Preparation for the warehouse optimisation

Each organisation with its own warehouse understands its importance from the operational and financial points of view. On the one hand, a full warehouse constitutes a protection against all unplanned events such as a rapid increase in demand or an interruption in the supply chain. On the other hand, high stock levels mean large costs and ‘frozen’ capital. However, the appropriate management allows the enterprise to find a happy medium securing the organisation’s strategic needs, while also maintaining restraint in the financial area.

The warehouse optimisation project is a set of actions and tools whose development in a broader time perspective is aimed at the generation of such specific benefits as:

• Reduction in storage costs
• Reduction in value of stock sitting idle in the warehouse
• Maintenance or improvement of availability of warehouse stock
• Better management of the warehouse

Below, we will discuss in more detail the activities from ‘Step 1’ , whose implementation is the condition necessary to carry out further independent works of the organisation.

Step 1 – Warehouse optimisation – Data preparation

The process concerning the warehouse optimisation should be started with thorough data preparation. This is a best practice frequently performed by enterprises. However, due to lack of clear purpose and / or lack of time, it is often carried out without due diligence. Regardless of the actual status, before the commencement of works aimed at the optimisation of warehouses, they should be reviewed. What to start with? We explain!

A – Nomenclature unification – starting point for the warehouse optimisation

This activity means the verification of nomenclature used to describe material indices in warehouses. Non-uniform or non-ordered names, use of synonym concepts, and incorrect naming of elements are situations which very often lead to unnecessary duplication of material indices. They also significantly impede the use of data gathered. A classic example is the interchangeable use of terms ‘pivot’ and ‘pin’ and sometimes even ‘mandrel’. A lack of control over the correct nomenclature in this scope may result in duplication of items in the register which physically correspond to the same thing.

Ordering the nomenclature during the performance of the warehouse optimisation process is not an end in itself. It constitutes a perfect starting point for activities aimed at the elimination of duplicates. It is important not only in the warehouse areas, but also has a positive impact in other areas of the organisation. Warehouse employees are not the only users of indices. The same ‘glossary’ is also used by the people responsible for purchasing processes, operations maintenance employees and sometimes production staff. All of these groups work in different business environments and have different levels of technical / sector knowledge. Searching for an appropriate item, they intuitively act according to repetitive patterns and habits, counting on a logical analogy. A lack of coherence significantly limits the chance for solving current tasks in an effective manner. This is why unification of the nomenclature is so important in the warehouse optimisation process.

B – Removal of duplicates as the second step in the warehouse optimisation process

The basic purpose of the existence of the material index is to describe precisely and unambiguously for business reasons a real element being an object of turnover within the warehouse management. They allow the aggregation, i.e. grouping physical elements (parts, components) under one common label. The coherence of names used in indices and the presence of duplicates depend on the adopted grouping criteria.

If the aggregation is too excessive, it protects from duplicates, but results in a loss of information. On the other hand, if the aggregation is too poor, it causes a significant increase in the quantity of data. On the other hand, if the aggregation is too poor, it causes a significant increase in the quantity of data. For example, when a manufacturer of a part known in the registers as X changes its packaging while maintaining all of the other parameters of the content, it should still be treated as X. If a person entering part X to the register decides to create a new X index, a duplicate will occur, and thus knowledge of item X will be distorted.

Duplicates of indices impede the effective control of warehouse stocks, recording receipts, releases and transfers, as well as demand monitoring. As a consequence, they cause distortions, frequently preventing the use of such tools as:

• Analysis of the ABC turnover value
• Analysis of the XYZ demand volatility
• Analysis of the SDE supply deficit
• Analysis of the HML unit cost
• Optional Reordering methods

Is the removal of duplicates important during the warehouse operation optimisation? Absolutely! The purpose of this activity is to check the names of the indices in terms of existing duplicates as well as to verify whether previously detected copies have corresponding stocks and whether it is possible to eliminate these stocks. The elimination may be performed in two ways. The first of them is of course consumption. The second way is to change the indices, but this is not always possible, mainly due to financial and accounting reasons.

C – BOM preparation – i.e. how to systematise data during the warehouse optimisation

This activity means combining different warehouse items with maintained resources. In other words: it is necessary to gather information about the intended use of individual parts and components in order to allow the warehouse operation optimisation.

Having the set of the above-listed information, the company may prepare for the analysis of the risk affecting the operation maintenance, which results from decisions taken at the level of the warehouse management, as described in the next point.

D – Criticality determination – the last stage of the data preparation in the warehouse optimisation process

If it is possible, during the performance of works aimed at the warehouse optimisation, the criticality of the use of individual items should be determined with at least a two-point scale in order to distinguish their impact on the operation maintenance.

For example:

• Criticality of the 1st level – items required for conducting maintenance works, which cannot be replaced and whose absence may cause resource ineffectiveness
• […] – alternatively intermediate levels
• Criticality of the 2nd level – items whose absence does not affect resource effectiveness, or items which can be replaced.

The same exercise may be carried out from the perspective of resources, on the basis of data from point C – BOM preparation, however acquiring the information should be treated as separate dimensions. Indicating the criticality of resources (object of the maintenance), it is possible to determine the importance of stocks at the level of particular items. These values change over time and at the final state of the warehouse optimisation process may be dynamically modified. Nevertheless, it is worth addressing this issue at an early stage in order to work out an approach to determine the actual values on the basis of the current situation.

Warehouse optimisation – Summary

The above part presented activities which constitute the starting point for optimal preparation to the Warehouse Optimisation Project. These activities involve the processing of a large amount of data whose volume may amount to several thousand warehouse items. To facilitate the work, it is worth performing the ABC and XYZ analyses earlier to narrow down the area of works to the group of materials with a high demand value and considerable forecasting accuracy. In further iterations, the next groups may be verified in order to gradually develop the widest possible group of materials.

Moreover, in the scope of works described inA – Nomenclature unification, the company may use consultancy services of specialists having sector-specific dictionaries through which specific works are conducted. In the scope in question, we provide support in terms of ad hoc measures and development of dedicated solutions. Warto pamiętać, że poruszone w powyższych akapitach zagadnienia nie są czynnością jednorazową, lecz powinny być traktowane jako cykliczna praktyka, której efekty mają przełożenie na możliwości optymalizacji magazynu.Warto na bieżąco śledzić aktywność na naszym blogu – już wkrótce opublikujemy analizę II kroku optymalizacji magazynów.It is worth keeping up with news on our blog. We will soon publish the analysis of the second step of the warehouse optimisation.