business analysis_food warehousing

7/24/2019 Business Analysis_Food Warehousing

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Business Analysis

Case # 3: Food WareHousing

Prof.V.G.Venkatesh

Prepared by

Kripangshu Mitra (14020848011)

Mahima Khot(14020848013)

SathishKumar K(14020848018)


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Q1. Identify the current logistical challenges faced by Patties foods.

Ans:

Following are logistical challenges being faced by Patties foods:

Constraints in productivity

The production capacity of the factory is 2800 pallets per week, however the staging

warehouse holds only 500 pallets at a given time. As the productivity is constrained by the

storage of the facility,production capacity is underutilized, hence cost competitiveness in

longer run cannot be achieved.

Infrastructure

Lack of storage facility (other than staging warehouse), Distribution network with 3 Logistics

Service Providers (LSPs) at a distance of 4 hours from the facility shows the infrastructure

has to be restructured to utilize the efficiency of Men, Machine & Methods to the maximum.

This increases number of handlings

Production to staging storage

Staging to Temporary storage at Melbourne

Temporary storage to Customer

Which may increase the percentage of Damages to an extent.

Distance

The distance between staging warehouse (in Bairnsdale) and the distribution warehouses

(located in Metropolitan Melbourne) is about 4 hours, which hinders to optimize a solutionfor its reverse logistics. Also, it increases the cost of transportationmuch higher (reefer

vehicles).

As the finished goods store, raw materials store & scrap control store are not at the same

facility, there is a higher chance of increase in costs of manpower, machinery&information.


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Capacity can be utilized to the maximum

Cost competitiveness can be achieved by producing higher numbers.

Reduced cost of Men, Machine & Methods with integrated warehousing at the facility

Handling cost would be minimized

Transition time and cost will be reduced

Accuracy of inventory management is increased

With COTS WMS implementation the company can have the following strengths,

o Applications are provided at a reduced cost.

o The application is more reliable when compared to custom built software because

its reliability is proven through the use by other organizations.

o COTS is more maintainable because the systems documentation is provided with

the application.

o The application is higher quality because competition improves the product

quality.

o COTS is of higher complexity because specialists within the industry have

developed the software.

o The marketplace, not industry, drives the development of the application.

o The delivery schedule is reduced because the basic schedule is operations.

Q3. What are the key issues faced by the patties team in transitioning from the original

arrangement to the new solution?

Ans:

Synchronization in Picking & shifting activities


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As the company was operating under LSPs distribution network, it would be extremely

difficult to bring the new distribution network as smoother as the existing once. This might

disturb daily schedule of route trucks.

Management of inbound

With increased storage capacity, the productivity will be increased for cost effectiveness.

Increase in productivity will cause increase in inbound activities such as procurement, dock

management, receiving and put away. At the initial stages, managing inbound will be key

concern for the company.

Training & Communication

Training manpower with the new system is an expensive process. And here it will be much

more difficult as new methods will be applied on existing manpower to adopt. Probably,

existing man power may not adopt to the new situation in fear of work pressure or due to lack

of skills.

On the other hand, poor communication may lead to higher employee turnover.

Also there are other issues which can arise during transition, such as

o Choosing right Picking method

o Task management for WMS

o Operations work flow with increased capacity and storage

o Accuracy of physical inventory

o Labor management

o Data collection for forecasting and inventory control

o Monitoring performance drivers

o Employee morale may fall due to fear of work pressure


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Key Issue

Financing for this transition is very critical as the process is for duration of 3 years and there

is no assurance on ROI at this stage. Also, the current peak season demand is less than th of

the storage capacity. Sales Forecast has to be very accurate and promising to carry out this

transition.

At this stage, most of the companies are in favor of Zero inventory & JIT methodologies.

Hence this transition may be questioned by stakeholders for assured ROI.

Q4. What are the areas of focus for the inventory controller as new procedures are

established?

Ans:

Information to Purchasing, planning & Production:

Inventory controller should focus on providing/obtaining right information from/to the key

operations

o Purchasing

o Planning &

o Production

For example, implementation of technologies like barcode system (GS1) to pallets will help

the inventory controller,

o To provide real time information

o

To maintain inventory as low as possible (optimum to meet out demand)

o To have a paperless work

Inventory controllers should also focus on the time the cold storages are opened for picking.


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To achieve on time delivery, inventory controller should be equipped and trained with

technologies like GPS & RFID. In this was he could be able to track the vehicle movement &

control their movement through voice.

Since the new ware house is north facing, penetration of sunlight will be high on the east side

of the warehouse during first half of the day and west side of the ware house during second

half of the day. Hence the pick-up should be scheduled accordingly to ensure that the cold

storage should not be opened against sunlight.

