Decision support model for a satisficing warehouse design structure M ASTER T HESIS

M

ASTER

T

HESIS

T

ECHNOLOGY

M

ANAGEMENT

Faculty Economics & Business

Research of:

Decision support model for a

satisficing warehouse

design structure

Decision support model for a satisficing warehouse design

structure

Co-assessor: drs. R.A. Rozier

Company: Bakker Logistiek Groep

Handelsweg 26 3899 AB Zeewolde Company supervisor:

Preface

This report is the representation of my final research project for the masters degree program “Technology Management” at the University of Groningen. First of all I would like to thank Bakker Logistiek for giving me the opportunity to perform my final research project at this company. In a period of one and a half year, varying from the start of my research project, working full time at Bakker Logistiek and lengthy days of writing my final thesis, this is the final result. I would like to thank the people at Bakker Logistiek who, in one way or another, have helped me during this period. Furthermore I would like to thank Hen van de Water for being my supervisor at the University of Groningen and guiding me through the research project with useful comments and feedback. These comments improved the readability and quality of the thesis. I also would like to thank Robert Rozier for his comments and reviewing of the thesis. Last but not least I would like to thank my family and Sanne for their support during my study and especially during the completion of this thesis.

Abstract

Many third-party logistics provider’s struggle with the jungle of option in warehouse

management tools and what investment is the best match with the strategy of their company. The variety of technologies, different performance objectives and multiple related

stakeholders makes the decisions process of a warehouse design complex in nature. In this research a Warehouse Decision Support Model (WDSM) is created that will support

managers in the decision making process of a warehouse design. This WDSM structures the problem in manageable related sub problems concerning the aspects that needs to be

considered during the selection of a warehouse mechanization level. These aspects include the identification of a value discipline; defining the performance objectives and finally the

Index

2.1 MOTIVATION FOR THIS RESEARCH ... 8

2.2 MAIN RESEARCH GOAL ... 12

2.3 RESEARCH QUESTION ... 13 2.4 SUB-QUESTIONS ... 14 2.5 RESEARCH METHODOLOGY ... 16 2.6 RESEARCH MODEL ... 19 3. THEORETICAL FOUNDATION ... 20 3.1 WAREHOUSE DESIGN ... 20 3.2 CUSTOMER VALUE ... 24 3.3 WAREHOUSE PERFORMANCE ... 28 3.4 WAREHOUSE ALTERNATIVES ... 32 3.5 STAKEHOLDER MANAGEMENT ... 34

4. WAREHOUSE DECISION SUPPORT MODEL ... 37

4.1 STRUCTURE OF THE WDSM ... 37

4.2 PLACING THE PERFORMANCE OBJECTIVES ... 39

4.3 PLACING THE ALTERNATIVES ... 42

4.4 DECISION SUPPORT METHOD... 45

4.5 APPLYING ANP TO THE WDSM ... 49

5. CASE AT BAKKER LOGISTIEK GROEP ... 51

List of figures

Figure 1: Headquarter of Bakker Logistiek Groep ... 6

Figure 2: Integration of BLG in the total supply chain ... 7

Figure 3: Example of new planned semi-automated warehouse ... 8

Figure 4: Warehouse productivity benchmark (Aberdeen group, 2006)... 9

Figure 5: Research model ... 19

Figure 6: Aspects of the WDSM ... 20

Figure 7: Functional areas and flows within a warehouse (From De Koster, et al., 2007) ... 20

Figure 8: Warehouse design problems (Gu et al., 2007) ... 21

Figure 9: Main objective of the WDSM ... 23

Figure 10: Two possible value disciplines for a 3PL ... 27

Figure 11: Model of used performance objectives ... 29

Figure 12: Relations between performance objectives (Slack et al., 2007) ... 31

Figure 13: Performance objectives and sub-performance objectives placed in the WDSM .... 31

Figure 14: Aspect within the decision of an orderpicksystem. (Goetschalckx, 1989) ... 32

Figure 15: Selected alternatives of mechanization ... 33

Figure 16: Different stakeholders in one distribution warehouse at a VMI strategy ... 34

Figure 17: Final Warehouse Decision Support Model ... 38

Figure 18: Different relations between sub and main performance objectives ... 47

Figure 19: WDSM build with "Super Decision" software ... 49

Figure 20: Ranked and calculated WDSM for BLG ... 53

List of Tables

Table 2: Supply-oriented logistics capabilities (Morash et al., 1996) ... 26

Table 3: Quality measurements ... 40

Table 4: Speed measurements ... 40

Table 5: Reliability measurements ... 41

Table 6: Flexibility measures ... 41

Table 7: Cost measurements ... 42

Table 8: Sustainability measurements ... 42

Table 9: Ranking of the performance objectives ... 52

Table 10: Ranking of alternatives ... 52

Table 11: Saaty’s Scale of relative importance (Saaty, 2001) ... 75

Table 12: Matrix of pair wise comparison ... 76

Figure 1: Headquarter of Bakker Logistiek Groep

1. Introduction

Companies always had and will always have to deal with the never ending competition in their market. This challenges companies to invest in e.g. business process reengineering, product innovation or a redesign of their supply chain to find their competitive edge in the market (Woodruff, 1997). Especially in the market of logistics, where the margins are small, it is a continuous struggle to keep one’s head above the water. Customers ask for more flexibility, higher quality and faster delivery times while labor costs and regulatory increases. The increased pressure on the logistic industry, caused by fierce market competition and rising service level expectations, has radically changed the way the warehousing operations are carried out. Managers strive to reduce warehousing costs by increasing operational productivity, but an ever increasing array of products ask for different order filling

technologies and methodologies that need to be carefully balanced and integrated (Caputo et al., 2006). High risks are taken by logistic companies by bringing in new customers to expand their market share. Van den Berg et al. (1999) notice that modern companies attempt to achieve high-volume production and distribution using minimal inventories throughout the logistic chain that are to be delivered within short response times. This change has had a dramatic impact on warehouse management (Van den Berg et al., 1999). The design and operation of a warehouse is therefore a complex problem with a large number of interrelated decisions among processes, resources and organizations (Heragu et al., 2005).

One of the companies that operate in this environment is Bakker Logistiek Groep. Some background information will be given about Bakker Logistiek Groep, the company that initiated this research project.

1.1 Bakker Groep

Bakker Logistiek Groep is part of the overall organization Bakker Groep. Besides logistic services Bakker Groep is engaged in company trucks and real estate. Bakker Groep is divided in three divisions, namely: Transport, Logistics and Company Trucks. The division Company Trucks is, with five locations in the middle of the Netherlands, one of the biggest dealers of DAF. This research project is done at the division Logistics.

