Minimizing costs

Redesigning processes
and layout
PBS Optimization
Professors: Pedro Amorim, Sérgio Castro

António Salgado | Luís Blanquet | Maria do Rosário Rocha

Maria João Durães | Ricardo Cabral

1M.EGI01
 Sonae MC wants to redesign its PBS operation, looking for process redefinition and
a layout suggestion in order to reduce overall costs

Leading company in the food Network with +1.300 stores PBS and PBL
retail sector in Portugal strategies

The Challenge Main PBS processes

Design PBS operation from scratch Inbound & Picking & Dispatch & Despicking
Define picking and dispatch strategies Verification Replenishment Transportation
Minimize total costs
Keep service level to stores Not enough information Challenge scope
Out of scope

Source: https://sonaemc.com/sobre-nos/ 2
To tackle the challenge, a 5-step process was designed with strict deadlines to
assure group consistency in actions and a quality output

Analysis and
Deconstruction Baseline Scenarization Optimization
evaluation

Issue tree and cost Alternative scenarios Testing for extra

Base scenario creation, Optimizing features
deconstruction creation testing demand and overfit
assumptions and and variables for the
Understanding needed different features/ Improvement
methodology best scenario
inputs and outputs approaches opportunities

3
Deconstructing the problem is the first step, which involves understanding the
main drivers of cost and the necessary inputs and outputs

Analysis and
Deconstruction Baseline Scenarization Optimization
evaluation

Issue tree and cost Alternative scenarios Testing for extra

Base scenario creation, Optimizing features
deconstruction creation testing demand and overfit
assumptions and and variables for the
Understanding needed different features/ Improvement
methodology best scenario
inputs and outputs approaches opportunities

4
Total costs can be minimized by decreasing picking, replenishment, warehousing,
transportation and despicking costs whilst keeping the same service level
Problem variables

Picking costs per time unit 10€/h

Picking Costs1
Picking time ↓

Forklift costs per time unit 15€/h

Replenishment
Costs1
Replenishment time ↓

Square meter cost per time unit 15€/m²

Minimize Maintain Service Level
Total Costs Machine zone m²
Warehousing Nº pallets shipped off time
Costs1
Storage zone m² ↓

Dispatch zone m² ↓

Cost per pallet 8€/p

Transportation
Costs
Number of dispatched pallets ↓

Despicking costs per time unit 10€/h

Despicking
Costs1
Despicking time ↓

¹To be further explored

5
Picking time is influenced by 4 variables, being distance travelled and number of
interruptions on the weight sequence the ones with bigger room for improvement
Problem variables

Picking costs per time unit 10€/h

Picking Costs
Picking time ↓

Picking positions Pallets

Setup time Moving time
visit time stabilization time

Time to visit a
Setup time per pallet 3’ 25s Picker Speed 6km/h Time per interruption 1’
picking position

Nº visited picking Nº interruptions on

Nº intialized pallets ↓ ↓ Distance ↓ ↓
postions the weight sequence

6
Forklift cost per time unit is bigger, but it is predictable that the overall costs will be
less significant since the number of replenishments is relatively low
Problem variables

Forklift cost per time unit 15€/h

Replenishment
Costs
Replenishment time ↓

Replenishment by Replenishment by
Moving time Up/down time
box time pallet time

Time to do an Time to replenish a Time to replenish a

Forklift Speed 6km/h 2’ 3’ 1’
up/down move position by box position by pallet

Nº boxes Nº pallets
Distance ↓ Nº up/down moves ↓ ↓ ↓
replenishments replenishments

7
Warehousing costs feature two main tackling areas - storage and dispatch zone -
which must be reduced to meet our goal
Problem variables

Square meter cost per time unit 15€/m²

Machine zone m²
Warehousing
Costs
Storage zone m² ↓

Dispatch zone m² ↓

Storage zone m² ↓ Dispatch zone m² ↓

Storage variations possibilities: Calculations Assumptions:

1 line width: 9.6 m (8 pallets x 1.2m/pallet)
4 racks 2 racks
VS. 15 lines = 1 set of lines
3 bays 6 bays
1 set of lines width: 18 m (15 lines x 1.2 m)
Distribution racks x bays Between lines sets: corridors with 3m width
Security area around lines sets and corridors with 3 m width
VS.

