Master in Management and Industrial Engineering

Supply Chain Management

2021/2022

PBS Optimization
SONAE MC
- Case Study -

Prof. Pedro Amorim | Prof. Sérgio Castro

Beatriz Seabra de Matos Pereira – up201806814@edu.fe.up.pt

Inês Lima de Morais – up201806333@edu.fe.up.pt
Márcia Andreia Neves Peixoto – up201503040@edu.fe.up.pt
Maria Inês Dias Maia Rodrigues – up201806532@edu.fe.up.pt
Sofia Rafaela da Silva Osório – up201806752@edu.fe.up.pt
Tiago Ribeiro Gonçalves – up201806816@edu.fe.up.pt
Agenda

1 4
Context and the Case Study Optimization

2 5
Data and main Assumptions Additional Improvements

3 6
Methodology Conclusion

2
……..

1
……..
Context
Sonae is a multinational company that manages a diversified
portfolio of businesses

Retail, financial services, technology, shopping centres, and telecommunications are some of the businesses that are
present in Sonae’s portfolio.

Sierra ISRG Fashion MC FS IM Worten NOS

Through a multi- Sonae MC is the

format business leading +35.000
portfolio, it company in the workforce
provides food retail sector +5.100M
Portuguese in Portugal. sales
families with a +1300
wide range of stores
high-quality
products and
services at
competitive prices.

4
Sonae MC is redesigning a PBS operation and wants a
solution that minimizes costs and maintain service level

Challenge “Propose the picking strategy and a solution for the dispatch area in order to minimize
total costs while keeping the same service level to stores.”

Some layout and process decisions will influence the overall efficiency of the operation.
It is really important to keep in mind the trade-off between warehouse ang global logistic costs
since some changes may be positive for one side while affecting negatively the other.

Main Goal: Minimize Total Costs

Warehouse Employee
+
Space Costs
+ Save Money Same Service Level
Transportation Costs
+
Despicking Costs

5
In order to find the best strategy, it is crucial to understand
Maia PBS Warehouse activities

About PBS
✓ The flow starts with 1 or 2 empty pallets;
✓ Pickers drag the store pallet from the beginning of the flow through the picking circuit;
✓ Electric order pickers with a capacity up to two pallets;
✓ Pickers collect the ordered boxes from each location, based on Voice Picking instructions;
✓ One single operator prepares one or two pallets at a time for the same store.

6
There are 4 main operations in Maia PBS Warehouse
1 Inbound + Verification
✓ Suppliers deliver the goods based on the purchase
orders, regardless of the type of the store;
✓ The pallets are unloaded from the truck to the inbound
area, where an operator validates the reception.
2 Stock & Picking Replenishment
✓ The forklift operator has to low a pallet from a specific
SKU when a picking location needs to be replenished;
✓ The forklift operator is responsible for opening the plastic
film and leaving the pallet at the correct picking location;
✓ Stocking and Replenishment tasks are performed at the
same time as the picking operation.
3 Dispatch
✓ After finishing the preparation or when the limit of a
pallet is reached, they are moved to the marshalling
area. Then, the trucks are loaded to deliver the goods
respecting the dispatch schedule of each store.
4 Store Replenishment & Despicking
✓ The goods are kept in the store warehouse after delivery;
✓ Replenishers take the pallets to the store corridors to
place the products on the shelfs;
✓ If the products of one pallet belong to different store
sectors, then a separation (despicking) has to be done.
7
Since the goal is to minimize cost is essencial to know what
are the Maia PBS Warehouse most representative costs

Warehouse Pickers Forklifters Transportation Despicking

Costs Costs Costs Costs Costs

Related to the Related to Related to the time

Related to the
number of the number of that it takes to
Related to the used number of
employees employees working despick the order at
area for PBS pallets that are
working in the in the forklift store level and the
operations. transported to the
picking operation. position. quantity of products
stores.
in pallets.

8
……..