1.1.1 Bakker Logistiek Groep

Bakker Logistiek Groep (BLG) is established in Zeewolde (Figure 1). With a turnover of over 120 million euro BLG grown to one of the

Some fact of Bakker Logistiek Groep: - 10 locations

- 200.000 m2 storage capacity - 75.000 pallet places

- 8.500 m2 cross dock capacity - 25.000 products

- 300 vehicles

- Transport and storage classes: ambient, conditioned, chilled and ADR

- 96.000 rides annual

- 40 million kilometers annual - 1 million deliveries annual

- Concepts: 4, 8, 24 and 48 hour delivery 1.1.2 Logistic services

The provided services by BLG will be shortly discussed. Figure 2 shows the supply chain of the retail market and the integrating role of BLG in this chain. This figure makes clear that BLG is a 3rd party Logistics Provider (3PL) specialized in the core logistic services, and is the link between the manufacturer and the consumer. BLG is responsible for the distribution and storage of goods from the manufacturer, takes care of the order picking process and handles the transport to the customer. The integration of BLG is partly overlapping the manufacturer and Retail outlet, shown with the color in Figure 2. BLG perform some value added services for these parties like repacking and building displays.

1.1.3 Mission/vision

The core activities of BLG are transport, storing, transshipment and repacking of cooled and conditioned food and related products in a dry, conditioned and cooled environment. The mission of BLG aims to meet the needs of their customers using the best quality/price ratio due regard for the health, safety and welfare of their clients, customers and employees. BLG indicate that generating an optimal return and maintaining continuity of the company with the highest possible level of employment is a prerequisite in their mission. Their vision is to work together with the customer to reach sustainable logistic networks.

Resources Manufacturer Retail Outlet Consumer Primary

orderpicking

Storage, Distribution

= Integration of BLG in total supply chain Storage,

distribution

Secundaire distribution

Figure 3: Example of new planned semi-automated warehouse

2. Research design

This chapter shows the foundation for this research project. The following issues will be discussed: The practical and theoretical motivation for this research, the research goal, research question, sub-questions and research methodology. Finally a research model will be created to give an overview of the total research and to structure the process.

2.1 Motivation for this research

The reason for this research can be explained from a practical and theoretical point of view. In this paragraph both practical and theoretical reasons will be explained that are a motivation to do this research.

2.1.1 Practical motivation for this research

Recently BLG obtained a large contract with Albert Heijn, the biggest supermarket chain in the Netherlands, to store and order pick all the cheese related products of over 800 Albert Heijn stores. This concerns a multiannual deal with a weekly transport rate of about 200 trucks transporting cheese to the distribution centers of Albert Heijn. Daily, more than

120.000 picks are made. BLG is responsible for the following processes: Product entrance and control from supplier, storage, order picking and product release.

To implement this new service of storage and order picking at BLG, a semi-automated storage and retrieval system has been suggested (Figure 3). This includes:

 Automatic cranes that will operate the bulk storage;

 Automatic depalletizers to unload the crates from a pallet;

 Pick-to-light systems that should reduce the load of the order pick process;

 A “store-buffer” that will automatically sort crates store-specific;

 A Feeder that will place crates on the store specific rollies;

 A new Production Management System (PMS) that controls all orders and plans the order picking process.

Figure 4: Warehouse productivity benchmark (Aberdeen group, 2006) system like this. This semi-automated warehouse system turns out to become a highly sophisticated process to operate and maintain with many exceptions and bottlenecks. With some adjustments and investments the start of the new semi-automated warehouse has been postponed till the end of the year 2010. Nevertheless, the deadline of BLG, to be part of the supply chain of Albert Heijn and their suppliers, has not been changed and should be operational in March 2010. The backup plan was a conventional warehouse with traditional order picking and storage facility. In August, a feasibility study of the new automated warehouse makes clear that the capacity of the overall automated system would not be sufficient for the volumes of Albert Heijn. A new investment can make the system work, but the main conclusion is that it will not become as profitable as calculated and the

semi-automated warehouse does not match the processes of AH. With this conclusion, finishing the new warehouse is blown off and the automated warehouse will partly be broken down and partly be used for other warehouses of BLG or sold.

At this moment the conventional warehouse is operational. This warehouse does the job in the total supply chain and AH is satisfied with the current performance. The performance for BLG however, has not been satisfying and the design process can be noted as far from optimal. This conventional warehouse is set-up as a temporary solution, since it is born to cover the time until an automated warehouse will be ready. What went wrong in this case? Which arguments were used to choose for an (semi) automated warehouse? How can a

miscalculation like this be prevented in the future? These are several questions that have to be answered in this research.

2.1.2 Theoretical motivation for this research

Properly thought out warehouse investments can be a huge success and increase the

profitability of a company. On the other hand, poorly implemented investments can end in a disappointment or even drive companies out of business. Determining the right technology, warehouse operation strategies and a proper integration of the new technology is vital to encounter a success. Whether or not a warehouse investment will lead to a success will largely depend on the decisions made by the managers. Because of the many decisions managers have to take, organizations can be seen as a decision-making system. Much is written about the process of decision making. One of the founders of decision making is Herbert Simon. Already in 1947 he criticizes the classical decision making theories. Simon (1959) argues that human decision makers have “bounded rationality”. They are not perfectly informed and have a limited capacity to process information. He also noted that decision makers do not have a clear goal and will not oversee all alternative proceedings. More recently Checkland et al. (1981) introduced a methodology for system thinking to deal with problem situations. Checkland (2000) indicates that real world problems are usually complex and messy. Many different factors may contribute to a problem situation, and there may be many different points of view to solve this problem. This makes it difficult to understand the real problem or find the root cause. Checkland (2000) prescribed a problem-solving approach that supports the decision maker in finding a clear problem definition, and how the situation could be improved. With this in mind it can be indicated that managers may benefit from a support model in the decision process of a warehouse design.

Before a new decision support model will be made, existing models or methods are searched for in literature, which are designed for a similar situation. Baker et al. (2009) noted that relatively little has been written in academic journals on the systematic approach that should be taken by warehouse designers. According to Rowley (2000), there is not a procedure for systematically analyzing the requirement and designing a warehouse to meet the operational need using the most economic technology. Rouwenhorst et al. (2000) concluded that a sound theoretical basis for a warehouse design methodology still seems to be lacking.