Nº of boxes and pallet picking positions

1 set of lines
VS.

Nº of ground 1st level picking positions

8
 Despicking costs are a direct result of warehouse operations and despite not being
an in-warehouse cost, must be taken into consideration for SONAE’s cost analysis
Problem variables

Despicking costs per time unit 10€/h Rationale:

Rationale
Despicking
Costs1
Despicking time ↓ 1 1 2 1 3 3 1 2 4 4 4 2 5 (1)

1 Deletes the repeated successive numbers from the pallets products BU’s sequence

If there is only 1 BU
Pallet mixing Seconds per box
1 2 1 3 1 2 4 2 5

1 BU -
Checks which is the 1st number and, from end to start, if that number repeats itself
2
2 or more BU’s 1 2 1 3 1 2 4 2 5
1,5
but divided
Despicking time

Creates a list with the different BUs that appear in that sequence

2 mixed BU’s 4,6 1 2 1 3 1 2 4 2 5

3
3 mixed BU’s 6,7 Restarts the from the 1st number not included in the previous sequence
and includes in the created list the BUs numbers that are not yet in it

4 or more 1 2 3 4 (2) 10,2 x nº pallet total boxes

10,2
mixed BU’s
4 Counts the number of elements on the list, concludes how many seconds are needed
per box and returns the despicking time (seconds/box x nº pallet total boxes)
Note: if the list is empty, it means that the pallet has 2 or more BUs but divided
¹Pallet products BUs sequence
²List of mixed non repeated BUs in the pallet SKUs’ business units sequence

9
After understanding which variables to optimize, a base scenario must be created
to understand where SONAE stands and the biggest improvement opportunities

Analysis and
Deconstruction Baseline Scenarization Optimization
evaluation

Issue tree and cost Alternative scenarios Testing for extra

Base scenario creation, Optimizing features
deconstruction creation testing demand and overfit
assumptions and and variables for the
Understanding needed different features/ Improvement
methodology best scenario
inputs and outputs approaches opportunities

10
Inbound activities were disregarded, 0 demanded SKU's were not eliminated and a
+20% capacity dispatch area was assumed due to insufficient data

Scope Forklifts

Activities currently performed in Forklift speed is equal to picker

a 5 AM to 5 PM schedule speed (6km/h)

Inbound and stock Area

Not enough information to study Fixed area for machine zone

inbound/stocking process Dispatch area calculated with
SKU stock pallets in shelves directly 20% more capacity than needed
above the SKU picking position to answer rising demand
Automatic pallet replacement

SKU Pallets

SKUs without orders were not Dimension: 1.2m x 1m

eliminated Maximum weight capacity: 1000kg
2 weeks may not be enough for Maximum volume capacity: 1.5m3
products with low demand to be
ordered1
1Seasonality must also be taken into account

11
Available data had to be treated, combined and analyzed in order to have the
necessary inputs to create the base scenario

Excel Content Data Treatment

PBS Shipping Schedule per weekday Using Excel:

time List with the stores and the shipping time for • Add a line for each shipping, including a
each weekday column for the weekday, date, hour, minute
and store

SKU_data List of SKUs, containing its SKU number, Using Excel: • Add a column with the nº of times
volume, weight and BU appearing in the picking orders
• Add a column with nº of boxes that fit in a
1.5m3 pallet taking in account the box • Add a column with product classification
volume based on its frequency in picking orders1
• Add a column with nº of boxes that fits in a
1000kg pallet, considering the box weight
• Add a column with the minimum number
from the previously added columns – this will
be the final number of how many boxes fit
in a pallet

PBS_Picking List of store orders, containing the store
data number, order date, SKU and number of
boxes of the ordered product
Using Excel:
• Add columns with the properties of the order
SKU based on the previously mentioned
Excel, namely the volume, weight, BU and
product group
Using Python:
• Add a shipping day, hour and minute to
each order (next shipping date after order
date)

1Detailed next

12
Python was used to generate picking orders and positions- necessary inputs for the
Anylogic simulation - which outputted the variables needed to calculate costs
Treated Treated Treated Simulation
PBS_Picking data POs and PPs Despicking
PBS_Shipping data data