2
……..
Data and Main
Assumptions
Firstly, the relevant data need to be brought together

Movement Data Picking & Shipping Data (15 days)

✓ Average order picker speed: 6 km/h
✓ Average time to visit a picking position: 25 s
✓ Setup time per picking pallet: 3 min
✓ Interruption to stabilize a pallet: 1 min
✓ Forklift pallet up or down: 2 min
✓ Replenish a picking position by pallet: 1 min
✓ Replenish a picking position by box: 3 min
Despicking task:
✓ Number of boxes of specific SKUs required by
each store in each day
✓ Maximum volume capacity of a pallet: 1.5 m3
SKU Data
✓ Weight and volume of each SKU
✓ Business Unit of each SKU

Pallet 2 BU’s 2 3 +4 Costs

with but mixed mixed mixed
1 BU divided BU’s BU’s BU’s ✓ Picking / Store operator cost per hour: 10€
✓ Forklift operator cost per hour: 15€
Seconds ✓ Warehouse space cost per month per m2: 15€
- 1,5 4,6 6,7 10,2
per box
✓ Transportation cost per pallet: 8€

10
Then, to understand better the available data, an exploratory
analysis was performed
Picking Data ▪ All stores in the picking data have a defined shipping;
▪ 66 of the SKUs in the picking data don’t have any information regarding their volume, weight and BU;
▪ 84607 orders (48%!) have orders in days where there’s no shipping for that specific store.

More details about the approach, regarding this missing data, will be detailed in the next slides
12 days

No. of
No. of
No. of different
different
Boxes sent* stores to be
SKUs sent*
176 025 orders shipped to*
Monday 35 503 1 107 100

Tuesday 35 362 1 124 96

Wednesday 27 969 1 068 99

1 369 SKUs Thursday 22 257 1 112 76

Friday 25 342 1 059 107

No. of Deliveries Saturday 20 171 1 068 83

1 2 3 4 5 6
per week * Mean values

159 stores No. of Stores 2 3 123 16 5 14

11
Secondly, it was required to explore the assumptions given

Warehouse

▪ There is no space limit in the PBS Warehouse, but there are costs associated to the used area;
▪ Corridors in the PBS operation must respect a minimum width of 3,0 m;
▪ All corridors between racks are one way to prevent accidents.

Picking & Shipping

▪ In order to guarantee the pallet stability, box weight shall be taken into account for the picking sequence;
▪ An “interruption” of the weight sequence will force the picker to readjust the picked boxes to keep the pallet stability;
▪ The Picker receives the next instruction once he finishes a task. This means he goes directly to the next picking
location or ends the circuit using the shorter path;
▪ Two picking positions by box fit in the same height of 1 picking postion by pallet;
▪ Same service level – the delivery frequency to stores remains unchanged.

Costs

▪ Employee costs per hour are average costs and already consider days off and vacations.

12
Lastly, due to the lack of information, there was a need to
establish some assumptions

Missing SKU data Dispatch Area

▪ For the volume, it was assumed to be the
average of all the available data regarding
this variable (0.02𝑚3 ). The same approach was
used with the weight (5.73kg);
▪ For the Business Unit, the mode of all the
available data regarding this variable was
used (BU 4).
▪ It is considered that the pallet has a cube
form to facilitate the calculation of the
dispatch area needed;
▪ It is assumed that 1 order that is in this area
takes in maximum 1 hour to be shipped
(value already with a safety margin to avoid
undersizing the dispatch area).

General
▪ Some picking positions may be too heavy (SKUs with a big weight), however, this wasn’t considered a
limitation since there were no weight restrictions on this matter.

▪ For orders without delivery in the same day they are ordered, the delivery takes place in the next shipping
time possible for that specific store. The order is prepared only on the shipping day.
▪ The average speed of the forklifter is the same as the picker (6 km/h).

▪ The picker must wait for the forklifter to replenish a picking position when necessary. Although the
replenish could be done before the picking positions became completely empty (and so the picker would not
have to wait for an available box), the assumption that replenish takes only place when the picking position
is empty was made to avoid undersize the number of pickers needed.

13
……..

3
……..
Methodology
After reading the data from Excel, Python was the tool used
in data analysis and for the scenarios testing
Raw SKUs list + Picking
Data + Shipping Times
Other inputs:
• Picker speed
• Time in a picking position
• Setup time
• Time to stabilize a pallet
• Forklifts’ time up or down
• Replenish time
(read data)
Costs:
• Picker, forklifter and store
Clean SKUs list operator hourly cost
+ Picking Data • Warehouse cost (per sqm)
• Cost of shipping a pallet
Scenario testing
KPIs:
Ordered Distribution of picking orders • Despicking cost
SKUs list per pallets and times* of picking • Pickers cost
• Forklifters cost
• Warehouse cost
Warehouse layout Picking by pallet or box • Shipping pallets cost
• Mean nr. of pickers
• Mean nr. of forklifters
*how to get times through code will be explained in the next slide
• Mean time for one pallet
• % of time stabilizing pallets
15
One of the most important code was the one that calculated
distance taking into account all possible routes
Start SKU
Get positions in layout 20
End SKU
Calculate distance taking into account 19