One of the most important decisions that have to be made in a warehouse design problem is equipment selection. Since this aspect affects almost all the other decisions as well as the overall warehouse investment and performance (Gu et al., 2010). The equipment selection problem addresses the level of mechanization in a warehouse and what type of storage and material handling systems should be employed. Gu et al. (2010) noted that determining the best level of mechanization is far from obvious in most cases, and in practice it is usually determined based on the personal experience of designers and managers. Although the selection of equipment is very important since it influences the complete warehouse design. Gu et al. (2010) stated that the available research on this topic is quite limited and

“A very significant contribution would be to develop a method for characterizing

requirements and characterizing equipment in such a way that these two issues could be addressed in a unified manner.”

The first issue, “characterizing the requirements”, indicates the performance objectives that need to be found which are affected by the choice in warehouse equipment and how these objectives can be operationalized and measured. The second issue that Gu et al. (2010) point out is the characterization of the equipment. Different choices have to be made according warehouse equipment, like the level of mechanization, and the type of storage and material handling systems that should be employed. Gu et al. (2010) argue that these two issues should be addressed in a unified manner and used in a method that supports the decision maker in the selection of warehouse equipment.

2.1.3 Complexity of warehouse decision

As already mentioned in the introduction, the warehouse design process can be noted as a complex operation. Baker et al (2009) indicated that many authors have acknowledged that warehouse design is highly complex. Different factors play a role in the complexity of warehouse design and the reason why this design process should be supported. Rouwenhorst et al. (2000) noted that problems encountered on a strategic level during warehouse design often are hard to define. The main factors that include the contribution to the complexity of warehouse design will be described.

The performance objectives that evaluates a solution are often complex, they consists of multiple objectives, and is partly qualitative (Rouwenhorst et al., 2000). For instance, flexibility is hard to quantify. Often only objectives that are easy to quantify are taken into account, although this provide superficial information about reality. Another aspect is the large set of warehouse alternatives that can be combined in multiple ways. According to Rouwenhorst et al. (2000), enumeration of all feasible designs in order to find the optimal solution is often practically impossible. They noted that in order to handle such complex decisions, a warehouse design problem has to be split up in manageable parts. Furthermore, different stakeholders are involved in the design of a distribution warehouse. The 3PL as owner and user of the warehouse, but also the suppliers and customers which are dependent on the performance of the warehouse are involved. No less important, often they still owns the product stored in the warehouse, what makes them extremely important stakeholders that needs to be involved closely in the warehouse design process. Multiple stakeholders with a substantial influence lead to a more complex decision process.

With these findings it can be noted that the decision process at BLG was complex in nature. Underestimation and a superficial approach of this warehouse design problem could have had at least some influence on the huge capital loss of the Albert Heijn project. Design choices are not sufficiently or correctly underpinned by performance objectives and the possible

2.2 Main research goal

In the process of (re)designing a warehouse, managers have to deal with many choices. Many different problem areas in warehouse design are classified by Gu et al. (2007), like

operational strategy selection, sizing & dimensioning and department layout. As noted before, the decision makers in these “complex” environments should be supported in their decision process.

The main research goal is to design a decision model that supports the most important choices in warehouse development. Since the term “warehouse” is a broad concept, this research will be focused on warehouses of 3PL’s in the food industry. This is also the market of BLG. The main outcome of this research will be a Warehouse Decision Support Model, from now on a “WDSM”. The term “Support” in this model is chosen for a specific reason. The final model will not become a completely defined black box where the preconditions of the desired warehouse can be put in and from which an ideal warehouse design will roll out. This is unrealistic since no organization or even different departments within an organization have exactly the same products, processes and corresponding performance objectives. The designed model will be a “support” for the organization to make the right decisions in the development process of a warehouse. The WDSM should contain the aspects and variables that will be of influence in the development of a warehouse. This model should support the decision maker in finding the right performance objectives of the company, give the decision maker an overview of the available warehouse technologies/strategies and selecting the right alternative.

2.3 Research question

From the motivation of the research and the main research goal it can be concluded that a “design question” best matches this research. The accent on a design question is the design of a general matter to solve a problem that can be used in several situations (Geurts, 1999). In this research a model will be designed to support 3PL’s with the development process of a new warehouse.

The following research question is composed:

How can a third-party logistics provider (3PL), in the food industry, be supported in choosing their warehouse design that lead to a satisficing performance?

To clarify this research question the keywords will be explained. Third-party logistics provider (3PL)

A 3PL is a company that provides multiple logistics services for a customer, like

warehousing, pick and pack, transport, cross-docking, inventory management and labeling. 1PL, 2PL and 4PL are respectively sender/receiver, provider of transportation and consulting firms. Besides the 3PL, different stakeholders are involved in the design process.

Food industry

Since the market of 3PL’s is large and versatile it might become too general for this research. The food industry within this market is chosen, because Bakker Logistiek Groep operates in this market as well. The food industry is a market with specific characteristics like short expiration days and food safety. This makes the preconditions for the development of a warehouse different from other 3PL’s.

Warehouse design

The operation of a warehouse can be divided in four basic steps. First the product is received from the suppliers and will be stored in the warehouse. From an order of the customer the products are retrieved by order picking and assembled for shipment, then the order will be

shipped to the customer. Although it seems like these steps are straightforward, they can be

performed in many different ways and strategies with many choices, such as defining the batch/size and route for the order picker or the assignment of products to zones in the storage apartment.

Satisficing performance

In this research a model will be made that should support 3PL’s in their decision making process during the (re)design of a warehouse. Gu et al. (2010) emphasize the importance of performance evaluation for both warehouse design and operation, since operational efficiency is strongly affected by the design decisions. Assessing the performance of a warehouse in terms of cost, throughput, space utilization, and service provides feedback about how a specific design or operational policy performs compared with the requirements, and how it can be improved.

The term satisficing instead of optimal or ideal is used. The term satisficing has been introduced by Simon (1959) as a reaction on the tendency to treat business problems with models that optimize certain goals. Unlike the rational model that chooses the best

alternatives from all alternatives, the satisficing model examines a few alternatives and chooses the alternatives that promote the defined goals. A satisficing strategy may often be (near) optimal if the costs of the decision making process itself are taken into account in the final outcome. In this research a satisficing warehouse performance can be defined as a warehouse that achieves a certain performance level that is feasible and meets the requirements.

2.4 Sub-questions

From the main research question, the sub questions are derived to discuss the relevant subjects in this research in a structured and logical way. The sub-questions are divided in five

theoretical questions and one practical question. First the theoretical questions will assist in the formation of the WDSM, like defining the strategy, performance criteria and warehouse technologies. The practical question is relevant for the case at BLG where the created model will be used. The following sub-questions are formulated:

 How should a 3PL’s define their strategy?