Python
Demanding computational effort - Excel Excel
Picking Orders:
Computes:
• Orders PO’s by shipping date, hour, Warehouse working simulation1
minute and store • Necessary dispatch area
• Assigns to each PO a pallet number accounting with 20% increase in
considering that the maximum pallet Python maximum pallets in the dispatch
volume is 1.5m³ area at the same time
Computes the despicking time based
Picking Positions: on each pallet composition2 • Costs of each activity
• Defines a WH picking position for
each SKU (storage, rack, bay, shelf) Demanding computational effort for • Total costs
• Defines the stock pallets positions Excel.
Summarizes and compares all
(above each SKU position) Independency from Anylogic, as it is modeled scenarios with the base
Other necessary treatments depending not dependent on the actual routes scenario
on the scenario to be tested

Treated Simulation Mainsheet

Despicking
POs and PPs data GCA

1Deep-dive next 2Rationale explained before in slide 9

13
AnyLogic was used as the preferred simulation environment due to its visual
comprehension and route optimization, as well as facilitated error identification

AnyLogic Simulation
Why AnyLogic? Simulation Agents

• Gives a better understanding of the

warehouse’s real behaviour
• Facilitates error identification due to SKU Pallet Picking order Pallet order
visual comprehension
• Measures the forklift and picking
times while optimizing routes
Picker Forklifter Shipping order

Picking Flow
Order Entry Move Stock Verification Move Weight Validation
A pallet order (set of The picker goes to Picker validates if there is Picker goes to If the product is heavier
picking orders with the the 1st order SKU enough stock of SKU for the next order SKU than the previous one,
same pallet number) is picking position and next order. If not, sends a picking position the picker reorganizes
seized by a picker picks it replenishment request and picks it the pallet

Replenishment Flow
Simulation outputs
Order Entry Move
Pallet that Forklifter goes to pallet position,
needs to be brings pallet down (2min) and
replenished waits for the replenishment Total Total Nº pallets Nº pallets Max pallets in dispatch
enters flowchart (3min/box or 1min/pallets)¹ picking time forklift time shipped done off time simultaneously²

¹If it is a box, every two times, the pallet needs to go up so, to simplify the system, 1 extra minute was considered in each box replenishment
²Afterwards, this variable will be used to conclude what is the necessary dispatch area

14
In the base scenario, picking, warehousing and transportation account for 93% of
total costs, with picking, warehousing and service-level at sub-optimal values

Base Scenario Main Assumptions Base Scenario Cost Distribution and Results
6k € 195k €
8k €
POs and PPs are randomly sorted 48k €

Storage layout is the same as presented in the case

study 64k €

S flow is already implemented in the warehouse, but

doesn’t work due to non-uniform PO and PP sequence
69k €
When there’s a need for replenishing, picker will wait for
forklift to finish replenish and then continue picking

Pickers only take 1 pallet at a time

Warehouse Picking Transport Despicking Forklift Base

POs are sent 1 hour before shipping time Costs Costs Costs Costs Costs Scenario

~58% pallets done off time

Major improvement
Picking Warehouse Service-Level
areas:

15
After understanding the biggest improvement points, different scenarios were
tested to understand feature impact and structural opportunities

Analysis and
Deconstruction Baseline Scenarization Optimization
evaluation

Issue tree and cost Alternative scenarios Testing for extra

Base scenario creation, Optimizing features
deconstruction creation by testing demand and overfit
assumptions and and variables for the
Understanding needed different features/ Improvement
methodology best scenario
inputs and outputs approaches opportunities

16
Different features were tested individually on the base scenario to understand their
impact on specific and overall costs as well as assess possible synergies
Total Picking Forklift Despicking Warehouse Transport
100 000,00 €
210 000,00 €
80 000,00 €

190 000,00 €
60 000,00 €

170 000,00 €
40 000,00 €

20 000,00 € 150 000,00 €

- € 130 000,00 €
Base Weight SKU BU Demand Boxes 2 levels 2 1 BU per PO 24h
Scenario POs+PPs POs+PPs POs+PPs POs+PPs PPs PPs passages Pallet before ship

Picking Order and Position Sorting Picking by Boxes Picking positions in 2 levels
Main takeaways

