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1006941 13 October 2010
MODULE: EBU4010 RESEARCH SKILLS FOR BUSINESS AND
MANAGEMENT
IMPROVE ORDER-PICKING THROUGH HYBRID SCOR PRACTISES FOR
3PL
Submitted in partial fulfilment of the requirements for the degree of
MSc IN SUPPLY CHAIN MANAGEMENT
The University of Bolton
13 October 2010
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Abstract
This literature review focuses a methodology to assess the impact of order-
picking process. The methodology is based on the Supply Chain Operation
Reference (SCOR) model and the analysis is targeted for third-party logistic
(3PL) provider in supply chain industry. Correction of picking inaccuracy is an
additional cost to 3PL provider, and the cost could be substantial which may
result financial problem.
The four-level methodology decomposes each level from process types,
process categories, decompose processes to decompose process elements.
The lowest level enables companies to implement unique practices to achieve
competitive advantages as well as adapt the changes in business operations.
The top-down model is based on five core integrated processes of Plan,
Source, Make, Deliver and Return and this research will exploit Deliver and
Return which are covered the reliability attribute. To improve the process, it is
about the right quantity and quality which are typical metrics for the reliability
attribute. The operation will also be evaluated the responsiveness attribute
which measures the speed of tasks performed after reliability attribute is met.
In order to manage the improvement, a set of SCOR configurations needs to be
defined to measure and produce a relevance benchmarking data. This is to
understand the current performance and future / expected performance,
company requires documenting to produce a benchmarking summary. It
provides a platform to perform comparison with competitor or other industry
player. This comparison is quite similar to financial ratios. Detailed review and
analysis will be presented and discussed in this paper.
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Table of Contents
Abstract ............................................................................................................. 2
Table of Contents .............................................................................................. 3
List of Tables ..................................................................................................... 4
List of Figures ................................................................................................... 4
1. Introduction ................................................................................... 5
2. Contextualisation of Concept Map .............................................. 6
3. Review of Literature Sources..................................................... 12
4. Conclusions ................................................................................ 17
5. Recommendations on Further Research .................................. 19
Appendix A – Concept Map ............................................................................ 20
Appendix B – Retail Distribution Warehouse Picking Accuracy by AuditNet® ........................................................................................................ 21
Appendix C – Inbound Logistics Questionnaire 2011 ................................. 25
References....................................................................................................... 31
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List of Tables
Table 1: SCOR Level 2 – Process Category (Supply Chain Council, 2010b). .. 10
List of Figures Figure 1: SCOR Level 2 – Configuration Level (Supply Chain Council, 2008). ... 9
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1. Introduction
Order-picking is an activity begins after customer shipment order is received. It
is a fulfilment process of retrieving the product from a storage location in a
warehouse. Picking performance could be impacted by few main factors
include the physical layout, storage arrangement, travelling sequence, zoning
and etc. Apart from basic warehouse settings, the other key factors may also
include the availability of inventory.
A warehouse has becoming a centre that providing value-added service
location. 3PL providers require being innovative to retain existing customers as
well as attract new customers. However, picking challenges are unavoidable in
different industries especially products has similar appearance that could be
easily mispicked. Picking accuracy is an area that warehouse manager
constantly look for improvement.
In retail industry, small retailers often do not take it seriously on its errors of
picking or deliveries as they are supplying to their own outlets (Crawford, 2010).
However, it is otherwise when 3PL provider is handling the operation for them.
It is often to see many-but-small orders requested by outlets. And delivery is
expected to be made on the same day. These made 3PL providers to improve
their operation and stay competitive. Correction or rework of order will be the
last option to go for, as it could bring substantial financial burden.
This research paper describes an overview of picking inaccuracy of 3PL
provider and methodology used to benchmark, measure and analyse its
performance. It will be based on SCOR mode and adopt other benefit or
advantages from Lean Thinking, Six Sigma, or other to deliver an improved
hybrid process model to provide a better platform to address the supply chain
management (SCM) issue.
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2. Contextualisation of Concept Map
Picking inaccuracies result additional costs and may cause severe financial
problem in 3PL providers. Order-picking inaccuracy may cause by several
factors including insufficient of quantity, picking error, damages during transit,
unable to meet service level agreement and etc.