Company should be clear of what strategic goals they will pursue in order to make the right decisions about warehouse design. Morash et al. (1996) noted that in a heavily competitive environment, a major concern of logistics management is the strategic use of firm capabilities and distinctive competencies for competitive advantage. Different companies pursue different goals, so trying to find a common strategic position for all 3PL’s in the food industry is unrealistic. According to this sub question 3PL’s can determine or create the strategic position of their company. Before the design of a distribution warehouse begins, the goal and strategy of the warehouse should be clear.

 What warehouse performance objectives should be used to asses the warehouse

design?

 How to accomplish a consensus in performance objectives between three parties,

namely: The 3PL, suppliers and customers?

As noted in the previous question the performance objectives should be used to define a warehouse design with a satisficing performance. This design should of course be satisficing for the 3PL, but also the requirements and wishes of the suppliers and customers should be incorporated. Logistic warehouses can be noted as special in the way that products stored, picked or packed in this warehouse can belong to all three parties. This declares the interest of these parties to be involved in the warehouse design. The different parties should reach a consensus in the choice for a final warehouse design. These parties might have conflicting interests or relations that can impede this consensus or even the attempt to negotiate. An appropriate method should be found to facilitate the process of bringing these parties together and reaching a mutually accepted solution.

 What warehouse technologies are available, and how can they be translated in

alternatives for the decision model?

The answer on this sub question should give a brief overview and description of warehouse technologies that are applicable for 3PL’s in the food industry. This “jungle” of options will be arranged in a manageable amount of alternatives that indicate the level of mechanization. To be able to make a well founded choice between these alternatives, they will be quantified by the performance objectives formulated in the second sub-question. The WDSM should contain sufficient information about the warehouse design alternatives, what includes the advantages and disadvantages of the different technologies and how they are related to the different performance objectives. Since the range of technologies is extensive, this research will be limited to only common used and proven technologies.

 How should the WDSM be structured to quantify and rank the different performance

objectives and warehouse alternatives?

 According to the WDSM, what mechanization level best matches the Albert Heijn

process at BLG and how is this different from the option that BLG chose in first place?

As described in paragraph 2.1, one of the motivations for this research is the miscalculation of BLG in the design of an automated warehouse for AH. This warehouse design has primarily been based on cost aspects only. Aspect as flexibility and reliability are underestimated. The designed WDSM in this research should support decisions like this in the future. In this practical part of the paper the best suitable mechanization level for the AH warehouse will be determined according the designed WDSM and how this is different from the design that BLG chose for. This practical application will also test the usability of the WDSM.

2.5 Research methodology

This paragraph will discuss the used research methodology. According to De Leeuw (2003) there are two types of research, a practical and scientific research. These types are defined by the intention of the product. A scientific research contributes to a common knowledge pool and a practical research contributes to a specific demand for knowledge. This research is triggered by BLG as a demand for knowledge in their decision processes. To be able to provide this knowledge a scientific research is necessary to create an appropriate decision support model for warehouses. In this report a practical problem of BLG will be solved in a scientific way, whereby the research hopefully can have any contribution to the common knowledge base.

2.5.1 Business Problem Solving

Van Aken et al. (2007) distinguish this practical and scientific research as “design focused” and “theory based” Business Problem Solving. They noted (p.12):

The purpose of research is to solve a knowledge problem in the immaterial world of

knowledge. The purpose of a business problem solving project, on the other hand, is to solve a business performance problem in the material world of action. It is aimed at actual change and improvement in the material world. In order to achieve this one needs knowledge – the analysis and diagnosis part of the project – but everything is done with the eventual

performance improvement in mind.

activities in a research. Knowledge is extracted from literature that was searched for in journals. Both scientific and professional journals are searched using the (electronic) library of the University of Groningen. In the practical part of this research the WDSM will be

Justified in order to explain why this model will solve the warehouse design problem. Finally,

the research should be Client-centered. The view and interests of the involved stakeholders will be taken into account to deal respectfully with the client system as a whole.

Van Aken et al. (2007) make a further distinction in BPS between explanatory science and design science where design science includes this research the best. Van Aken et al. (2007) noted that the core mission of a design science is the development of valid knowledge that can be used by professionals in the field in question to design solutions to their field problems. They also argue that in management one needs next to descriptive-driven research also prescriptive-driven research ones in order to develop research products which can be used in designing solutions for management problems. The “valid knowledge” of this research will be the Warehouse Decision Support Model that can be used by professionals in warehouse design.

2.5.2 Decision method

As described in paragraph 2.2 this research problem is characterized by a decision making process based on multiple criteria with both subjective and objective elements. Approaches for problems with this character can be placed in the area of Multi-Criteria Decision Making (MCDM). MCDM is a discipline aimed at supporting decision makers faced with making numerous and sometimes conflicting evaluations. A well known and widely used MCDM’s is the Analytic Hierarchy Process (AHP), developed by T. Saaty (1980). AHP is an approach to decision making that involves structuring a complex problem in the form of a simple

hierarchy, assessing the relative importance of the multiple choice criteria, and the overall ranking of the alternatives. One of the advantages of AHP is that it can deal with both the objective and subjective criteria. AHP makes it possible to combine these and results in an objective conclusion about selecting an alternative. Furthermore it supports decision makers in setting priorities and the model enables them to eliminate inconsistencies in this

prioritizing.

One of the limitations of AHP is that it does not support interrelationships between different performance criteria. However, these interrelations exist within the performance criteria of a warehouse design. In this situation a more general form of AHP can be used, namely Analytic Network Process (ANP), described by Saaty (2005). In this research ANP will be used as decision method for the selection of the best level of mechanization for the warehouse by structuring and ranking the defined performance objectives and alternatives. It is not claimed that ANP is the best method, but it well fits the characteristics of the problem in this research. More detailed information about AHP/ANP and the choice for this method will be discussed in chapter 3.

2.5.3 Value Discipline

there may be operational performance objectives that are not necessarily related to strategy, the bulk of the performance objectives should be local versions of the strategy of the 3PL. Therefore it is helpful for 3PL’s to be aware of their strategy to make a well founded ranking in these performance objectives.

In this paper the method of Treacy et al. (1997) will be used as starting point in finding a strategic position. It is not claimed that the ideas of Treacy and Wiersema are the best in defining a strategic position for a company. Different theories are available, that can help to find or determine an appropriate strategy, like the theories of Ansoff (1957) or Porter (1998). However, the theory of Ansoff (1957) is mainly focused on market growth and is divided by four strategies, namely: Market penetration, product development, market development and diversifications. This is not directly suitable for this paper, since the goal for the created WDSM is not necessarily focused on growth. Meanwhile, the idea of Porter (1998) is more focused on the financial side of the market. His competitive-forces model determines the competitive intensity and therefore attractiveness of a market with the following five forces: Treat of new entry; competitive rivalry; supplier power; treat of substitution and buyer power. This research is not aiming on finding a competitive strategy in the market, what makes the model of Porter less relevant for this paper.