Sorting PO and PP by the same criteria diminishes picking Increases picking time and decreases Increases picking and forklift time
time because picker will follow an organised sequence warehouse costs and decreases warehouse costs
Demand and weight showed the most impact Great for low demand SKUs Optimal for low/0 demand SKUs

Creating passages/escapeways Optimizing despicking Issuing picking orders

Helps reducing picking time but may Done by ordering by BU1 To reduce time in stock, picking
increase warehouse costs Non priority due to reduced relative orders must be issued some time
May work depending on scenario costs of despicking before shipping orders

¹Is optimal when pallets only have 1 BU as in the described scenario

17
Disruptive scenarios were tested, but didn’t find great results and added more
complexity to day-to-day operations
C+D SKU’s bulk picking and dynamic storaging I-shape, L-shape and U-shape scenarios2

Pickers would pick all the C and D SKU’s in the

Different layouts required for different flows
beginning of the day according to daily orders

Pickers wouldn’t need to go to more distant storage I-shape required different inbound/dispatch areas,
units and would pick in the end from the pile which would require more space

Requires a special area dedicated to dynamic L-shape and U-shape would have more distant
storaging storages, increasing picking costs

Duplicated picking times (25s) Total costs for varying layouts

208 000,00 €
+6%
206 000,00 €
Added complexity to pickers that would have to
204 000,00 €
pick from unorganized pile
202 000,00 € Due to increased
200 000,00 € +2% +2% costs, these
198 000,00 €
Final alternatives were
scenario 196 000,00 €
Bulk picking
+10% rejected from an
194 000,00 €
scenario early stage
192 000,00 €
100 000,00 € 105 000,00 € 110 000,00 € 115 000,00 € 120 000,00 €
190 000,00 €
188 000,00 €
Despite being interesting, this is a non-viable scenario Base Layout I-Shape
L-Shape U-Shape
¹% as reductions to the base scenario
²Layouts in Appendix 1

18
 Warehouse innovative solutions were analyzed, nevertheless some of them would
not be a good investment for Sonae MC

One-single corridor warehouse Mobile pallet racking Dynamic palletization

Reduce picking time as each picker Increase in WH capacity Time and space saved in pallet
could fulfill a pallet with only one Elimination of individual access handling
path along the corridor to aisles Good for FIFO methodology

The warehouse length¹ would be Best scenario envolves many pickers

highly increased: simultaneously in same aisle Only viable if the number and safety
-1 side corridor: 960m High investment for low space stock of SKUs is low
-Both sides corridor: 480m reduction

All of these options could be interesting solutions in other companies. However, the volume of Sonae MC daily orders
require a SKU storage solution and unique workers movementthat are not compatible with the technologies presented.

¹To simplify, the value only relates to the shelves length. Clearly, the warehouse structure would have to be longer due to the building.

Source: Mecalux 19
After reflecting on possible structural scenarios, a final scenario was built based on
feature iterative ramp-up and feature optimization

Analysis and
Deconstruction Baseline Scenarization Optimization
evaluation

Issue tree and cost Alternative scenarios Testing for extra

Base scenario creation, Optimizing features
deconstruction creation testing demand and overfit
assumptions and and variables for the
Understanding needed different features/ Improvement
methodology best scenario
inputs and outputs approaches opportunities

20
Final solution builds on feature analysis and a carefully researched sorting criteria,
being built with an iterative ramp-up on previous best solution
PPs and POs ordering criteria Final solution rationale

Sorting by Demand and Weight showed similar

Number picking pallets reduction
results, being BU the 3rd ordering criteria
through fuller pallets
Iterative ramp-up on
previous best solution Pickers take 2 pallets at a time

Number of bays optimization to

After sorting by Demand, Weight and BU and by reduce picking/warehouse costs1
Weight, Demand and BU:
• Results were better in the 1st case Replenishing improvement through safety
• Weight was highly sensitive to being 1st or stock alerts according to SKU demand
2nd criteria
Percentile for SKU Grouping optimization1

C’s and D’s as boxes at ground and 1st level,

compressing layout and reducing area
Grouping by Demand solution perceives weight as
the 1st sorting criteria1 and doesn’t harm demand SKUs Grouping1 (A,B,C,D) and reordering by
gains in picking time2 Zone, Weight and BU
Grouping by Weight didn’t make sense because it
has effect from SKU to SKU PPs and POs sorting by Demand, Weight and BU

