Capital Costs for On-line Storage

Storage economics are mainly concerned with the capital cost for online storage when rationalised with annual item cube movement. Capital costs are those for the space, building, material handling equipments, bins, pallets, pallet loading systems, and computer hardware and software for identifying and processing information about the storage cost. The main concern is the provision for picking, retrieval, and packing. The supporting and efficiency enhancing fixtures needed for the efficient use of space and heavy equipments should be addressed.

The extent of mechanisation depends on the expected returns in them.

Sometimes, mechanisation will not solve some fundamental problems of basic design of the system, inadequate forecasting or inappropriate methodologies. It will be found that capital costs which are quite huge fail to result in increased productivity and will be a drain on the economics of the operation.

2.6.1 Mechanisation costs – for assembly and packing

Failure of the split-case order in assembly and packaging systems occurs mainly due to two reasons:

a) Tote Sorting b) Item Sorting

Figure 2.5: Tote sorting Figure 2.6: Cross belt sorter

Totes containing the picked merchandise area are moved from the selected zone. These are received for sorting where the sorter automatically transfers

all totes of a given order on a conveyor which supplies them to the packing station (See Figure 2.5 Tote sorting). The stations which perform this activity will have their workload assigned dynamically.

The Item Sorting System receives the totes with picked merchandise and is transported to one more induction station where individual items are removed. These items are inducted into an item sorter. The sorter will be in the form of tilt tray or a cross belt (See Figure 2.6 Cross belt sorter). Individual items get sorted and sent to chutes which carry the items for assembly and packing.

The discharge takes place at the pack stations. Sometimes belt conveyors are used for sorting and transporting. In such cases chutes may become redundant. It is to be noted that for different types of merchandise, their quantities determine the method for the intended operations.

The capital costs in adopting one system to another will vary. Utilisation and productivity are factors which determine the choice. However, it is advisable that provision for alternates may be planned so that modifications do not become very costly.

2.6.2 Picking and packing costs

These activities require a good deal of human intervention, thus needing a number of people. Distribution centres, where picking and packing activities take place, measure performances on the basis of pieces per man-hour or order lines per man-hour. Inevitably, these get linked to orders (See Figure 2.7 for Picking and packing).

Figure 2.7: Picking and packing

There is a large variation in the quantities per order, variety of merchandise, waiting lines, and other characteristics of the orders being filled. The orders might be wholesale, retail, direct or consumer. Productivity measures, though dependent on pieces per hour or lines per hour, will have to be adjusted to suit the peculiarities of the situation. The extent of mechanisation also has to be considered. Costs involved both in terms of capital and labour intensive activities should get suitable representation of the cost structure.

2.6.3 Order assembly and packing system costs

Assembly is done manually and hence needs a well trained workforce. The variety of merchandise that arrive from totes either via the chute or tray or cross belt have to be accurately identified and placed for assembly. Though every care would have been taken, gaps in the information flow would still hold up the operations. Reducing inventory at this level is critical to productivity. Feedback systems should be very efficient to rectify errors as and when they occur. Main costs involved at this stage are the manpower;

capital costs would not be heavy. Packing systems may be semi-automatic or manual. Fully automatic systems may not be advisable for order assembly situation unless quantities are large and requirements are for longer periods.

Self Assessment Questions Fill in the blanks

5. Many times ______will not solve some fundamental problems of basic design of the system, ______ or inappropriate methodologies.

6. Sometimes bulk handling _______ systems area used for _______.

7. ________ though dependent on pieces per hour or lines per hour will have to be adjusted to suit the peculiarities of the situation.

2.7 Summary

New concepts of manufacturing technology and use of computers in design of products, components, assemblies, help in producing quality products

Case Study 1

InDex was an Rs.12 billion-a-year delivery service company that thrived on speed and reliability. InDex delivered 5 million packages each day. Since 60 percent of the packages went by plane, InDex could charge premium prices for the service. For 20 years, companies traditionally chose InDex because of its on-time delivery and technological superiority in tracking packages. The internet, however, changed things drastically. Many businesses started using emails to deliver documents instantaneously.

These technological advances cut into the demand for InDex’s traditional services. The market was taken over by internet companies such as XYZ.com, which relies on ground transportation services to deliver packages directly to the customer’s door, and by the vast business-to-business supply networks created by web-based purchasing systems. To remain competitive, InDex created two new services: InDex Ground and InDex Home Delivery. InDex Ground focuses on business-to-business deliveries to residences. The goals were low-cost operations and dependable delivery–a change from past operations’ goals that stressed speed. In addition, InDex invested Rs.20 million in processes for co-ordinating the flow of goods.

InDex Ground came up with advanced technology such as, new bar code, material handling, advanced order picking and order packing methodologies, and computer technologies. It also came up with a proper sorting and routing technique across all nodes of supply chain for providing a time-definite fast delivery to the customers.

InDex, now with its ability to rely on skill managing operations, competed successfully with competitors in dynamic environment and resulted with revenue of Rs.4 billion for the financial year 2009. It also provided employment for more than 70,000 people and independent contractors.

with a maximum accuracy. The information flow should be continuous, accurate and timely is an important element introduction Advanced methodologies of mechanisation help in improving quality and reducing throughput time. The integration of computer integrated manufacturing systems will improve the process of information flow across all the functions.

The system takes care of various processes like scheduling, routing, inventory and optimises the usage of space and storage systems.

Packaging and movements of materials both inside the plant and external distribution points for raw materials and finished products is an important function in the supply chain.

2.8 Terminal Questions

1. Explain how CAD and CIM help in improving productivity

2. How do split case orders processes improve customer satisfaction?

3. Explain the difference between Storage Density and Velocity.

4. Give reasons as to why failures occur in split case order assembly.