As we know, people, process and information technology are key areas that
warehouse to look at to improve the accuracy. For example, there are many
picking technologies like radio frequency (RF) picking, automated storage and
retrieval system, voice picking, pick-to-light and etc. Alternatively, 3PL provider
may also try to improve skillset of employees who run the warehouse
operations. Last but not least, a refined process or standard operating
procedure will definitely enhance the efficiency and to achieve accuracy.
In general, picking challenges can be summarised as below:
1. Many shipment orders in low quantity
2. Single shipment order with multiple stock keeping units (SKUs)
3. Poor labelling
4. Break bulk/case picking
5. Mispick
A typical shipment order contains order lines and each line associates to a
unique product or SKU in a quantity of its corresponding unit of measure.
Shipment order lines may be picked by pallet, case, piece or in any
combinations from specified storage locations which required by customers.
Picker may allow picking a substitute SKU if the original SKU is not available or
has insufficient quantity to be fulfilled during pick process, especially building a
bill of material order. However, it has to be defined and agreed earlier between
customer and 3PL provider.
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Order-picking will be triggered after shipment order is received by warehouse.
And efficiently picking including pick by single order / basic order, zone picking,
cherry picking, batch picking, wave picking and etc. Single order or basic order
is the most common method that an order is picked at one time by picker. This
operation fits well with small total number of orders, i.e. service centre of spare
part logistic operator. Batch picking uses a consolidated pick list to pick orders
have small quantity. It is very suitable for those warehouses accumulate low
number of SKUs from multiple orders. Batch picking is also known to be a
travel time-saving process, the time save allow to make additional picks. Zone
picking is ideal to operate with conveyor and order pattern is similar to batch
picking, each picker is assigned to a specific region and is responsible to
perform picking within the region only. Wave picking is to pick multiple product
orders which may group by specific carriers, routes or zone. It reduces the
picking cycle time compare to single order picking. Before loading the picked
products into truck, sorting process is also essential to ensure the accuracy.
Traditional order-picking will be depending instructions printed on paper. It can
be a single order pick list or a consolidated pick list done manually. With the
advancement of the technology, pickers get an instruction prompts on the RF
picking or even voice instruction via wireless devices.
Replenishment is another important process to ensure order fulfilment in
warehouse operation. If order cannot be fulfilled, warehouse manager will have
to find out the root cause, and insufficient stock at pick face or storage location
could be the culprit. It may also due to other technical error like poor labelling,
slow QC release, and etc.
A model may defined as a simplified description of a complex process, and
modelling refers to the process of generating a model as an abstract of real
process or system (Márquez, 2010, pp. 3-4). Márquez used computer
simulation modelling to predict the behaviour and in order to solve the
problems. 3PL providers are looking into various avenues to reduce their costs
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and increase the operational efficiencies; Enterprise Resource Planning (ERP)
solution could be one of the answers. ERP suppliers have accumulated their
implementation experiences in the past two decades, and have started to target
small and medium enterprises.
The SCOR model is a product provides a unique framework that links supply
chain business process, metrics, best practices and technology features into a
unified structure. It becomes a standard support communication among supply
chain partners and to improve the effectiveness of SCM and related supply
chain improvement activities (Supply Chain Council, 2010a). It has been used
by cross-industry practitioners for many years that help to improve the overall
effectiveness of daily management and initiatives. The model prescribes a set
of processes templates and its sub-tasks. The common business problems are
solved by implementing SCOR include improving operational control and cost
by standardising and streamlining core processes as well as assessment of
qualitative and quantitative performance through benchmarking exercises.
Performance Attributes and Metrics are the two elements of SCOR performance
section. A performance attribute itself could not be measure and is a group of
metrics for expressing its strategy. SCOR metric is a standard measurement of
the performance of a process and is to be used for diagnosis. There are 5
performance attributes that SCOR recognises which are Reliability,
Responsiveness, Agility, Cost and Assets. To address accuracy, it is about the
right quantity and quality which are typical metrics for the reliability attribute.
