A00214

March 31, 2018

Ultron: Managing Warehouse Space and Product

Obsolescence
It was October 2016, the height of the festival season in India. This was the time of year when sales were
at their highest for Ultron, the leading white goods manufacturer in India. However, Niraj Kumar, the
logistics head of Ultron, and Ravindra Ahuja, the warehouse manager for the logistics division of Ultron
in Gujarat, India, were not at ease. They had an inventory of products more than 180 days old and a
growing product portfolio. Without any warehouse management software to assist them, they were
managing the warehouse manually. This had led to some critical issues such as not being able to
maintain first-in, first-out (FIFO)1 for inventory and low picking efficiency. The fairly large unit size of
each stock keeping unit (SKU) only compounded the problem. The cost of investing in warehouse
management software was extremely high, as Ahuja well knew. He decided to evaluate other possible
options to achieve FIFO at no additional software expense.

Ultron

Ultron was a large Indian conglomerate operating in various business verticals, one of which was
consumer electronics such as air-conditioners, washing machines, refrigerators, LCD/LED televisions,
microwave ovens and small home appliances. The company operated 16 manufacturing facilities and 62
warehouse facilities across India. Apart from its own consumer electronics division, the company also
acted as a distributor for several international consumer electronics brands in India. Ultron’s revenue in
2013-14 was about USD 4.92 billion and its profit was about USD 11.2 million.

Warehouse Overview

The company had four warehouses in the western Indian state of Gujarat, the largest of which was
located in Gandhinagar. This warehouse had originally been a manufacturing facility that had relocated
elsewhere. It had a capacity of 100,000 square feet or 9,290 square metres (see Exhibit 1 for the layout
of the warehouse).

All of Ultron’s warehouses across the country operated in a similar fashion.2 All the warehouses were
multi-brand facilities, which housed products from more than one brand within the same location. Apart
from brands owned by Ultron, the warehouses held and distributed multi-

1
The FIFO method is used for inventory valuation. It assumes that the oldest goods are sold first since white goods are
subject to the risk of obsolescence.
2 Since Ultron’s warehouse operations were similar across its facilities, we use the Gandhinagar warehouse as an example to

illustrate the processes within an Ultron warehouse for the purposes of this case.

Prepared by Professor Debjit Roy and Mayank Pratap and Premm Raj H (PGP Students), Indian Institute of
Management, Ahmedabad.
Cases of the Indian Institute of Management, Ahmedabad, are prepared as a basis for classroom
discussion. They are not designed to present illustrations of either correct or incorrect handling of
administrative problems.
©2018 by the Indian Institute of Management, Ahmedabad

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branded products from partner companies. Overall, there were more than 500 SKUs grouped under 12
different product categories from six brands (a sample SKU product list indicating the average statistics
per month in the Gandhinagar warehouse and corresponding SKU dimensions are shown in Exhibits 2a
and 2b. The product composition in the warehouse is shown in Exhibit 3).

Each warehouse was divided into several areas to store the products of different brands. The area
allocated for a brand was further divided into smaller areas for different product categories. Products
within a category were stacked one over each other based on the stacking norms indicated on the
packaging material of the product.

The vertical usable space in the warehouse was 24 feet, of which only 10-12 feet were utilised due to the
limitations imposed by the stacking norms (see Exhibit 1 for the dimensions of the warehouse). Vertical
expansion in the existing set-up was not an option. The floor utilisation of the warehouse peaked at 90-
100% during the Indian festival season, which ran from September to November.

The warehouse operated one shift every day, starting at 9:30 am and ending at 6:30 pm. The warehouse
supervisors processed the order requests from retailers for each day starting at 9:30 am, based on the
order invoice ID and location of dispatch. Dispatch of goods usually started at 12 noon every day.
Vehicles owned by the warehouse facility were used to transport the goods to retailers (see Exhibit 4 for
a list of dispatch vehicles available at the warehouse). An internal audit was performed every month to
track the products within the warehouse.

The warehouse consisted of a mix of skilled and unskilled labour for its daily operations (see Exhibit 5 for
employee details for the Gandhinagar warehouse). The employees were trained to perform all the
operations within the warehouse such as loading, unloading, put-away and picking. This cross-functional
training increased labour productivity.

Warehouse Processes

Docking bays

There were four docking bays in the warehouse (Exhibit 1). Based on availability, each docking station
was used for either inbound or outbound operations. Apart from these, there was a spare docking bay
located at the rear of the warehouse that was rarely used. There was a significant amount of space near
the docking stations for the consolidation of order items, i.e., loading and unloading products.