all possible routes due to one-way aisles 18

17
if start point in odd column:
if end point in same column (𝑆1 ) : 16

if end point in a rack above (𝐸1𝑇 ) : 15

distance: go straight way; 14

if end point in a rack below/at the same row (𝐸1𝐵 ): 13

distance: have to turn around; 12

if end point in other odd column (𝑆2 ) :
11
if end point in a rack above (𝐸2𝑇 ) :
distance: just go up some rows of racks and horizontally;
if end point in a rack below/at the same row (𝐸2𝐵 ): 10

distance: have to come down and up again (and horizontally); 9

if end point in even column (𝑆3 ) : 8

if end point in a rack above (𝐸3𝑇 ) : 7

distance: go up some rows of racks and come down some
6
positions (after going horizontally);
if end point in a rack below/at the same row (𝐸3𝐵 ): 5

distance: go up, horizontally and come down some positions; 4

If start point in even column: 3

repeat code above with inverted layout; 2

2,88m 1

Picker
speed
Get time Measures calculated based 1,22m
15 14 13 12 11 10 9 8 7 6 5 4 3 2 1
on the warehouse layout given Note: the number of racks represented (rows and columns) are for illustrative purposes only

16
……..

4
……..
Optimization
The optimization procedure consisted in 4 stages of analysis

Scenarios

Order of SKUs
Warehouse Replenish by
and picking Dispatch area
Layout pallet or box
orders

18
Evaluating SKU’s sequence in a picking position and the
picking orders sequence revealed to be fundamental
In order to find a picking strategy that both minimizes total costs and keeps the same service level to
stores, there are two important components that should be analyzed:
1. SKU’s sequence in a picking position;
2. Picking orders sequence.

SKU’s sequence in the picking positions Ways of sequencing picking orders

The SKUs are assigned to a picking The picker places the heavier SKUs at
Weight position by descending weight (to Weight lower positions of the pallet (to
facilitate pallet stability) facilitate pallet stability)
Business Units The SKUs which belong to the same
Shortest Picker goes to the closest position
(BUs are orderd by mean BU are put together (focus on store
weight; within each BU,
friendliness) Distance concerning his current position
SKUs by weight)

ABC The SKUs are organized following the

(within each class, SKUs ABC method and by descending
by weight) weight For example, if the picker is in SKU
4731036, and there are left SKUs 6881789 0 2 4 5
6881789, 2148382 and 2510169 to be 4731036 5 0 2 1
Store Clusters The SKUs are clustered according to picked, he will be sent to the closest
(clusters are ordered by their shipments to each store, using
2148382 8 9 0 5
one: 2510169. This is done with a
mean weight; within
an unsupervised learning algorithm: distance/time matrix
2510169 5 3 5 0
each cluster, SKUs by
weight) KMeans (matrix for illustrative purposes only)

19
Each of the proposed scenarios combine both components

SKU’s sequence in the picking positions

Weight BU ABC Clusters
picking orders

Weight Scenario 1
sequencing
Ways of

Shortest
Scenario 2 Scenario 3 Scenario 5
Distance

Notes Scenario 4
Since the layout and the type of picking is only tested and analyzed in the following phases, for now to test and
compare these scenarios it was considered in all 2 lines of racks and picking by pallet.

Regarding the costs, they were calculated considering the picking orders data’ number of working days.

In all scenarios, a service level of 100% is guaranteed.

20
 Scenario 1 &

In order to guarantee the pallet stability, it’s important to take into account the box weight for the picking sequence, because
every interruption on the weight sequence will force the picker to stop and stabilize the pallet.
In this scenario the intention was to sort the SKUs by descending order of weight both in the picking positions and the
picking orders.

Warehouse Pickers Cost Forklifters Cost Transportation Despicking Cost

Cost* Cost

72 046 € 27 898 € 3 446€ 47 712 € 7 554€

Mean Nr of Pickers: 19
Main goal
Total cost Mean Nr of Forklifters: 2
- Guarantee pallet stability

158 656 € Mean Time for 1 Pallet: 27s

*These do not include costs related to the dispacth area

% Time Stabilizing: 0%

21
 Scenario 2 BU &

In this scenario SKUs belonging to the same business unit are placed together and sorted in descending order of average weight,
and within each BU, the SKUs’ weight is sorted in descending order. In addition, the picker travels the shortest distance from the
current position to fill the pallets for each store.