After the reliability is achieved, the operation should be evaluated the
responsiveness attribute which measures the speed of tasks performed (Supply
Chain Council, 2010b). An improved cycle time means an improvement of
processing throughput and maximise the contribution.
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Figure 1: SCOR Level 2 – Configuration Level (Supply Chain Council, 2008).
SCOR model is using diagnosis analysis, i.e. it uses level 2 metrics to explain
performance gap or improvements for level 1 which is referred to metric
decomposition or root-causing. The model links process elements, metrics,
best practice and supply chain features. Applying a SCOR model is to develop
a value stream map describing a supply chain’s major process workflow
includes (Martin, 2010):-
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1. Demand and supply planning
2. Sourcing strategies
3. Transformation processes
4. Warehousing and delivery
5. Reverse logistics
These five major processes are broken into lower level workflows shown below:
Table 1: SCOR Level 2 – Process Category (Supply Chain Council, 2010b).
The understanding from Goldsby and Martichenko (2005, pp. 3-8), Lean
Thinking is derived from Toyota Production System that is about to eliminate
waste and increase speed and flow. A non-value added process is considered
as waste. On the other hand, Six Sigma defines variance is a waste which
supports by statistical reference. It is a methodology to reduce variance within
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organisation process. They define Lean Six Sigma Logistics as the elimination
of wastes through disciplines efforts to understand and reduce variance, while
increasing speed and flow in the supply chain.
The logistic business is growing rapidly and business changes are expected
when customers’ demands are rising. Therefore 3PL providers are often
exploring in improving process include Lean Thinking, Six Sigma, SCOR and
etc. With an appropriate process implemented, it reduces the gap between
people, process and technology will be reduced to minimal and achieved
maximum accuracy.
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3. Review of Literature Sources
The researcher had done some searching and readings from ScienceDirect for
the keywords contain ‘warehouse process improvement’. It produced 6866
articles which including 5681 journals. A couple of journals were read and then
further refined the keywords to ‘SCOR process improvement’ which further
reduced to 1,116 journals. Other sources including Emerald, Google and
printed materials are used for wider selection of articles. The review started in
general process improvement within warehouse and slowly down to its
problematic area, i.e. picking accuracy.
With the rapid development of computer-based systems, Management
Information System has becoming an integral part of business processes and
playing an important role in supply chain industry. 3PL provider can maximise
ERP features to create new opportunity, innovation or services in differentiating
logistics service offering is essential for its business (Veeken and Rutten, 1998,
pp. 91-98). Warehouse management system (WMS) has becoming an
important of logistic system, which handles inbound, inventory, order fulfilment
and outbound processes. Despite of undisputed success of ERP
implementation, many critical issues remain unresolved or results are not
satisfied especially business change over time.
Without doubt, reliability is one of the most widely discussed include on-time,
right quality and quantity, etc. Warehousing is always referred to as one of the
core functions of logistics, and yet many companies choose to outsource the
operation to 3PL provider. As warehouse operation is not their core
competencies and labour cost is substantial and non-value added tasks are
waste of labour, i.e. rework of mistakes. However, Wal-Mart realised the
expenses of transportation and replenishment are high and it is time consuming.
It breaks thru the traditional thinking and does conversely by having more than
one hundred distribution centres in the United States of America to serve small
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and rural towns with a variety of products at lowest price (Blanchard, 2010, pp.
90-98).
With a sample of 310 companies from various industries and countries, Trkman
et al. (2010) believed that the use of business analytic in critical process can
affect supply chain performance. It is also shown that company adopt good
information system are likely to perform better. They also commented that it is
difficult to improve all SCOR’s core processes concurrently, and their research
indicates an investment in Make process may bring significant improvement.
Most of the SCOR configurations are done manually which is potentially
lengthen the implementation duration. SCOR model is a standard framework
model to assist in decision making, and different companies have different
strategies that increase the complexity in SCOR configurations. It is
recommended to have a computer-based tool to assist in improving efficiencies,
i.e. Intel’s SCOR Best Known Methods (Huang et al., 2005).