Key focus of the inventory controller should be,

Evaluating Suppliers

Inventory controller have the important responsibility of finding a supplier who will provide

us with the goods needed to operate and be profitable. Maintaining a good working

relationship with suppliers by communicating and dealing with concerns or problems, such

as a delay in an order being processed. In addition, an inventory controller needs to be aware

of other available suppliers in the area who may be willing to provide your business with

materials at a better cost.

Documentation

Inventory controllers are responsible for managing inventory documentation. They must

accurately record the quality, quantity, type, style, and any other characteristics of the

inventory. These documents also help the company avoid shrinkage due to loss or theft.

These documents can also be valuable information for marketing purposes and when

determining strategies to effectively move inventory.

Purchasing

The inventory controller must have a constant knowledge of what inventory is left and what

is running low. In the event inventory is low, he or she must manage ordering more from the

appropriate supplier and negotiate pricing and a timeline for delivery.

Tracking Inventory & reverse logistics maintenance


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The Inventory Controller should always focus on maintaining stock so that Over stocking

and stock out are avoided. Since excess inventory leads to higher carrying costs and lower

inventory results in opportunity loss. He should carefully ensure how reverse logistics is

handled. This will help the company in

o Saving cost out of scrap (if used)

o Track defects in products through batch numbers and manufacturing dates.

Q5. Discuss the target level of utilization in the new warehouse. What should that level be

in your view? Explain the rationale behind your decision.

Ans:

Full Utilization

Full utilization in the logistics industry is usually 86% of the capacity, which clearly states

that 100% utilization is purely not a good practice for both real time and non - real time

operations.

As per the case 85% utilization should be considered as full utilization which is almost 99%

of global standards. Hence maintaining 85% as maximum for storage is a good practice.

Though higher utilization of the warehouse space saves cost, the time delay due to picking

and shipping due to lack of free space is a cost adding feature.Target level of utilization

should be defined considering the fact that warehouse is a temporary storage place and the

higher turnover of inventory going in and out will make the warehouse efficient.

The parameters to be considered are:

MetricBest inclass Median

On-time Shipments 99.8% 98.50%

Order picking accuracy 99.9% 99.50%


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Average Warehouse Capacity Used 91.2% 84.90%

Dock-to-Stock Cycle Time, in Hours


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Plan: The objective of the process was to analyze the entire data for a suitable sample size

and suggest practical ways of implementing the recommendations in phases before the start

of the season.

Do: A sample number of trucks has to be identified and capture time consumed at each

levels of the processes(mentioned in table below). The collected data has to be analyzed on

the basis of time taken in each stage of the logistics (in factory - Outbound), with the help of

Pareto chart and other statistical tools.

Check: The results were then analyzed. Charting data make it much easier to see trends and

to convert the collect

Act: After analyzing the data, the pain points causing maximum time delays has to be

addressed for formulating a new SOP for truck movement inside the premises.

Stages of Logistics (in factory-Outbound):

o Documentation & Processing

o Idle time before loading

o Loading

o Reefer audit

o Idle time after loading

o Check out & check in

o Quantity check in & out

o Clearance in & out

o Weighing in & out

o Reporting to SCM office

o Wait time before & after quantity & weighing

Some more techniques that can be used to maximize vehicle turn-around time:

Self-loading by driver

Operations should be carried out by dedicated and well-trained drivers under properly

controlled conditions. Time can be saved per truck by avoiding waiting at loading points due


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to unavailability of site personnel. Opening hours of the site can be extended. Drivers role

needs to be enhanced and active involvement encouraged.

Time slot booking

It is a process in which hauliers are required to book in advance a time slot for loading,

preferably by electronic means. It enables the loading site to evenly spread the arrival of

trucks and to minimise waiting times for drivers at the loading site. 20 to 30 minutes time can

be saved as loading can readily take place upon arrival of the truck. Also, workload is evenly

spread for the loading site with no or few peak hours

Tight-fit loading of packages

This tight-fitting of the load on a vehicle will reduce the time required for securing.

Speed of loading/unloading

Data from different sites with different loading facilities show that the actual

loading/unloading activities take up to 50% of the total time spent on site by a driver.

Increasing the average loading/unloading speed will thus have a significant direct impact on

reducing this time.

Availability of auxiliary equipment

It important that the driver turns up with the correct equipment in order not to loose time in

obtaining the proper equipment.

Q7. Given that operation has seven high racking within the freezer environment, what

technological solutions might patties consider to aid the facility management?