Inbound

Products manufactured in Ultron’s factory would arrive at the warehouse at any time of the day. Every
inbound product was scanned into the SAP-based inventory management system using its serial (SR)
number. No physical inspection of the products was done after their entry into the warehouse and
before updating the inventory management system. After the initial security checks for relevant
purchase order and product quantity were completed, the supervisors would give the go ahead to unload

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Put-away

Once the goods were unloaded, the supervisors would assign workers to put away the products in their
respective locations within the warehouse. Manually operated hydraulic pallet trolleys were used to
move the goods to their destinations. Fourteen such trolleys were available within the warehouse
facility (see Exhibit 6 for a sample image of a trolley).

Picking

The warehouse supervisor generated a pick list containing the invoice ID, date of invoice and model
number and handed this over to the pickers. As there was no warehouse management system in place,
the picking was not done using serial numbers. Supervisors knew the exact location of each model inside
the warehouse and would direct the pickers to these locations.

Dual cycles

The warehouse followed dual cycles to reduce the transit time between successive picks or put- aways.
Unlike traditional single cycle put-away or picking operations, which were done sequentially and caused
considerable deadheading, in a dual cycle, both put-away and picking tasks were combined in one cycle.
An employee tasked with put-away of inbound goods was also provided with a pick-list for picking, using
which he could pick an item on his way back to the consolidation area near the docking bays (see Exhibit
7). On an average, it took about five minutes for an employee to make the trip from the consolidation
area for put-away or picking and back. The number of products that could be transferred in a cycle
varied across categories (see Exhibit 8 for a list). In many cases, workers did not use a pallet to transport
the goods in a trolley due to the bulky nature of the goods, potentially causing damage to the protective
packaging of the goods while in transit within the warehouse.

Returns

Returns constituted about 1-2% of the total shipments from the warehouse. Products were returned for
a variety of reasons ranging from malfunction to obsolescence. In such cases, the service department
within the warehouse checked the products for potential defects and corrected them in house; they
were then sold as seconds at discounted rates.

Problems faced

The problems faced by the warehouse manager were as follows:

1. Being a large appliance warehouse, the movement of goods within the warehouse was slow. The
average per unit SKU value was very high, thus, any damage caused to the goods while moving them
could prove to be expensive.
2. FIFO maintenance: Due to the lack of a warehouse management system, it was not possible to track
the aging of the products in the warehouse. Additionally, moisture within the warehouse could
damage the packaging of the goods if they were left unattended for a long time. Repackaging of the
goods would cost the warehouse an additional USD 7.5 per box.
3. In the current set-up, the location of a product could vary with time and usage. Products were stored
based on the availability of space within the warehouse. This could lead to low picking

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efficiency due to the lack of a warehouse management system to track the exact location of any
product within the warehouse. The large variety of SKUs and small quantities also added to the low
picking efficiency.

Options Available

To maintain FIFO and improve picking efficiency, Ahuja was considering the following options:

1. Mezzanine floor: Building a mezzanine floor would provide him sufficient space to demarcate new
goods from old ones. This space would also allow for double-deep storage with aisles on both the
sides, which would provide workers with access to every product stacked at a particular location
independently. The setting up and dismantling of the mezzanine floor, which was a semi-permanent
structure, would be relatively easy and not very time- consuming. The capital investment required
for setting up a mezzanine floor was USD 20-40 per square metre. In addition, lifts or vertical
conveyors would be needed to move products between the floors.
2. Colour coding: A colour coding system could be used to distinguish new and old inventories
in the warehouse. The colours could be used to identify the inventories based on the month of the
consignment’s arrival. This could help maintain FIFO as it would be easier to identify the older
inventories in the stack. However, it could also create complexity as there were more than 500 SKUs
across six brands. The cost of 100 colour- coded stickers was about USD 1. Additional flows
introduced by the transshipment of products between the warehouses and customer returns could
make the colour coding system difficult to implement.
3. Pallet flow rack system: A pallet flow rack system (as shown in the Exhibit 9) was another
potentially efficient solution to handle the FIFO problem in the warehouse. In this system, the racks
had an inclined structure to enable the flow of the pallet under gravity. Loading could be done from
the back of the racks and unloading from the front. Once a pallet was unloaded from the front, the
next pallet in the rack came to the unloading position (see Exhibit 2b for the number of boxes that
could be stored per product using one standard Euro pallet with a dimension of 1,200 mm by 800
mm). The capital investment required to set up a pallet flow rack system was USD 80-100 per square
metre for one level of pallet rack space. However, not all SKUs could be stored in pallet racks.
4. Dedicated fast pick area: Another option was to have a dedicated fast pick area for the critical
product categories where the frequency of picking and put-away was high. The older inventories
could be stacked in the dedicated fast pick area, while the new inventories could be stacked at the
back of the warehouse and shifted to the fast pick area as and when required. The shifting of
inventories from the storage to the fast pick area could be a problem during the peak season when
labour utilisation was high. No capital investment was required for this option. Allocating the space
required for each SKU in the fast pick area would be critical to the success of this option.