The ideas of Treacy and Wiersema, however, can be useful in this situation. These ideas can be used in finding the strategic position, or so called “value discipline” of a company. Treacy et al. (1997) describe the value discipline of a customer as the unique value that the

organization can offer to a carefully selected market. This will be a starting point for the decision maker in prioritizing the performance objectives, since the performance objectives are a derivate of a company’s value discipline. Treacy et al. (1997) identify the following different customer value disciplines: Operational excellence aims at the best total cost by optimizing business processes, reduce transaction costs and minimize overhead; Customer

intimacy strives at best total solution aiming at effectiveness and continuous investment in

customer loyalty; and Product leadership that will have the best product and focused on creativity and adaption to the marked.

These value disciplines are all closely related to the customer, what makes the ideas of Treacy and Wiersema well suitable for this research. Determining a warehouse design depends on many different factors, but it is very important that the design satisfies the customer. The ideas of Treacy and Wierserma and the link with logistics will be further explained in chapter 3.

2.5.4 Stakeholder Analysis

incorporate the opinion of these stakeholders as well. This makes it already complex in itself. In paragraph 3.5 the different external and internal stakeholders of a 3PL will be described. One of the challenges in a decision process with different stakeholders is to reach a consensus where all parties will be satisfied. Consensus can be noted as a group decision making

process. It is a method by which the affected stakeholders should try to find an agreement on one ore more issues. Paragraph 3.5 describes how to work towards this mutually accepted solution between the stakeholders. The earlier mentioned Analytic Hierarchy Process (AHP) is also described as Group decision making tool by Saaty (1989). However, the use of AHP alone for this strategic selection problem is not sufficient, because it is not able to consider multiple stakeholders in this situation. Firouzabadi et al. (2008) suggest a combination of AHP and Zero-One Goal Programming (ZOGP) to address not only the selection problem from the point of view of an individual stakeholder but also from that of multiple

stakeholders. This will be further described in paragraph 3.5. 2.6 Research Model

To make clear how this research will be structured, a research model is made according the concepts of Verschuuren et al. (2007), shown in Figure 5. The research described in this paper will consist of two parts. In part I the theoretical foundation of this research will be described in detail. In chapter 3 five main theoretical aspects will be described one by one, namely: Relevant warehouse design problems; the definition of a customer value; the warehouse performance objective; the

alternatives and an analysis of the involved stakeholders. In the next chapter these different aspects of the theoretical foundation will be combined in the final WDSM. In this chapter also a decision making method to structure this

research is found. In part II the designed WDSM will be used in a practical case at BLG. In chapter 5 the case at BLG will be shortly described to test the model. The final results will be presented and discussed in chapter 6.

Figure 5: Research model

Figure 6: Aspects of the WDSM

3. Theoretical Foundation

This chapter will cover the theoretical foundation of this research based on scientific literature. To design the Warehouse Decision Support Model (WDSM) a theoretical foundation is necessary. Each different theoretical aspect will be a particular section of the final WDSM. These aspects are depicted in Figure 6. First the different warehouse problems that are relevant in the design process of a distribution warehouse will be described in paragraph 3.1. Next the aspect customer value or strategy selection, which already put forward in the previous chapter, will be elaborated in paragraph 3.2. The warehouse performance objectives will be described in the next paragraph and in paragraph 3.4 the different alternatives for the design problem will be selected. Another aspect in warehouse design is stakeholder management. However it is not included in the final WDSM, it is an important aspect in warehouse design and will be described in paragraph 3.5.

3.1 Warehouse design

There is a large amount of literature available regarding warehouse management. During the design phase, different warehouse decisions should be made. This chapter will describe these different decisions and make a selection of the most important ones. Before starting with the design problems, first the general warehouse operations will be described.

3.1.1 Warehousing in general

Together with material flow, warehousing is shared under material handling. Material handling is defined as the movement of materials (raw materials, scrap, emballage and semi-finished and semi-finished products) to, through, and from productive processes, in warehouses and storage and in receiving and shipping areas (Van den Berg et al., 1999). Some examples of material flow equipment are forklifts, conveyors, automated guided vehicles and cranes. Gu et al. (2007) identified four main warehouse functions, namely: Receiving Stock Keeping Units (SKU’s), storing SKU’s, receiving

customer orders and order fulfilling by picking products and shipping orders to the customer. The flow through these functional areas does not necessarily enclose all areas. Products can be put away directly to the picking zone or even directly to the shipping area like in cross-docking. Figure 7 gives an overview of the functional areas and flows within a warehouse.

Figure 7: Functional areas and flows within a warehouse (From De Koster, et al., 2007)

Picking &

Packing

Storage

(reserve)

These basic functions in warehousing are applied in different business environments. Van den Berg et al. (1999) distinguish three types of warehouses, namely: Distribution, production and contract warehouses. This research will be focused on one of these three. 3rd Party Logistics providers like BLG operate from distribution warehouses. However, the basic functions and activities within these different warehouses are roughly the same, so the results of this research will be relevant for each.

3.1.2 Warehouse decisions

Many different decisions need to be taken in the process of designing a warehouse. According to Ashayeri et al. (1985) the main issues facing a warehouse designer are: Selecting the best storage method, Choosing the appropriate handling equipment and to determine the

warehouse layout. Gu et al. (2007) classifies the multiple problems concerning the warehouse design on a broader scope. They identify five

mayor warehouse design decisions as illustrated in Figure 8: Determining the overall warehouse structure, sizing and dimensioning the warehouse and its

departments, determining the detailed lay-out within each department, selecting warehouse equipment, and selecting operational

strategies. Each of these five problem areas needs attention in the process of warehouse design. An overview of the decisions that have to be made, related to the different warehouse design problems, is added in appendix I. These aspects will be shortly discussed because the main goal in this

research, to find the most suitable mechanization level, depends on more of these warehouse design problems. Besides this, the warehouse designer should also be aware of the other warehouse design problem, because the selection of mechanization level cannot be solved independent of these warehouse design problems.

Overall structure

The overall structure (conceptual design) of a warehouse determines the functional

departments, e.g., how many storage departments, employing what technologies, and how orders will be assembled. At this stage of design the issues are to meet storage and throughput requirements, and to minimize costs, that may be the discounted value of investment and future operating costs.

Department lay-out

Department lay-out is a detailed configuration within a warehouse department, primarily a storage department. Different storage problems arise like: pallet block-stacking pattern, storage department layout and AS/RS configuration. (Gu et al., 2010). These layout problems affect warehouse performances with respect to: Construction and maintenance cost, material handling cost, storage capacity, space utilization, and equipment utilization.