Ans:

Barcode Systems: Every pallet that comes from the manufacturing unit will be labelled with

the barcode having date of manufacturing and batch number. FIFO is followed using auto

storage and retrieval (barcode scanned) so that the pallets from seven racks are stored,

picked, loaded and shipped efficiently.


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Barcode systems track all product locations, bin storage capacity levels and material FIFO

layers. The system allows warehouse material handlers to sort & locate product. All material

movements are received instantly at the time of scan and all data is redundantly backed up

again when reader is back in the charger cradle.

In many circumstances, RFID offers advantages over traditional barcodes. The big

difference between the two is that barcodes are line-of-sight technology. That is, a scanner

has to see the barcode to read it, which means people usually have to orient the barcode

toward a scanner for it to be read.

RFID offers a stabilized communication channel connecting Production Team, logistics

managers, Inventory controllers & Truck Drivers. This process can help the company in

following aspects:

o Reduce cost of labor reading codes (batch number of Pallets) as the stocks to be

dispatched in FIFO method.

o Reduce occurrence of out of stock & over stocking situations

o Reduces distribution costs

o provides effective communication

o Provides real time information

o Efficient inventory control

o Rapid replenishment of raw materials as well as rapid distribution of FG


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RFID technology makes product inventory control and intelligent logistics technologies

realizable. With the help of tags, the company may realize the real-time monitoring raw

material, half-finished product, end-product, transportation, stock, delivery, putting on the

shelf and sales even returning the goods. For instance, through RFID technology, the

operator can immediately know the situation and do rapid replenishment, to reduce 10-30%

safety stock and storage costs. It will make the whole logistics management transparent and

efficient by increasing the automation and decreasing error rate. RFID technology is widely

applicable to the storage shelves, transportation management, material tracking, delivery

vehicles, supermarkets and other requiring non-contact data collection and exchange

occasions.

Hence best practices in the industry with effective tools in the following segments are

mandatory for effective WMS.

o Collaboration

o Receiving

o Inventory Layout

o Picking Procedures

o Loading & Shipping

Other tools such as multi-purpose Fork Lifts, multi-level racks, Auto storage & Retrieval

(using Barcode scanner) helps in effective management.

Q8. Develop a warehouse layout document detailing the number and type of docks, racking

requirement and layout and any other key elements of the new warehouse. Include in your

design a future expansion plan to double the size of the warehouse you are currently

designing. Explain the rationale for the choices you have made.

Ans: Storage efficiency refers to the amount of space needed to store a single pallet.

Whereas warehouses are measured in square feet, the amount of space a pallet consumes

when stored using the full cubic height of the building is significantly less.

As per the case the total storage area for warehouse is 5700 Sq m, and using standard

Australian Pallet (45.9 X 45.9 ) then,


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With 7 stage stacking, the total space required for storing 10,000 pallets would be 21,626

ft (approx.).

To Calculate the number of fork lifts needed, lets assume there are 10,000 pallets stored

and multiply it with annual turns (12) = 120000 pallet moves per year. If number of

weeks worked -52 weeks then, total moves per week is 2308.

If total number of work days is 7 (Patties operates on 7 days a week ) then 330 moves per

day.

Assume there are two shifts per day, then moves per shift is 165.

Per hour (8 hours shift) 21 moves.

Inward move and outward move has to be considered, then the total number of moves per

hour will be 42 moves.


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To calculate number of fork lifts needed for the warehouse, the following table has to be

referred.

Precisely, 11 Sit-down counterbalanced Truck or 8 Stand- up counter balanced (pacer) is

optimum for the number of moves calculated.

Assuming that there are few SKUs in the Warehouse are prioritised based on its demand

in the market. Then the utilization of storage space for each SKU has to be


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Layout Design:

Increase in storage would help the company reduce cost of transportation and third party

logistics distribution cost considerably.

Also, for 10,000 pallets only 21700 Sq ft (approx) is needed, hence doubling the storage unit

will have positive impact on WMS.

Hence there should be two independent storage units

Storage unit 1 with 12 docks

Storage Unit 2 with 10 docs


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Both the units should have docking under roof to avoid direct sunlight. Also there should be

multi-move option for Fork Lifts to arrange pallets

For FIFO stocking and dispatch

Sorting & Storing as per SKUs

Picking and staging

Loading

Shipment from one unit to the other

Shipment from any unit to waste management process unit


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Under utilization of storage will result in high inventory costs.

Q10. Consider the consolidation of three picking warehouses in Melbourne into a single

facility. Discuss the basis of the inventory policy you would institute in this single facility.

What information would you need to make a decision about the amount of space needed in

this new facility?