The above options could be used to maintain FIFO in the warehouse, but to improve picking efficiency, it
was very important that the workers be able to identify to which part of the warehouse they had to go
to retrieve the inventory and how they could reach that location in the shortest possible time. A racking
system with a layout showing exactly where the product was located in the warehouse would be useful.
To reduce the time taken to access the various parts of the warehouse, an efficient aisle configuration
such as a cross-aisle or angled aisle could be used

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to optimise the pick path. This kind of a configuration required software support, which was likely to be
very costly.

Conclusion

The speed of the operations in the warehouse was fairly high due to the absence of additional processes
associated with a warehouse management system. Ahuja wondered whether these were the only
possible options to achieve FIFO at no additional software investment cost. He wanted to decide on a
course of action before his meeting with senior management the next morning.

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Exhibit 1: Warehouse Layout

Note: Height of the warehouse is 35 feet of which 24 feet is usable.

Source: Created by the authors.

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Exhibit 2a: Warehouse Statistics: Average per month Data (October 2014)

Average Incoming Incoming Outgoing Outgoing

Category Product
Inventory Shipments Quantity Shipments Quantity
AC 1.0T S 356 1 97 45 187
Air
AC 1.5T S 186 14 522 90 591
Conditioners
AC 2.0T S 40 2 65 10 42
Colour TVs CTV 21 2683 56 4418 135 4230
LCD LCD 22'' 41 2 6 1 5
Televisions LCD 32'' 75 1 1 6 6
LED 16'' 279 4 160 1 10
LED 20'' 561 6 260 17 204
LED 22'' 786 20 1743 45 1454
LED 23'' 148 1 224 8 194
LED 24'' 703 24 2617 107 2136
LED 28'' 133 1 11 11 114
LED 29'' 476 6 680 42 819
LED
LED 32'' 4768 39 2823 173 4016
Televisions
LED 39'' 449 8 813 20 306
LED 40/42'' 793 28 1880 85 2436
LED 46'' 2 1 1 2 2
LED 48'' 5 1 1 0 0
LED 50'' 374 9 338 43 432
LED 55'' 214 9 128 17 105
LED 65'' 0 1 5 1 5
19/20 L 107 3 300 16 241
Microwave 21/23 L 131 6 878 16 783
Ovens 25/26 L 70 3 196 19 203
27 L 34 1 150 5 52
150 L 115 3 226 7 108
170 L 480 2 90 27 296
190 L 4924 56 2634 229 1895
215 L 219 12 334 43 348
Refrigerators 230 L 12 1 1 3 3
47 L 197 10 325 22 340
600 L 9 7 74 8 42
650 L 42 1 5 0 0
80 L 154 4 381 13 596
Food 211
Small Home 1 2 8 200
Processors
Appliances
Irons 495 2 1152 5 755

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Average Incoming Incoming Outgoing Outgoing

Category Product
Inventory Shipments Quantity Shipments Quantity
Grinders 204 7 1112 4 740
6 kg 663 3 238 24 330
6.2 kg 143 2 20 8 45
6.5 kg 365 16 527 58 450
7 kg 225 4 19 23 205
Washing
7.2 kg 1633 4 97 21 243
Machines
7.3 kg 150 1 11 1 2
7.5 kg 639 2 12 15 132
7.8 kg 64 1 1 13 59
8 kg 268 4 59 11 57
Source: Company records.