The smaller the number of BUs in each pallet, the lower the despicking costs!

Warehouse Pickers Cost Forklifters Cost Transportation Despicking Cost

Cost* Cost

72 046 € 21 505 € 3 499€ 48 040 € 1 734€

Main goals Mean Nr of Pickers: 15

- Guarantee pallet stability
- Create a more store friendliness Total cost Mean Nr of Forklifters: 2
option
- Minimize the distance traveled by the
pickers (non value added activity)
146 824 € Mean Time for 1 Pallet: 21s

*These do not include costs related to the dispacth area % Time Stabilizing: 9.4%

22
 Scenario 3 ABC &

In this scenario the ABC method was used to distribute the different SKUs to the picking positions, and, within each class, they
were sorted in descending order of weight. In addition, the picker travels the shortest distance from the current position to fill
the pallets for each store.
The ABC method consists of dividing the SKUs into three categories (A,B and C). The most important ones (those with more sales) are class A, the next most important are B
and finally, C. Based on Pareto’s rule, ABC analysis identifies that 20% of SKUs should deliver 80% of the value (revenue).

Warehouse Pickers Cost Forklifters Cost Transportation Despicking Cost

Cost* Cost

72 046 € 20 260 € 3 229€ 47 880 € 7 377 €

Main goals Mean Nr of Pickers: 14

- Guarantee pallet stability
- Minimize the distance traveled by the Total cost Mean Nr of Forklifters: 2
pickers (non value added activity)
150 792 € Mean Time for 1 Pallet: 20s

% Time Stabilizing: 8.2%

*These do not include costs related to the dispacth area

23
 Scenario 4 BU ABC &
In this scenario SKUs belonging to the same business unit are placed together and sorted in descending order of average
weight, and within each BU, it was used the ABC method. Within each class the SKUs (belonging to the same BU) were sorted
in descending order of weight. In addition, the picker travels the shortest distance from the current position to fill the pallets
for each store.
BU ABC Weight

Warehouse Pickers Cost Forklifters Cost Transportation Despicking Cost

Cost* Cost

72 046 € 20 980 € 3 454€ 48 056 € 1 522 €

Main goals Mean Nr of Pickers: 14

- Guarantee pallet stability
- Create a more store friendliness Total cost Mean Nr of Forklifters: 2
option
- Minimize the distance traveled by the
pickers (non value added activity)
146 058 € Mean Time for 1 Pallet: 20s

*These do not include costs related to the dispacth area

% Time Stabilizing: 10.6%

24
 Scenario 5 &

In this scenario SKUs are clustered by similar shipment quantities to each store. Through the Elbow Method (that plots the
distortion cost function by different values of k clusters), we decided to select 5 clusters. Within each cluster the SKUs were
sorted in descending order of weight. Additionally, the picker travels the shortest distance from the current position to fill the
pallets for each store.

Warehouse Pickers Cost Forklifters Cost Transportation Despicking Cost

Cost* Cost

72 046 € 21 348 € 3 607€ 47 728 € 7 061 €

Main goals Mean Nr of Pickers: 15

- Guarantee pallet stability
- Minimize the distance traveled by the Total cost Mean Nr of Forklifters: 2
pickers (non value added activity)
151 790 € Mean Time for 1 Pallet: 21s

*These do not include costs related to the dispacth area

% Time Stabilizing: 9.9%

25
By comparing the scenarios, it is clear that scenario 4 excel

Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5

(BU & shortest (ABC & shortest (BU & ABC & shortest (Store Clusters &
(weight & weight)
distance) distance) distance) shortest distance)

Despicking Cost 7 554€ 1 734€ 7 377€ 1 522€ 7 061€

Pickers Cost 27 898€ 21 233€ 20 260€ 20 980€ 21 348€

Forklifters Cost 3 446€ 3 499€ 3 229 € 3 454€ 3 607€

Warehouse Cost 72 046 € 72 046€ 72 046€ 72 046€ 72 046€

Transportation
Cost
47 712€ 48 040€ 47 880€ 48 056€ 47 728€

Total 158 656€ 146 552€ 150 792€ 146 058€ 151 790€

As already mentioned, since the layout and the type of picking is only tested and analyzed in the following phases, in the comparison above it
was considered for all scenarios - 2 lines of racks and picking by pallet.