¹Due to sorting by zone only sorting by 4 values, sorting by Weight as 2nd criteria makes this scenario only possibly fail thrice in weight validation/calibration
²Due to an average of 29 SKUs per picking pallet, grouping solution is only residually worse in picking time than sorting by demand

213
Final solution featured a 45% cost reduction from 195k€ to 105k€, with noticeable
results coming from ordering PO’s and PP’s and differentiated SKU treatment
Final solution results and feature impact on overall costs

195k € -20%1

-5%1
-5%1
-4%1
-6%1 105k €
-2%1
-3%1 ~0%1 -45%

Base Ordered Grouping Cs and Ds C+D Safety Bay 2 Pallets Full Final
Scenario PPs and as boxes Percentile Stock Optimized per Picker Pallets Scenario
POs Optimized

45% overall cost reduction 100% service-level achieved 0 pallets done off time
¹% as reductions to the base scenario

22
There was a focus on reducing warehouse and picking costs, which were the most
reduced (-71%) due to ordered picking strategy and warehouse dimension reduction
Picking Forklift Despicking Change in activity cost
Warehouse Transport
80 000,00 € Transportation 5%

70 000,00 € Despicking 11%

60 000,00 € Forklift 25%

50 000,00 € Warehouse 57%

40 000,00 € Picking 71%

0% 20% 40% 60% 80%

30 000,00 €

20 000,00 € Activity cost change contribution

to overall cost reduction
10 000,00 €
3%
1%
2%
- €
Base Ordered Grouping Cs and Ds C+D Safety Bay 2 Pallets Full Pallets
Scenario PPs and as boxes Percentile Stock Optimized per Picker
POs2 Optimized

51%
Main 44%
-
impact on

Change in
-35% -23% -13% -20% -24% -44% -14% -13% -5%
process1 Picking Warehouse Forklift Despicking Transportation

¹Cost reduction percentage as reductions to the previous scenario

²Features -11% change to despicking costs – not shown because absolute values are low

23
Storage organization results from an optimized storage length and efficient SKU
grouping with differentiated treatment
Grouping based on number of PO’s per SKU Storage functionality features
Increasing number of picking orders
S Flow through storages with ordered POs and PPs
minimizes picking costs
A B C D
2 passages allows for higher flexibility and more
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% escapeways

24 bays1 is the best number to reduce

Stored in overall area and allow for 2 passages

Pallets Boxes
I, L and U-shaped layouts were tested
Boxes
but didn’t show great solutions2

Picking
Position
Ground-level Ground-level 1st level
C+D
Storage
Layout
A
Maximum
Optimized SKU
storage Minimized costs
distribution1
occupation B
1Deep-dive next
2Analyzed in slide 18

24
Optimal SKU distribution in groups optimized cost savings and were based on
maximum storage occupation and iterative simulation testing
Rationale Total costs for varying Group C percentile

150 000,00 €
Group A percentile was based on top 20%1
Optimized +14%
SKU Group B and C percentile were substitute SKU’s, 145 000,00 €
distribution optimized:
+10%
• If Group B had more SKU’s, they would come 140 000,00 €
out of Group C
+7%
• Analysis conducted to check which percentile
Maximum 135 000,00 €
numbers would fit in a layout with maximum
storage
storage occupation2
occupation
• Tested results in AnyLogic simulation 130 000,00 €

Group D corresponded to the SKU’s with 0 demand: 125 000,00 €

• Calculations indicated having SKU’s with less

Minimized
costs
than 5 picking orders in D would be beneficial 120 000,00 €

• But this would force to create another storage

unit, which would aggravate warehouse costs 115 000,00 €

Percentile 50 Percentile 55 Percentile 69 Percentile 81

¹Of the SKU’s ordered by number of picking orders

²Considered a >98% storage occupation

25
Based on established number of SKU’s per group, a storage area optimization model
was built leveraging on operations research know-how

Defined groups’ Plotted number of Total area based on

characteristics storages needed / group storage arrangement

A+B can be in the same storages Based on number of bays and Arranged the warehouse in the
SKU’s per group least occupying area layout
If group D < group C, D will be in
the 1st level of C storages Calculation based on different
storage dimensions (A&B <> C&D)