According to Blanchard (2010, pp. 90-98), Del-Nat implemented a WMS
solution with handheld barcode scanners which replaced paper-based inventory
system. Each tire has a unique barcode and pickers scan the barcode check
the storage location and verify tires they pick. The automation of process
improved accuracy as well as order fulfilment speed by 35 per cent in handling
2000 SKUs and maintaining nearly 700,000 tires in its distribution centre. With
WMS, the company can now invoice promptly to customer once the shipment is
acknowledged. It can expect a shorter debtor collection period and
subsequently to pay creditors in a timely manner to smoothen raw materials
supply for its production.
Trkman and Blanchard have proven the success of process and technology
implementation respectively. However, a good process relies on technology to
execute and often it is integrated. A good technology will be developed in
accordance to a set process and will not operate perfectly without having
training on the process flow to the users.
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Electronic Data Interchange (EDI) eliminates human typo error in manual work
and enables advance visibility. Today, 3PL providers require system integration
to handle huge volume of orders. Shipping orders and instructions are
transmitted electronically that reduce paper and telephone dependency as well
as significant time-saving. Ghobadian et al. (1994) conducted a study on EDI
implementation on three supermarkets in the United of Kingdom which enabled
a just-in-time environment. The implementation held between the year of 1989
and 1991. Ever since the implementation, it changed their transaction manner
and all three supermarkets reported gains in adopting EDI. In additional,
Innovate Logistics achieved 99.96 per cent picking accuracy after running pilot
WMS with EDI at one site (Manufacturing & Logistics IT, 2006). The concern of
implementing EDI would be cost and security. However, the two-way EDI
integration has becoming crucial for manufacturer and its 3PL provider. And
security can be addressed by dedicated channel and secured private network.
Ultimately, it improves responsiveness attribute.
Congdon (2008) expressed that Coca-Cola Enterprises, Inc. (CCE) had
achieved picking accuracy at 99.8 per cent after implementation of voice-
activated picking solution. The new technology had an improvement of nearly
five per cent compare to picking via handheld. After voice picking is
implemented, CCE noticed that pickers often had to backtrack through the
warehouse to locate the next item which caused inefficiency in overall travel
distance. Therefore, CCE standardised the pick path of its warehouses and
then achieved improvement of the order cycle time. The improvement enables
CCE to enjoy some benefits when their beverages deliveries arrive at Wal-Mart.
Inventory inaccuracy can distort warehouse operations including picking,
replenishment, forecast and etc. Periodic audits and cycle counts could be
labour intensive to ensure the accuracy in a long run. Based on the finding from
Atali et al. (2009), radio frequency identification (RFID) tracking technology can
improve the visibility and reduction of error source. The University of Arkansas
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has done a Wal-Mart sponsored research and reviewed that there is a thirteen
per cent improvement on inventory accuracy with RFID deployment. The
comparison is done to an equal number of stores operate without RFID
technology. However, incoming products from different manufacturer may not
equip with RFID. Verification upon inbound receiving against purchase order is
necessary to ensure the inventory accuracy and identify damaged quantity.
Put-away task is also a critical process if the workers do not put to a designated
location, and it results pickers could not locate the items from the pick list.
Although technology has made significant improvement, Mulaik (2010) stressed
that RF alone will not be the answer to get process improvement or inventory
accuracy. The picking accuracy in a forward pick location is determined by the
put-away and replenishment tasks that come from reserved or bulk locations.
And forward pick area might be too dense to run RF picking, hence RF
implementation may not necessary to be covered all kind of warehouse tasks or
areas. Besides, he also highlighted that RF picking takes five to eight seconds
more than paper pick while waiting a pick location, entering pick quantity (if
different from suggested quantity), scanning pick location and etc. In short, the
assessment of technology is crucial to aid the operation to drive a better result
and not worse.
In their study, Morciniec and Yearworth (2006) hypothesised that IT solutions
should be based on a combination of business and technology. In the past,
there were many failures of IT project which could not deliver promising benefits.
They commented that SCOR model have its related processes/tasks under
each core attribute. And these processes/tasks may not necessary best
practice. By applying some linear transformations into best practice and
simulated by an application, the results look plausible especially the qualitative
ones. Hence, the tools should consider its business models as well as
technology components. This study made Trkman, Blanchard and Mulaik’s
ideas and conclusions to be combined and therefore produce the best solution
that integrates process and technology.
