The Warehouse

Labels: [Sourced] checked against a source listed at the end. [General] standard industry knowledge. [Our view] opinion, labelled as such. [Illustrative] made-up numbers to teach an idea.

1. The story: the day Amazon bought the robots

On March 19, 2012, Amazon announced it would buy Kiva Systems, a maker of warehouse automation. Amazon's fulfillment chief said the technology brought products "directly to employees to pick, pack and stow." [Sourced: Amazon press release, Mar 19 2012] Reuters reported the price as $775 million in cash. [Sourced: Reuters] The completed deal was filed with the SEC on May 1, 2012. [Sourced: SEC 8-K] Notice the idea: instead of people walking to the goods, the goods walk to the people. That one flip attacks the biggest cost in a warehouse. [Our view]

2. The one idea

A warehouse is a machine for turning pallets into the exact items a customer ordered, as cheaply and accurately as possible. [General]

3. The kitchen-table version

Your kitchen. Groceries arrive in bulk (receiving), go into cupboards (put-away), you gather ingredients for a recipe (picking), you plate it (packing), and serve (shipping). A warehouse is that, with thousands of recipes at once.

4. The five steps [General]

Receiving: check the truck against the ASN (Module 3).
Put-away: store it where it can be found and picked efficiently.
Storage: pallets, shelves, bins.
Picking: gather items for orders.
Packing and shipping: box, label, load (Modules 8, 12). Flows can skip storage. Wal-Mart is credited with developing cross-docking, moving goods straight from inbound to outbound trucks without storage in between. [Sourced: Arkansas Business; SCDigest says Wal-Mart opened its first DC in 1970]

5. Why picking is the main cost

Order picking is estimated to be as much as 55% of total warehouse operating expense. [Sourced: European Journal of Operational Research article abstract, citing earlier estimates; repeated widely, mostly traced to Frazelle 1996] Most of that time is walking. [General; Bartholdi and Hackman as cited by a vendor page]

Worked example [Illustrative, computed by script]. A picker fetches 4 orders. One at a time, each trip is 300 feet: 4 x 300 = 1,200 feet. Batch picking gathers all four in one pass of 420 feet: 65% less walking. Tradeoff: items must be sorted into orders after, and the savings shrink if orders do not overlap in location. If picking is 55% of a $100,000 monthly warehouse bill, that is $55,000; a 25% cut in picking cost saves $13,750 a month. The 25% is our assumption, not a benchmark.

6. Picking methods and layouts [General]

Discrete: one order at a time.
Batch: several orders per trip.
Zone: each picker covers an area, orders pass along.
Wave: release orders in timed groups to match shipping deadlines.
Slotting: put fast sellers closest to the dock and at waist height (Module 1 SKU data decides).
Goods-to-person (shelves or robots move): the Kiva idea.

7. Where AI fits

Slotting that re-arranges as demand changes. [General]
Robots and vision-guided picking. [General]
Labor planning from the order forecast (Module 5). [General]
Forward thread: the warehouse as a learning system that decides what to stock where before orders arrive. [Our view]

8. Exercise

Draw your pantry as a warehouse. Where would you put the 3 items you use daily? What would a "slotting" change save you?

9. Quiz

Biggest warehouse cost? Order picking, mostly walking.
What is cross-docking? Moving goods inbound to outbound with no storage.
Why did Amazon buy Kiva? Bring goods to pickers rather than walking.
Downside of batch picking? Sorting later; savings depend on order overlap.