26
A qualitatite comparison between scenarios reinforce that
scenario 4 performs better
Advantages
✓ Lowest cost scenario in terms of transportation, so
sorting the SKUs by descending order of weight
both in the picking positions and the picking orders is
the best way to reduce the number of pallets required
Scenario 1 (although this cost does not vary much betwen
(weight & weight) scenarios)
Disadvantages
Scenario with the highest costs in terms of
despicking, because this approach is not as store
friendliness as the BU method or even the ABC
method
Scenario with the highest cost in terms of pickers
This is the scenario where the highest number of
pickers is required and where 1 pallet takes the
longest time to be made
Scenario with the highest total cost

✓ This is the second best scenario in terms of overall

Scenario 2 performance, because it has the second lowest total
(BU & shortest distance) cost

✓ Lowest cost scenario in terms of pickers and

Scenario 3 forklifters, which indicates that the ABC method is
(ABC & shortest better in reducing non value added activities costs
distance)
(used as the first and main method)

✓ Lowest cost scenario in terms of despicking cost, Scenario with the highest costs in terms of
Scenario 4 because this scenario is much more store friendliness transportation
(BU & ABC & shortest than the others, as it prioritized having the least
distance)
amount BUs on each pallet

Scenario 5 Scenario with the highest cost in terms of

(store clusters & forklifters
shortest distance)

27
A sensitivity analysis of the best case scenarios was conducted to
evaluate the impact of picker and forklift speed on global costs

Of the five scenarios, scenarios 2 and 4 were chosen because they were the ones that presented the best results.
However, since the values of these two scenarios are very similar, a sensitivity analysis was done.

Scenario 2 Scenario 4

25000 25000
21577,5 21540 21505 21467,5 21447,5 21035 21005 20980 20965 20955

20000 20000

Cost [€]
15000 15000
Cost [€]

10000 10000

3671,25 3573,75 3498,75 3461,25 3431,25 3618,75 3525 3453,75 3408,75 3378,75
5000 5000

0 0
5 5,5 6 6,5 7 5 5,5 6 6,5 7

Speed [Km/h] Speed [Km/h]

Pickers Cost [€] Forklifters Cost [€] Pickers Cost [€] Forklifters Cost [€]

28
Additionally, it was examined the magnitude of variation
between the steps

Scenario 2
Forklifter and Picker Speed
5 5,5 6 6,5 7
[Km/h]
Absolute Picker Cost Variation - -38 -35 -38 -20
Naturally, as expected, the pickers and forklifter
Relative Picker Cost Variation - -0,17% -0,16% -0,17% -0,09%
Absolute Forklifter Cost Variation - -98 -75 -38 -30
costs decrease with the increase in their speed.
Relative Forklifter Cost Variation - -2,66% -2,10% -1,07% -0,87%
Both scenarios show little sensitivity to 0.5Km/h
steps in speed and they end up having similar
mean relative variations.
Scenario 4
Scenario 2: -0.15% for picker costs and -1.67%
Forklifter and Picker Speed for forklifter costs
5 5,5 6 6,5 7
[Km/h] Scenario 4: -0.10% for picker costs and -1.70%
Absolute Picker Cost Variation - -30 -25 -15 -10 for forklifter costs
Relative Picker Cost Variation - -0,14% -0,12% -0,07% -0,05%
Absolute Forklifter Cost Variation - -94 -71 -45 -30
Relative Forklifter Cost Variation - -2,59% -2,02% -1,30% -0,88%

29
 Then, it was performed another sensitivity analysis to the
stabilization time

Scenario 2 Scenario 4

Pickers Cost Pickers Cost

22500 22155 22500
21867,5
22000 22000 21662,5
21505
21500 21217,5 21500 21292,5

Cost [€]
Cost [€]

20915 20980
21000 21000
20590
20500 20500 20242,5

20000 20000

19500 19500
40 50 60 70 80 40 50 60 70 80
Stabilize Time [s] Stabilize Time [s]

30
Once again, it was examined the magnitude of variation
between the steps

Scenario 2

As expected, the pickers cost increase with the

Stabilize Time [s] 40 50 60 70 80 increase in stabilization time.
Absolute Cost Variation - 303 288 363 288
Scenario 4 seems to be slightly more sensible to
Relative Cost Variation - 1,45% 1,36% 1,69% 1,31% these 10s steps in stabilization time, but the
difference is almost insignificant in terms of
mean relative variations.
Scenario 4
Scenario 2: 1.45%
Scenario 4: 1.71%
Stabilize Time [s] 40 50 60 70 80
This way, there are no significant differences
Absolute Cost Variation - 348 390 313 370 between these scenarios in terms of
Relative Cost Variation - 1,72% 1,89% 1,49% 1,74% sensitivity.