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Apart from process and system, settings of warehouse can also impact the
accuracy. For example, ABC classification categorises products into 3 different
classes by its moving frequency. Brynzér and Johansson (1996) highlighted
that class-based storage can increase the picking accuracy as well as reduce
order retrieval time.
As we known SCOR is to improve supply chain process as well as technology
in the market to do automation and material handling. The research believed
that there is always a room for improvement and better process to be revealed.
According to the actual fact shown, a WMS and barcode handheld improve
inventory accuracy in a manual operated warehouse. It also improves space
utilisation, order tracking, customer service and etc. A voice-directed handling
further improved picking accuracy over picking via a handheld device. There is
no best process but a better and suitable process to be operated in the
environment with the assistance of information technology and well-trained
people.
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4. Conclusions
According to literatures studied, many companies operated manual picking
system by using paper-based pick list. The size of order and volume increases
due to business grows and changes to customers’ requirement. 3PL provider
will start looking for improvement to increase productivity and efficiency. When
a location is accessed more frequently by many pickers, the level of inventory
accuracy tend to reduce and will be going worse if rectification is not done
quickly. A process can be improved by adopting best practices or models
available, but it is not plug and play. It is subject to the configurations and
settings of the warehouse. SCOR model will be one of many process models to
be adopted.
The traditional way of paper-based picking enable better flexibility to pickers,
especially those are experienced one. They would actually plan the picking
sequence before picking up the first item. When an improved or refined
process has hit its bottleneck of achieving better productivity and efficiency, it is
the time to explore on the technologies. It is common to see a high-volume
warehouse to operate using technologies like RF handheld, pick-to-light or
voice picking.
Before we can implement a new process or model, a benchmarking exercise
need to be done to measure individual performance and accuracy throughout
the warehouse. Almost all software application suppliers advertise their solution
can improve productivity, efficiency and accuracy. They tend to be bias toward
their marketing strategies. In fact, there are failures in implementing such
solutions. It is too often 3PL providers could not identify problems where they
are too adapt to the environments, and only realised after it snowballed.
Training program is important as each existing worker as well as new force.
They need to know the process clearly and the benefits. Otherwise, they will
just neglect it and may cause severe operation issues. Picking technologies
may only be implemented within certain zone but it should not be an exception
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not to use the new process in the implemented zone. Finally, a randomly audits
can be done during packing or loading process.
The reviewed literatures shows that a model, process and best practice requires
other components or tools (i.e. equipment or computer-based application) to
achieve a better results. The most critical part is to determine the requirement
and implement what solution suit best to its environment. SCM operations
evolve rapidly and to stay ahead in the industry, 3PL providers would have to
continue in exploring, innovating, and adopting changes to refine its daily
operations.
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5. Recommendations on Further Research
SCOR model is developed and has been improving by its members’
participation. The proposed hybrid model has also been started to be adopting
by companies without knowing the fact of using it. The foresee challenges will
be keeping the reference model to be manageable while the company is facing
business-driven changes or growth. Pilot test or proof of concept is the basic
platform to hypothesise an expectation. A technology solution will be required
before a test can be done. The customisation and configuration of application
software are expected to last for couple of months. It is highly dependent on
the module or process to be improved. These could form a further research in
detailing the system development life cycle process of software application
providers.
The researcher strongly believes that the successful of picking accuracy
improvement comes from the balance adoption of process, technology and
people. And the new changes to the three areas must be formulated and
conveyed in order to reduce inconsistency of understanding. Therefore, the
utmost accuracy can be achieved.
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Appendix A – Concept Map
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Appendix B – Retail Distribution Warehouse Picking Accuracy by AuditNet®
AuditNet® (2003) published an audit document to audit the picking accuracy in a retail distribution warehouse, the document is
listed below:
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Appendix C – Inbound Logistics Questionnaire 2011
The questionnaire below is prepared by Inbound Logistics for evaluating and
choosing Top 100 Third-Party Logistics Providers (Inbound Logistics, 2010). It
is a partial of the questionnaire is extracted for demonstration purpose only.
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