10 000,00
24 bays was the optimal value for storage
area optimization, followed by 48 and 75,
Storage Area (m2)

8 000,00
with ~3150 m2 of storage area
6 000,00
After simulating in AnyLogic, it was clear that
4 000,00 24 bays was a better solution, due to having
2 passages, which created more flexibility
2 000,00 and escapeways for pickers
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79
Number of Bays

26
 Drive-in pallet racking would be a possible implementation for the products of
Group C and D, as they have low rotation but should be further analyzed
Drive-in pallet racking

Warehouse costs reduced due to elimination of Higher rack damage rate due to the amount of
aisles, as the SKUs storage is compacted traffic in and out of the system

Unlimited storage depth Weak acessibility to pallets that are not in the front
position

Assumptions: Whole C Group on 122 picking positions

Rack Price One safety stock box per C and D Group Payback Period

Cost per Warehouse area occupied by C+D before 1036,8m2

Pallets Depth picking position
4,5Y
Warehouse area occupied by C+D after 439,2m2
2 112,12€
Amount monthly saved due to area reduction 8 964€
This solution should be
3 109,5€
further analyzed, as it
4 106,865€ Racking investment required to store C+D and 46 866€ has pros and cons and
safety stock
depends on Sonae MC
Amount monthly spent in pickers salary¹ 8 052€ willingness to invest

¹Without considering forklifting operations, since D Group orders are unpredictable in a 15-day period and all the C products only require a picking operation

Source: Bastian Solutions and Mecalux 27

Since the majority of the time is spent travelling between positions, a future
investment can be in innovative technologies that can reduce these costs

Stacker crane for pallets Trilateral stacker crane for pallets¹ Automated Pallet Shuttle

Automatic replenishment without the Adaptable to all pallet warehouses Rapid movement, which can optimize
need of an operator goods entrance and exit times
More freedom of movement due to
Reduction of possible errors during the 3-axis It can save staff costs, as the equipment
replenishment is automatic

Adapted to special working Adaptable to different configurations (of

conditions number of SKUs, pallets and movements
required)

High investment Investment comparatively higher. Equipment breakdowns result in a

production capacity reduction
IT integration as the complexity of
the system increases

¹To simplify, as this equipment has the same advantages as the Stacker crane for pallets, the pros and cons presented are just the additional ones.

28
The dynamic dispatch area was minimized by diminishing the time between issuing a
picking order and its shipping time (75’) while not compromising service-level
Dispatch area functionality features Sensitivity Analysis

Calculated based on maximum area occupied 120

by pallets waiting to be dispatched 100
80
60
Dynamic to allow different dispatch 40
locations for one store (flexibility) 20
0
60 65 70 75 80 85 90
Optimized through diminishing time between
Time between issuing picking order and shipping time
issuing picking order and shipping time
Maximum number of pallets in dispatch area

Number of pallets done after time quantifies
service-level, such that the lower, the better
Optimal time of 75 minutes before shipping order
~650 m2 is sufficient to fulfil current needs, allowing
for a 20% increase in daily number of picking pallets
Number of pallets done after time
As expected, increasing time between issuing picking order and
shipping time diminishes the number of pallets done after time
Also true at first for the number of pallets in dispatch due to the
reduction of pallets that fail shipping and have to stay in dispatch,
but will ramp up due to higher pallet time in stock

1Cost reduction percentage as reductions to the previous scenario

2Features -11% change to despicking costs, but absolute values are low

29
In order to test the final scenario, stress tests and overfitting tests were made to
ensure its quality when dealing with higher and varying demand

Analysis and
Deconstruction Baseline Scenarization Optimization
evaluation

Issue tree and cost Alternative scenarios Testing for extra

Base scenario creation, Optimizing features
deconstruction creation testing demand and overfit
assumptions and and variables for the
Understanding needed different features/ Improvement
methodology best scenario
inputs and outputs approaches opportunities

30
Stress tests with double demand concluded that the model offers economies of scale
and full palleting is better in stress situations
-7%2
Expected Results
180 000,00 € Non Full Palleting Results
Full Palleting Results
160 000,00 €

