-process cost rate:

SP lmi cost rate =(SP lmi cost)/(Amount of SP)                            …(2)

5) Calculation of lmn surcharge:

SP lmn surcharge = (lmn total cost)/(?_(i=1)^n¦?SP lmi cost?)x    lmi cost of SP            …(3)

6) Calculation of sum lmi+lmn sub-process cost:

SP (lmi + lmn) cost = SP lmi cost + SP lmn surcharge                …(4)

7) Calculation of lmi+lmn sub-process cost rate:

SP (lmi + lmn) cost rate = (SP (lmi+lmn) cost)/(Amount of SP)                    …(5)

The following two tables are required for calculating the cost rates for the sub-processes.

Table 2: Warehouse sub-processes cost rates – Right part
Number    Sub-process    Cost drivers    Quantity of sub-process    No. of employees
1    Receiving lmi     No. of received pallets    1800    0.5
2    Put-away lmi    No. of put-awayed pallets    2000    0.3
3    Picking lmi    No. of picked items    15,000    2.0
4    Packing lmi    No. of packed items    1500    2.0
5    —    —    —    —
Sum    —            4.8
6    Control lmn    —    —    0.2
Sum
(lmi + lmn)    —    —    —    5.0

Table 3: Warehouse sub-processes cost rates – Left part
Sub-process cost (AED)    Sub-process cost rates (AED)
lmi    Surcharge lmn    Sum of (lmi + lmn)    lmi    (lmi + lmn)
1000.0    41.7    1041.7    0.56    0.58
600.0    25.0    625.0    0.30    0.31
4000.0    166.7    4166.7    0.27    0.28
4000.0    166.7    4166.7    2.67    2.78
—    —    —    —    —
9600.0    400.0    10,000.0
400.0
10,000.0

Questions:
1. Find out the picking lmi cost.
2. Find out picking lmi cost rate.
3. Find out picking lmn surcharge
4. Find out picking cost
5. Find out picking cost rate (i.e. cost of one picking process).
6. Identify the metrics used to measure the performance ofwarehouse processes.
7. Assume that the warehouse has a Drive-in racking system. Describe (along with diagrams) loading/ unloading sequence of Drive-in racking in the context of this warehouse. Any realistic assumption in this regard is welcome. However, the assumptions are to be clearly stated in the project report.