According to De Koster et al. (2007), this “facility layout problem” concerns the decision of where to locate various departments like receiving, storage, picking and shipping. The activity relationships between the departments are often taken into account in these decisions.

Rouwenhorst et al. (2000) indicated this design problem as a tactical decision.

Operation strategy

The operation strategy is a more concrete (operationalized) translation of the overall

company’s strategy and performance objectives. Operation strategies refer to those decisions about operations that have global effects on other design decisions, and therefore need to be considered in the design phase (Gu et al., 2010).Two major operation strategies can be divided: The storage strategy and the order picking strategy. The basic storage strategies include random storage, class-based storage, dedicated storage, and Duration-of-Stay based storage (Gu et al., 2007). Within the order picking strategy, choices have to be made about single batch or wave picking, progressive or synchronized zoning and heuristic or optimal routing.

Sizing and dimensioning

The combination of the choices that are made in the other problem areas should result in a consideration, and delivers a trade-off for the sizing and dimensioning (De Koster et al., 2007). Warehouse sizing and dimensioning has important implications on such costs as construction, inventory holding and replenishment, and material handling. Warehouse sizing determines the storage capacity of a warehouse, whilethe warehouse dimensioning problem translates capacity into floor space in order to assess construction and operating cost.

Equipment selection

Equipment selection can be noted as one of the most important aspect since this warehouse design problem affect the overall warehouse investment and performance (Gu et al., 2010) The equipment selection problem consist of determining the level of mechanization and the type of storage, transportation and material handling systems. Determining the best level of mechanization is far from obvious in most cases, and in practice it is usually determined based on the personal experience of designers and managers. (Gu et al., 2007).The selection of equipment will largely influence all other decisions, which makes it strategic in nature. The decisions about “Sizing and Dimensioning” and “Department layout”, that are more tactical in nature, will logically follow after the decision about Equipment selection. These decisions are more detailed configurations of the warehouse. Meanwhile, the decisions about “Operation strategy” and “Overall structure” can not be ignored until the equipment selection is done.

3.1.3 Relations between design factors

Customer value Performance criteria Alternatives Selection of Mechanization level

technologies and operational strategy includes the storage and order picking strategy which is inseparable from the mechanization level. Gu et al. (2007) stated that equipment selection and operational strategy are the most important aspect in warehouse design, but cannot be

analyzed or determined in isolation from the others. According to Gu et al. (2007) a

researcher addressing one decision has to take notice of the other decisions as well. However, they conclude that the scope and scale of a research infrastructure integrating all the other decisions appears too great a challenge for individual researchers. The scope of this research will be bounded to the decision problem of the warehouse mechanization level alone, but it should be noticed that this decision can not be made without taken the other design decision in mind. The strategic warehouse decisions, equipment selection, operational strategy and overall structure, cannot be performed by one manager alone. Close communication between the different decision takers is essential and these decisions should be taken parallel instead of sequential.

3.1.4 Main findings

This research will be focused on a distribution warehouse. However, the basic functions and activities within a contract and production warehouses are roughly the same, what makes the results of this research relevant for each. Warehouse design

related issues can be divided in strategic, tactical and operational level. The main objective for the WDSM is the strategic selection of a suitable warehouse mechanization level. This aspect is added as main objective in the WDSM, shown in Figure 9. Five warehouse decision problems are determined in this chapter, namely: Sizing and dimensioning, department layout, equipment selection, operation strategy selection and overall structure, of which only the aspects of the last three are strategic in nature and closely involved in the selection of the mechanization level. Both equipment selection and operation strategy can be noted as highly important aspects since these warehouse design problems affect almost all the other decisions as well as the overall

warehouse investment and performance. Since the strategic decisions about equipment selection, operation strategy selection and overall structure are inseparable, close communication between the decision takers during this process is essential.

3.2 Customer value

In the current environment, 3PL’s are focused on continues performance improvements to create a unique and added customer value (Tian et al., 2010). Customer value is defined by Siegel et al. (2005) as the difference between the realization and sacrifice for the customer. Realization is what the customer receives, which includes product features, quality, and service. Sacrifice is what a customer gives up, which includes the amount the customer pays for the product plus the time and effort spent acquiring the product (Siegel et al. 2005). Maximizing customer value means maximizing the difference between realization and

sacrifice. Besides the traditional warehouse operations of receiving, storing, order picking and shipping the goods, 3PL’s are more focused to create customer value through logistic

customer service. When a company wants to make value improvements for their customers it needs to be aware of their own value discipline or strategy and how this will influence the customer satisfaction. This paragraph discussed the theories to determine this value discipline and how it can be used by 3PL’s. As stated by Sharma et al. (1995) the primary determinant of customer satisfaction of 3PL’s is the gap between customers’ expectations of logistics service performance and actual logistics service performance. This means that a company should know the customers’ expectations so that the service can match these in order to reduce the gap. The result of this paragraph will be the interpretation of customer value in the WDSM.

3.2.1 Customer satisfaction

Langley et al. (1992) noted that customer value is created when customer satisfaction is achieved. They define customer satisfaction as the degree to what products and services, supplied by a company, meet or surpass customer expectation. Langley et al. (1992) also indicated some unique characteristics from which customer value of logistics differs from customer value of a product, namely:

 Logistics is comprehensive. It crosses over company boundaries and is involved from the original source of raw materials until the final customer;

 Logistics is considered with both the flow of products and the flow of information;

 Logistics provides viable opportunities to create value and satisfy customers.

The last century, managers have noticed that logistics become more important and started to invest more in logistic operations. Langley et al. (1992) noticed that many firms now believe that strategic logistic orientation is necessary to create customer value and a sustainable competitive advantage, which results in an increase in strategic partnership and a more “holistic” view.

Next, the achieved customer satisfaction is positively related to customer loyalty (Liu et al., 2011). Customer loyalty is defined by Daugherty et al. (1998) as a long-term commitment to repurchase involving both a favorable attitude and repeated patronage. It is demonstrated by the purchasing pattern over time, which in turn heightens the sustainable competitive

loyal customers are more brand sensitive than price sensitive. This can create larger profits margins and increases the change of holding loyal customers in competitive price wars.

3.2.2 Strategy and value disciplines

Current theories indicate that, in order to create a sustainable competitive advantage, companies should create customer value. According to Treacy et al. (1997), the strategic position of a company can be defined in three different value disciplines. These ideas of Treacy and Wiersema can be used as a starting point in the WDSM to find the unique value that a company can offer their selected customers.