Exhibit 2b: Sample SKU Dimensions in the Warehouse

L W H Stacking Palletisable Per Pallet Load

Category Product Y/N (Euro pallet)
mm mm mm Norm
AC 1.0T S 900 350 585 3 Y 6 boxes
Air
AC 1.5T S 920 350 600 3 Y 6 boxes
Conditioners
AC 2.0T S 920 350 600 3 Y 6 boxes
Colour TVs CTV 21 615 177 375 6 Y 30 boxes
LCD LCD 22'' 702 156 402 6 Y 35 boxes
Televisions LCD 32'' 884 212 600 4 Y 9 boxes
LED 16'' 530 122 320 6 Y 78 boxes
LED 20'' 480 170 343 6 Y 48 boxes
LED 22'' 702 156 402 6 Y 35 boxes
LED 23'' 650 135 440 6 Y 32 boxes
LED 24'' 650 135 440 6 Y 32 boxes
LED 28'' 692 122 480 4 Y 36 boxes
LED 29'' 702 156 480 4 Y 28 boxes
LED
LED 32'' 884 212 600 4 Y 9 boxes
Televisions
LED 39'' 1097 190 734 3 Y 8 boxes
LED 40/42'' 1097 190 734 3 Y 8 boxes
LED 46'' 1355 212 877 2 N -
LED 48'' 1355 212 877 2 N -
LED 50'' 1355 212 877 2 N -
LED 55'' 1387 178 879 1 N -
LED 65'' 1387 178 879 1 N -
19/20 L 452 360 250 3 Y 12 boxes
Microwave 21/23 L 452 360 250 3 Y 12 boxes
Ovens 25/26 L 452 360 250 3 Y 12 boxes
27 L 560 575 335 3 Y 6 boxes

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L W H Stacking Palletisable Per Pallet Load

Category Product Y/N (Euro pallet)
mm mm mm Norm
150 L 570 670 1095 2 Y 2 boxes
170 L 570 670 1095 2 Y 2 boxes
190 L 570 670 1205 2 N -
215 L 570 670 1205 2 N -
Refrigerators 230 L 570 670 1480 2 N -
47 L 405 475 533 4 Y 6 boxes
600 L 620 675 1592 1 N -
650 L 620 675 1592 1 N -
80 L 475 500 825 3 Y 4 boxes
Food 607 Y 12 boxes
277 337 3
Small Home Processors
Appliances Irons 252 115 122 3 Y 90 boxes
Grinders 235 210 237 3 Y 45 boxes
6 kg 620 635 1035 2 Y 2 boxes
6.2 kg 620 635 1035 2 Y 2 boxes
6.5 kg 620 635 1035 2 Y 2 boxes
7 kg 620 635 1035 2 Y 2 boxes
Washing
7.2 kg 865 545 1100 2 Y 1 boxes
Machines
7.3 kg 865 545 1100 2 Y 1 boxes
7.5 kg 865 545 1100 2 Y 1 boxes
7.8 kg 865 545 1100 2 Y 1 boxes
8 kg 865 545 1100 2 Y 1 boxes
Source: Company records.

Exhibit 3: Product Composition across Categories at the Warehouse

Product Type Percentage Composition

Refrigerators + Washing machines 50%
LCD/LED/CTV + Small home appliances 30%
Air conditioners + Coolers 20%
Source: Company records.

Exhibit 4: List of Vehicles Available for Dispatch at the Warehouse

Type of Vehicle Number Available

Tata 1109 Truck (24 ft) 1
Tata 407 Pickup 3
Tata Maximo 4
Tata Ace 1
Total 9
Source: Company records.

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Exhibit 5: Employees at the Warehouse

Employee Designation Number Available Skill Level

Warehouse Manager 2 Skilled
Supervisor 7 Skilled
Put-away and Picking personnel 24 Unskilled
Source: Company records.

Exhibit 6: Hydraulic Pallet Trolleys at the Warehouse

Source: Kovai Forklifts. (n.d). Products. Retrieved from http://www.kovaiforklift.com/mahindra-swaraj-forklifts.html

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Exhibit 7: Dual Cycle Operation at the Warehouse

Source: Create by the authors.

Exhibit 8: Number of Products Transferrable in a Cycle Using a Trolley

Product Number transferrable in a cycle

Refrigerator (big – above 200 L) 2
Refrigerator (small – below 200 L) 4
Washing Machine 4
Colour Television 10
LED/LCD Television (up to 29’’) 20
LED/LCD Television (32’’ and above ) 12
Microwave Oven 10
Air conditioner (split) 6
Small Home Appliances (carton of 10 8
units)
Source: Company records.

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Exhibit 9: Pallet Flow Rack System

Source: Next Level Storage Solutions. (n.d). Retrieved from https://www.nextlevelstorage.com

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