31
Taking into account the methodology followed, it is prudent
to evaluate overfitting
▪ As several combinations of the variables were done according to the values that were got iteratively from the scenarios, it is
possible that by doing this reasoning, the solution presented is attached to the specific data and will not work with different one.
▪ To test that, ideally, it would require new data but, since it is not available, a test was conducted with 3 different subsets of
80% of the data. This may allow the verification of the advantage that scenario 4 holds, by not taking into consideration
exactly the data that was used to obtain the model.
▪ Note that the costs shown in the table will naturally be lower in absolute terms when compared to the previous ones because it
is less data.
Subset 1 Subset 2 Subset 3
Scenario 2 Scenario 4
(BU & shortest (BU & ABC & Scenario 2 Scenario 4 Scenario 2 Scenario 4
distance) shortest distance)

Despicking Cost 1 619€ 1 397€ 1 597€ 1 375€ 1 580€ 1 376€

Pickers Cost 18 620€ 18 300€ 18 668€ 18 260€ 18 608€ 18 248€

Forklifters Cost 3 038€ 2 937€ 2 933€ 28 88€ 3 049€ 3 008€

Warehouse Cost 72 046€ 72 046€ 72 046€ 72 046€ 72 046€ 72 046€

Transportation Cost 39 024€ 39 224€ 39 176€ 38 968€ 39 000€ 38 976€

Total 134 347€ 133 904€ 134 420€ 133 537€ 134 283€ 133 654€

▪ The use of “different” data in the models shows an even bigger difference of total costs between scenario 2 & 4 (from 500€ in the
model with all data to 1k€ using 80% of the data available);
▪ By reducing despicking times (organization by BU) and pickers & forklifters work times (organization by ABC), scenario 4 is the
one that shows the best results.

32
The 2nd stage of our analysis consisted in evaluating the
layouts that would fit the best Maia PBS Warehouse needs

Scenarios

Order of SKUs
Warehouse Replenish by
and picking Dispatch area
Layout pallet or box
orders

33
As warehouse layout impacts both the warehouse and
operational costs it is crucial to examine it

1st Layout – 1 Row x 69* Columns 2nd Layout – 2 Rows x 35* Columns 3rd Layout – 3 Rows X 23* Columns

This layout would be optimum.
However, it is difficult to find a
building with such a large length in
relation to the width (379m x 29m).
It has the lowest Warehouse Costs
but the highest Operational Costs.
This layout is the optimum since it is the This layout has the worst results and
one that gives the best results. Its design is is therefore discarded.
the most realistic in terms of space. It has
the lowest Operational Costs (74 012€).

Warehouse Costs: Warehouse Costs: Warehouse Costs:

67 500 € 72 046 € 72 188 €
Operational Costs: Total cost Operational Costs: Total cost Operational Costs: Total cost
75 314 € 142 814 € 74 012 € 146 058 € 74 730 € 146 918 €
* The number of columns is calculated by dividing the number of picking positions needed (i.e. the number of SKUs in picking by pallet: 1369) by the number of rows times 20 positions in each rack.

34
The 3rd stage consisted in evaluating the effects of
replenishing some products by box

Scenarios

Order of SKUs
Warehouse Replenish by
and picking Dispatch area
Layout pallet or box
orders