Treacy et al. (1997) identify the following different value disciplines:

 Operational excellence: A company delivers reliable products or services at

competitive prices with as less inconvenience for the customer. This can be realized by optimizing the business processes, reduce transaction costs and minimize overhead.

 Customer intimacy: The company offers continues changing products or services adapted to the needs of the individual customers. This requires continues investment in customer loyalty, aiming for customer lifetime value and offering mass customization.

 Product leadership: This company continues innovates based on creativity and regularly offers new innovative product or services to the market. This requires a flexible production, focus on innovating power of the company and shortening production time and time-to-market.

Treacy et al. (1997) argue that organizations should not just pick one discipline in order to formulate their strategy. Market leaders usually pursue one or two of the three value disciplines while maintaining a minimum performance level on the other.

In the logistic market the value discipline “product leadership” can hardly be performed, since this discipline is characterized by new and innovative products (Morash et al., 1996). The focus in this discipline should be on product or service innovation and time to market, while the logistic market is characterized by the flow and storage of goods without any production elements. This makes product leadership not an applicable strategy for 3PL’s. Both other value disciplines, Customer intimacy and Operational Excellence, will be used within the Final WDSM to indicate the strategy of a company. Because the chosen strategy will also reflect the relations between the performance objectives, described in the next paragraph, both value disciplines will be discussed in more detail. Morash et al. (1996) describes the relation of customer intimacy and operational excellence, with respect to logistics, as follows:

Customer intimacy in logistics:

Customer intimacy, or sometimes called customer closeness, stresses the external customer, external customer interfaces and external goals and objectives (Morash et al., 1996). It often embraces product or service differentiation and service enhancements from logistics

Morash et al. (1996) refers this value discipline in logistics as “demand-oriented”. Table 1 provides a list of major demand-oriented logistics capabilities and their definitions.

Demand-oriented Capabilities Definitions

Pre-Sale Customer Service The ability to service the customer during the purchase decision process.

Post-Sale Customer Service

The Ability to service the customer after the sale of the products/service to ensure

continuing customer satisfaction.

Delivery Speed

The ability to reduce the time between order taking and customer delivery to as close to zero as possible.

Delivery Reliability The ability to exactly meet quoted or anticipated delivery dates and quantities Responsiveness to Target Markets The ability to respond to the needs and wants

of the firm's target market(s).

Operational excellence in logistics:

The second strategy can be related to an organization’s operational capabilities. According to morash et al. (1996), this "supply-oriented" value discipline stresses the internal customers of a company such as the marketing and production departments or retail outlets. These supply-oriented logistics capabilities that can potentially result in favorable business performance relate to product availability, convenience, and low total distribution cost shown in Table 2. Supply-oriented Capabilities Definitions

Widespread Distribution Coverage (availability)

The ability to effectively provide widespread and/or intensive distribution coverage. Selective Distribution The ability to effectively target selective or

exclusive distribution outlet.

Low Total Cost Distribution The ability to minimize the total cost of distribution.

Table 1: Demand-oriented logistics capabilities (Morash et al., 1996)

Morash et al. (1996) noted that to stay or become competitive in the market companies should find a combination of value disciplines. This means that they will try to achieve the optimal situation in balancing the creation of customer satisfaction and the internal business logistics. The definitions from both value disciplines will be used in the assessment of the chosen performance objectives.

3.2.3 Main findings

Before a company should think about the design of a new warehouse it first needs to be aware of their value discipline and how this will influence the customer satisfaction. The customer satisfaction is the perceived value of a product

and/ or service by a customer. Two value disciplines are determined to be suitable for a 3rd party logistics provider, namely: Customer

intimacy and operational excellence, shown as part of the final WDSM in Figure 10. This chapter described both value disciplines with respect to logistics. Customer intimacy is a strategy of creating a strong bond with the costumer and providing excellent service besides the sales of products. However operational excellence is more focused on low costs and product availability. Choosing one of these value disciplines can be helpful for companies in order to formulate their strategy while maintaining a minimum

performance level on the other.

Performance criteria Alternatives Customer Intimacy Operational Excellence Warehouse design problem

3.3 Warehouse Performance

After the strategy is made clear, now this strategic position needs to be translated into more operationalized performance objectives, which are able to assess the requirements of the warehouse alternatives. According to Skinner (1974), a major cause of companies getting into trouble is the tendency of managers to accept simplistic notions in evaluating the performance of their facilities. The tendency in many companies is to evaluate their process primarily on the basis of the performance objectives costs and efficiency, like return on investment, return on equity, cash flow, net income and sales growth. These measures do not truly reflect the issues of quality, service, learning and continuous improvement and yet there are many more criteria to assess performance. In this paragraph the performance objectives are determined that are related to the overall warehouse performance and relevant for the warehouse design process. Particularly the underused but also important objectives like quality and reliability will be discussed. The performance objectives will be used as the decision criteria in the WDSM.

3.3.1 Performance objectives

In this research six main performance objectives are used as decision variable for the WDSM in the selection process of a new warehouse design. Many authors have written about

performance objectives, and some relevant and applicable literature is used for the WDSM. Slack et al. (2007) formulate five widely used performance objectives that are related to the operational aspects of an organization, namely: Quality, speed, reliability, flexibility and costs. These performance objectives, except for reliability, are also defined by Platts et al. (2000). Their relevance will depend on the position that the company wishes to take in

relation to its customers. Rouwenhorst et al. (2000) noted that in order to evaluate a particular warehouse design, clearly defined performance criteria are needed. They distinguish the following criteria specified within the field of warehouse design: Investment and operational costs, volume and mix flexibility, throughput, storage capacity, response time, and order fulfillment quality (accuracy).

With this in mind the model in Figure 11 is composed to display how the total performance of a warehouse can be subdivided by different main objectives. The six performance objectives that are used in the WDSM are: Quality, reliability, costs, speed, flexibility and sustainability.

These defined performance objectives for the WDSM will now be described summarily.

Quality is mostly placed as first performance objective, because many authors believe it to be

the most important. Within the WDSM, this objective is subdivided in product, service and information quality. During the process in the warehouse, the quality of the product should be maintained or meets the requirements if value is added during the process. Service and

information should be delivered like customer service, agreed lead-times and product information.

Reliability or dependability in logistics means to deliver on time with the right product.

Internal reliability can affect cost in term of saving time, by giving an organization stability, which allows it to improve its efficiencies and direct cost savings.

Costs as a performance objective is often used as a single performance indicator among

companies. Using only one performance objective at a design phase of a warehouse is simple but can provide superficial information about reality. Many different cost measures are available. In this research, cost is subdivided in operational and implementation costs.