140 000,00 € -3% cost reduction with full palleting

solution, proving it is the most viable model
120 000,00 €
-3%2 -7% cost reduction with double demand,
100 000,00 € proving economies of scale1

80 000,00 €

Warehouse costs are increased

60 000,00 €
due to insufficient dispatch area
14%2
-36%2
40 000,00 €
-17%2 Dispatch area must be resized
3%2
according to historical data on
20 000,00 €
demand, to fulfill SONAE’s
needs3
- €
Picking Cost Forklift Cost Despicking Cost Warehouse Cost Transportation Total
Cost

¹Expected results based on double the average cost of both scenarios (in picking, forklift, despicking and transportation), maintaining warehouse costs
²Change in expected results to full palleting solution
³Despite this, current model supports a 20% increase in demand over the case’s picking orders

31
Overfitting tests were performed due to the reduced data amount, which allowed us
to conclude that the model maintained performance with test data

Created a test data set Retested scenarios Steady results

Based on case’s picking orders Base and final scenarios were Scenarios showed consistency in
tested several times with different relative results
Applied random variation to the data sets
number of boxes Model is not overfitted

Following the SKU’s demand trend

Average Case Data Set Values

100 000,00 €
Average Overfit Data Set Values

Since the costs only vary at most as 3% in

10 000,00 €
all overfitting tests, we can assure that the
training loss and validation loss is low,
proving the model is a good fit
1 000,00 €
Picking Cost Forklift Cost Despicking Cost Warehouse Cost Total

32
A gradual implementation is required in order to identify possible risks and make a
smooth transition from the current warehouse to the new one
Dispatch Storaging Grouping
Implementation Plan

Analyze demand Apply storage layout and test Analyze grouping in-warehouse
historical data and for effectiveness and deviation effectiveness and configurate
resize dispatch area from expected results inbound strategy

January February May June July September Ready for

Infrastructure
Find and rent warehouse with required
m2 and required infrastructure (e.g.
storage units, machines, etc.)
production!
Technology Training
Request software for safety stock Develop best practice documents
alerts and full palleting algorithm and and working guidelines. Invest in
evaluate technology investments employee training

Impact Likelihood of
Risk to Manage Mitigation Strategy
Assessment Occurring

One-team culture establishment (define workers as part of change);

Risk Analysis

Employees’ unwilling to change current

Medium processes >60% Robust communication and feedback with day-to-day workers to
gradually apply change

Analyze historical data and find the maximum historical demand to

Dispatch area not being big enough to high
High demand seasons
30-60% resize dispatch area; Assign areas for emergency dispatching
zones (e.g. machine zone)

Implementation plan gradual definition with recurring feedback from

Delays on implementation plan caused by
High company’s investing reluctance
<30% managers; Key milestones defined for each step; Deeper analysis
on higher CAPEX investments

33
Executive Summary
1. Sonae MC wants to redesign its PBS operation, looking for process redefinition and a layout suggestion
in order to reduce overall costs

2. Total costs can be minimized by decreasing picking, replenishment, warehousing, transportation and
despicking costs whilst keeping the same service level

3. In the base scenario, picking, warehousing and transportation account for 93% of total costs (195k€),
with picking, warehousing and service-level at sub-optimal values

4. Different features were tested individually on the base scenario to understand their impact on specific
and overall costs as well as assess possible synergies

5. Final solution builds on feature analysis and a carefully researched sorting criteria, being built with an
iterative ramp-up on previous best solution

6. Final solution featured a 45% cost reduction from 195k€ to 105k€, with noticeable results coming from
ordered picking strategy and warehouse dimension reduction

7. Storage organization results from an optimized storage length and efficient SKU grouping with
differentiated treatment and percentile optimization

8. Stress and overfitting tests concluded that the model offers economies of scale and maintains
performance with different data

34
Appendix 1: I-Shape, U-Shape and L-Shape Layouts

I-Shape layout U-Shape layout L-Shape layout

35
 Minimizing costs
Redesigning processes
and layout
PBS Optimization
Professors: Pedro Amorim, Sérgio Castro

Thank you!
António Salgado | Luís Blanquet | Maria do Rosário Rocha
Maria João Durães | Ricardo Cabral

1M.EGI01