35
For scenario 4, it became evident that it is better to allocate C
products by box rather than having all in pallets

The results obtained in the scenarios presented above showed the existence of a very high cost regarding the warehouse. Thus, it was
importante to run another scenario (equivalent to scenario 4), but instead of the SKUs being allocated to the picking positions on pallets
(1 pallet on each), the SKUs from class C (those with less sales) are allocated by boxes, which means that in each picking position there
are 2 diferente class C SKUs. The main goal is to reduce warehouse related costs, since they are the highest.
The despicking cost
increases as the BUs are
The possibility of class more mixed, due to the
A and B products also Scenario 4 Scenario 4 new allocations of class C
being allocated by box (Picking by (Picking by SKUs.
was not included, as Pallet) Box)
the forklift costs could
increase a lot (there Despicking Cost 1 522 € 2 373 €
are less quantity in Based on the total cost,
each picking position
and, as these SKUs are
Pickers Cost 20 980 € 21 678 € picking by box (C class
products) is better than
the ones with more picking by pallet.
sales, replenishment Forklifters Cost 3 454 € 3 484 €
would be more
regular). In addition, Warehouse Cost* 72 046 € 55 578 € Savings of 16 468 €
increased congestion
(WH)
in the warehouse
could become a major
Shipping Pallets Cost 48 056 € 48 032 €
problem.
Total 146 058 € 131 145 € Savings of 14 913 €
(Total)
*These do not include costs related to the dispacth area

36
Lastly, the analysis of the dispatch area was made

Scenarios

Order of SKUs
Warehouse Replenish by
and picking Dispatch area
Layout pallet or box
orders

37
Since the warehouse costs seem to be one of the biggest
problems, the dispatch area should be carefully studied

Up to now, the warehouse costs were calculated considering only the area for storage in the racks, since the study of the dispatch area
can be seen as an independent problem. With the best scenario chosen, it is now the moment to compare a static or dynamic
dispatch area.

Static Dispatch Area Dynamic Dispatch Area

A static dispatch area implies a fixed area of dispatch for
each store. Having 159 stores in the picking data, this will
imply, for each of them, to have a dispatch zone equivalent
to the area* that corresponds to the maximum number of
pallets sent to that store across all days of picking data.
This way, naturally, the costs will be bigger. Effectively, it
means a dispatch area of 2 332𝒎 .
14 672€
With a dynamic dispatch area, there is no specific zone for
each store, so that Sonae just needs to have enough
dispatch zones with enough area* to meet the deliveries
at each moment. Assuming that, at maximum, it takes 1
hour to transfer all pallets of a delivery from the dispatch
area to the truck, and that the picking orders for a store are
started up to 1 hour before the delivery time, then 33
dispatch zones will be enough, corresponding to an area of
525𝒎 .
3 305€

11 367€ in savings
In conclusion, in order to meet the most cost-efficient solution, Sonae should opt for a dynamic dispatch area.
3
* Considering a pallet as a cube of 1.5𝑚3 , it has a surface contact area of ( 1.5)2 =1.31𝑚2

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5
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Additional
Improvements
In addition to our suggestions, there are other improvements
that can be adopted and will also help minimizing costs

▪ For these, since there were not enough data available, it was not performed a quantitative analysis.

Look for solutions to reduce the unused space on

each pallet, for example, by changing the shape of
the packages.

Information technology: Pick-by-Vision can promote

faster reaction, reduction of mistakes, increasing picking
speed and flexibility of employees.

Management: productivity is influenced by pickers’

motivation, so strategies like incentive schemes
should be adopted in order to increasing it.

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 Investing in sophisticated equipment can bring significant
improvements in productivity
Move Picking to a Higher Level
Forks can be raised to minimize
operator movements, reducing
operator fatigue and insuring
steadier picks.
It provides both ergonomic and
productive advantages.
Source: Logistics Inside (2016)
Ergonomic Lift
Ergonomic lift relieves back strain in
order picking applications which
contributes to the decrease of physical
exhaustion, injuries risks, and the
increase of picking speed.
Logistics Train System
Allowing the transportation of
multiple pallets during one cycle helps
reducing the number of journeys that
need to be performed and the time
spent in transportation.
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6
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Conclusion
Wrap-up

Organizing SKU’s
SKUs bybyBU
BUininthe warehouse
the (with
warehouse a layout
(with of 2 rows)
a layout of 2 seems
rows)
to be essential
seems to beto essential
reduce costs regarding
to reduce picking
costs positions
regarding (lesspositions
picking 6k€ in
despicking
(less 6k€ incosts, approximately,
despicking due to the increase
costs, approximately, due of
to store friendliness).
the increase of
store friendliness).

Combining organization by BU and ABC in the warehouse simultaneously,

considering picking by box in C class products and picking by pallets in the
others, the optimal solution is found, with a total cost of 131 145€. However,
it’s likely that an even better solution can be reached considering the
additional improvements advised.

A dynamic dispatch area should be chosen over a static one in order to

save 11 367€. This way, the total cost will only increase by 3 305€
(culminating in a total of 134 450€).

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THANK YOU!