Speed or speed of response can be described as the time between an external or internal order

for the product and the fulfilling of this order. On the one hand, speed of response is defined as throughput, which indicates the time between order and delivery. On the other hand, speed can be seen as volume, which indicates the maximum output of a warehouse system.

Flexibility can be defined as the ability to change the operation in some way. Slack et al.

(2007) defined different types of flexibility. Namely: product/service flexibility, mix and delivery flexibility. In the WDSM mix flexibility and volume flexibility will be used as sub criteria. Mix flexibility allows the warehouse to handle wide variety of products stored and order picked. Also the anticipation on customer demand according new products or value added services are included in mix flexibility. Volume or delivery flexibility allow the operation to adjust its output levels and its delivery procedures in order to cope with unexpected changes in how many products customers want or when they want them.

Figure 11: Model of used performance objectives

Costs

Reliability Speed Flexibility Sustainability Quality

Sustainability is often linked to the corresponding “triple bottom line”, first defined by

Elkington (1998). These include the pillars: People, Planet and Profit. The two less concrete objectives ergonomics and environments, described by De Koster et al. (2007), can be linked to the pillars People and Planet. These will be used as sub criteria in the WDSM. The pillar profit will not be used since this criterion is already captured under the performance objective costs.

Depending on the customer needs, product range, contract length or many other variable situations, these performance objectives are more or less important in the design phase of a warehouse. A typical distribution warehouse with a large product mix, but with small

quantities per order line often results in a costly order pick process. Prominent design criteria in this case are maximum throughput and minimum operational costs (Rouwenhorst et al., 2000). However, processes with a high volume mix and a short contract length will result in volume flexibility and implementation cost as prominent criteria. This means that the importance of these performance objectives will be different for each situation and environment, and makes it important to be able to rank them in order of importance to the organization. This will be further described in chapter 4.

3.3.2 Performance indicators

In order to design a satisficing logistic warehouse or to improve the effectiveness and efficiency of an excising warehouse it is needed to assess its performance. By measuring the performance of an excising warehouse, targets for improvement can be set, evaluated and compared with best practices. For the design of a new warehouse, these performance measures can be used to assess the requirements of the design. Many different models are available to measure the performance of warehouse like the Balanced Scorecard or strictly hierarchical models (De Toni et al., 2001). These performance measurements can be

expressed as the functions of one or more decision variables. Since this research is focused on the strategic level of warehouse design, these warehouse measurements will only be used to concretize the defined performance objectives. Different performance indicators can be derived from e.g. Slack et al. (2007), Neely et al. (2000), Rouwenhorst et al. (2000) and Tompkins et al. (1998). Neely et al. (2000) defined performance measurement as the process of quantifying the efficiency and effectiveness of an action or activity. Together with a warehouse expert at BLG different measurements are selected for each performance objective. These performance indicators will be described in more detail in chapter 5.

3.3.3 Relations between objectives

Slack et al. (2007) noted that mainly the internal effects of the performance objectives are interrelated. They indicate that speed, quality, dependability and flexibility all influence the internal cost aspect of performance. As Slack et al. (2007) express: "If managed properly, high quality, high speed, high dependability and high flexibility can not only bring their own external rewards, they can also save the operation cost."

3.3.4 Main findings

In this chapter six main performance criteria are defined that are related to the operational aspects of an organization. These include the widely used criteria of Slack et al. (2007), namely: Quality, speed, reliability, flexibility and costs, but also the less concrete criteria sustainability. These six performance criteria are further operationalized in sub-criteria in order to make them more concrete. Figure 13 shows these (sub) performance objectives placed in the WDSM. The ranking of these performance objectives will influence the choice of a warehouse design alternative. All performance objectives can be expressed in internal and external effects. In this model it can be noted that the external effects of the performance objectives are mainly focused on customer intimacy, while the internal effect are connected with operational excellence. As described in this chapter some interrelations between the performance objectives exist. These are indicated as the connecting lines between the different sub- performance objectives.

Figure 12: Relations between performance objectives (Slack et al., 2007)

Figure 13: Performance objectives and sub-performance objectives placed in the WDSM

Customer value

Alternatives

Costs

3.4 Warehouse alternatives

As earlier described, the most determining decision problem in warehouse design is the selection of equipment. Equipment selection affects almost all the other decisions as well as the overall warehouse investment and performance. Although many more important decisions have to be made according the other warehouse design problems, stated in paragraph 3.1 the main focus of this research will be on equipment selection.

Within the equipment selection order picking is the main element. Order picking is the process of retrieving goods from storage, as result on a specific customer demand (De Koster et al., 2007). Literature points out that order picking contributes to 55% of all operational costs in a warehouse (De Koster et al., 2007). The reason for this high share is because order picking is the most labor intensive process in warehouses with a conventional (manual) system and is high capital-intensive in fully automated systems according to Goetschalckx et al. (1989), Drury (1988) and Tompkins et al. (1998), (from De Koster et al., 2007). This gives order picking the highest priority for improvements of productivity within a warehouse. This paragraph will describe the different types of mechanization levels from which 4 alternatives will be derived.

3.4.1 Level of alternatives

The level of the different alternatives is defined first. De Koster et al. (2007) distinguish the decision concerning an orderpicksystem in strategic and operational problems. The first choices that have to be made are on the strategic level. The operational choices can be made in the next step. An overview of

the different aspect within an orderpicksystem is given by Goetschalckx et al. (1989), see Figure 14. They also make the distinction between strategic and operational decision problems. The decisions on strategic level exist of mechanization level,

information availability and warehouse dimensionality. These decision problems are relevant for the design phase of a warehouse. The aspects like routing, storage, batching, and zoning are more important in the following decisions on

operational level.

Goetschalckx et al. (1989) stated that the level of mechanization is the first and most important step in designing a warehouse. They subdivide this mechanization as follows:

Manual, Mechanized, Semi-automated and automated, shown in Figure 14. This subdivision will be used to define the different alternatives in this research. The different alternatives will be described in more detail, according the available technologies and the previously defined performance criteria, in paragraph 3.5.

3.4.2 Main findings

As described in paragraph 3.1, warehouse mechanization is selected as the main goal of the WDSM. In this paragraph four levels of mechanization are described that will be used as alternative in the WDSM, shown in

Figure 15. The four levels of

mechanization are manual, mechanized, semi-automated and automated. These alternatives will give a strategic prescription about the final warehouse design. The detailed equipment selection for each alternative, that will give an indication of the different alternatives, will be further described in chapter 4. Those “sub-alternatives” should be defined and chosen in the next step that is more operational or tactical instead of strategic. These decisions will not be

further described in this paper. _{Figure 15: Selected alternatives of mechanization}

Performance criteria Customer Value Warehouse design Problems Forklift Reachtruck Picker to product