Ans: As the company have not followed any inventory policy for the distribution network

from Melbourne to Customers, it is very essential to define and follow high-standard

inventory policies.

Inventory Management is to ensure that stock is available to meet the needs of the beneficiaries

as and when required. Inventory represents a large cost to the humanitarian supply chain. This is

made up of the cost of the inventory itself, plus the cost of transporting the goods, cost of

managing the goods (labor, fumigation, repackaging, etc) and keeping the goods in warehouses.

The inventory manager's job is to make inventory available at the lowest possible cost.In order to

achieve this, the inventory manager must ensure a balance between supply and demand by

establishing minimum holding stocks to cover lead-times. To achieve this, the inventory manager

must constantly liaise with the programs to keep abreast of changing needs and priorities. The

warehouse must always have sufficient stocks to cover the lead-time for replacement stocks to

avoid stock-outs.

Inventory Control has to be followed by maintaining

Reorder level policy

Reorder cycle policy

Stock Control & Movements: Apart from maintaining and controlling stock in Warehouses ,

stock in Transit has to be monitored and controlled. To have control on stock the followings has

to be analyzed and understood

Consumption trend

Periodic Stock balances


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Quantity, lead-time and availability of each item supplied

Record of goods stored, non-stored, ordered, in transit from the supplier

Best Practices:

Tracking orders in transit

Controlling stock movements

Establishing minimum stock levels and monitoring

Goods receipt quality inspections

Physical stock control in the warehouse

To facilitate and account for movement of stocks the following documents could be used:

Delivery notes , goods received notes, stock card, bin card and Consignment notes.

Information Technology & Tools:

By implementing effective Ware House Management Tools, RFID, Barcode tracking,

GPS Vehicle Tracking & ERP solutions robust inventory policies can be defined and

followed.

Q11. Assume you are logistical consultant engaged to assist the group manager logistics in

developing the business case for the new warehouse. Compile a list of questions for the

GML that will assist in your task. (Tip: Consider issues such as land size, cost and access)

Ans: Current Scenario:

As a consultant, the following information are needed to develop the business case for the

new ware house.

Capacity utilization of existing warehouse (staging)

Total cost of logistics (spent on LSP network)

Anticipated Production forecast based on Sales forecast for the year


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Anticipated savings by having new warehouse, in terms of

Manpower

Time

Cost

Infrastructure:

Total available land space

Total space planned for Warehouse, vehicle movement

Number of Docks

Number of Racks

Number of Pathway, Parking area, maintenance station inside warehouse

Pallets dimension, number of pallets

Type of Fork Lifts, Number of Fork lifts, manpower needed to operate etc.,

Costing:

Cost for infrastructure, IT, new machinery, Man power & Vehicles

Anticipated duration for ROI

Training and implementation of procedures

Training and implementation of IT solutions and tools if any

Functionality & Access:

Unit Load of the Warehouse

Requisite storage capacity

Choice of storage systems (Integration with handling systems)


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Storage & Structural Module (for Fork lift movement and handling)

Spaces for Receipts & Dispatch

Warehouse external dimension

Aisles orientation

Materials flow Goods In & Out

Loading & Unloading maneuvering area width

Also the time of operation for stock loading and unloading has to be known to determine the

manpower needed for the process.

Q12. Construct a high level of business case and operational plan for the proposed solution.

You may make any assumptions that are necessary. Document the assumptions made.

Ans:

Business Need & Current Situation:

Currently business is in the process of expansion and diversification in its product range.

But the storage space in its staging ware house and cost spent on LSPs are the only

primary constraint for expansion of business. Hence there is a need for new warehouse at

the facility which will enhance the production capacity as well as reduce the cost of

logistics.

Project Overview:

GML and the management have decided to build a 7 level stacking warehouse in the

facility.

Objective:


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To have a single warehouse for storage in the facility (Cold Storage with 7 level stacking

option)

Scope:

Having a warehouse at the facility,

will reduce logistics cost

will help increasing production capacity

eliminate damages during transit

Saves cost & Time

Deliverables: Key deliverables of the project is to have provision for storing 10,000

pallets in the facility.

StakeHolders: Key StakeHolders of the project are the Management, GM Logistics, GM

Marketing, Finance and administration team.

Resources: Landspace, Machinery, Power, Water, Storage equipments, vehicles (reefer

Vans), ForkLifts, Man Power, Information Technology, Communication Tools, WMS

tools, Training & Development Documents, Raw material sourcing.

Strategic Allignment: The project of building new warehouse in the facility has to befocused to get it alligned with company expansion strategy.

Market Readiness: When the storage is increased to hold the capacity of 10,000

pallets, Market should be ready to accept the new SKUs planned. There should be regular

take off in primary as well as secondary sales.

Alternatives: The contracts LSPs should not be terminated all at once, there should be

atleast one LSP as partner for companys SCM.

Since the investment is huge, company should have back up for regular cash in-flow for its

operating expenditures (Financing)

Company has planned for COTS, hence it can apply for subsidies and other benefits offered

in the geography.


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Business & Operational Impact:

Capacity utilization (Production) will increase as there is immense space available to hold

raw materials and finished goods at the facility itself.

Distribution Network will be in companys control.

Sales, purchase Forecasting can be most accurate with the help of WMS tools.

Increase in capacity can offer the company to have cost competitiveness.

Risk Assessment & Analysis: There is a high risk as the ROI cannot be realized in the due

course, the chance of market acceptance of the product is also unpredictable at this stage. The

distribution networks efficiency can cost the company a lot.

Feasibility analysis: This project was an outcome of experiences accumulated for years.

And it is highly feasible as the company is performing well during recent past. The proposal

has quantifiable data for management to consider the project. Hence this project is viable.

Implementation Strategy:

It has to be implemented in different stages for difference segments for better

outcome.Such as, the changes and improvisation in Processing Methods, Machinery

operation & Information sharing should be communicated to manpower with the stress on

benefits of the change.

The management should perform a top down approach for implementing this change.

Recommendations: The management should focus on doubling the warehouse storage in

the near future. WMS tools should be considered and practiced by the employees for

better outcome. Also other SCM enhancers like Barcode implementation, AS-AR, RFID,

GPS tracking and best practices like Cross-Docking, Zero Inventory Models has to be

considered for implementation in the future.

Assumptions:

Plant has options to increase the production immediately.

Manpower is supportive to cope up with increased targets


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Market is open to accept new SKUs

Management has funds to invest in WMS

Distribution network will be solely handled by the company.

Sourcing is accessible for the company to meet increased production.

Q13. Evaluate the viability of the proposed solution. Develop a financial model that could

be used to underpin the business case.

Ans: Sales Forecast: At present the average sales during Peak season is jus 2500 Pallets approx

per week. With increased capacity for storage at 10,000 pallets and increased production

capacity, the sale is expected to go high in the following years.

Expenses budget: The estimated cost for increasing capacity is $22 million including the cost

for total transition.

Cash Flow Management: There should be a strong cash flow management to support this

transition.

Income projections: Income is expected to be received by

Saving cost of LSPs

Saving additional expenses for Logistics

Saving handling and movement costs

Cost competitiveness

Increased market reach

Along with this, the Break even analysis has to be made for the entire investments as well as

ROI for each segment.

By these measures this project can be supported.


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Q14. Develop alternative solutions to the challenges you identified in Question 1

Ans: Constraints in productivity , Infrastructure and Distance Productivity can be

increased without concerning about the storage since the products can be easily shifted to the

market with the use of reefer vehicles & cross-docking wherever possible. Hence the

company should focus on

o Expanding its customers base,which will help in liquidating

the stock immediately thus achieving Zero Inventory Model.

o Investing on Reefer Vehicles than on storage units.

o Also, the company should focus on evaluating and enhancing

Suppliers & LSPs.

o Product shelf-life will also be maintained to optimum.

Information: As the company is already practicing S&OP , it should focus on implementing

Tools and techniques to enhance supply chain. This can be achieved through providing

RFID, GPS Tracking and mobile applications for the LSP manpower as well as for the

suppliers.

Q15. Patties foods has been working with S&OP process over the past 12 months. Discuss

the role of forecast accuracy in the validity of the S&OP output. Refer to the key factors

that contribute to inventory accuracy or inaccuracy from the perspective of patties sales

team, manufacturing logistics, retailers and consumers.

Ans: The proper utilization of S&OP process will help the company in achieving higher

percentage in,

Customer Service Levels (on-Time and complete by customers requested date)

Average cash conversion

Average forecast accuracyAlso there are chances of inaccuracies in inventory due to S & OP process. The usual failures are

due to the following reasons,

The planning process is too long and too infrequent.

Many S&OP processes are volume-based allocations rather than value-based plans


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Increasing product proliferation and differentiation requires more dynamic product

portfolio management.

The development of multiple scenarios is often difficult

Complex, multi-site and global companies struggle to co-ordinate timely S&OP across

their businesses.

Poor feed-back and monitoring of performance to plan.

Key Sales and Operations Planning measures and commitments are not reflected in

individual performance contracts

Reluctance to commit to technology.

The Sales and Operations Plan is sub-optimal and perhaps infeasible