14. Material Handling Technology, Voice Pick, and Pick to Light Technologies

Material handling is the movement, placing, and lifting of goods using tools or equipment to help the worker. The equipment ranges from hand-held UPC guns to forklifts, Automatic Guided Vehicles (AGV), and ultimately the Automatic Storage and Retrieval Equipment (AS/RS). Material handling is used to automate logistics in the receiving, picking, or packing process.

In the logistics automation process, subsidiary software fully automates the logistics process. The software ties in the hardware and software processing and allows for communication between the hardware and the computer. Broadly defined as Supply Chain Management and Enterprise Integration Software, the solutions encompass the following:

• Supply Chain Management (SCM) systems

• Warehouse Management Systems (WMS)

• Transportation Management Systems (TMS)

• RF systems for communications (RF)

• Enterprise Resource Planning (ERP) systems

The supply chain is composed of three flows. The first is the material flow, which represents the movement of the goods and services of the product. The second is the information flow between the trading partners, which creates a knowledge network within the company; here information is transformed into knowledge. This secret ingredient is what makes the company different from the competition. The third is the financial flow, which represents all the processing and efficiencies added in the system for all the documents from the initial PO to the invoice and the final settlement of payment.

To begin, simply follow the money. Similar to the Pareto process or 80/20 rule, following the money constitutes asking, “What is the process that is causing the most pain? What activity is taking the longest to perform? Where are the most people working?” These questions, when answered, highlight areas with the most potential for productivity and throughput improvement.

The process of data mining uncovers the most profound problems, which will reveal opportunities to get the biggest productivity improvement. In most operations, those problems are discovered in order picking. Comparatively speaking, order picking is the most expensive activity. Table 14-1 shows the range of cost of each operation in a typical warehouse.

Table 14-1. The Operations Cost of Each Area in a Typical Company

A typical order picker can walk six miles a day. Order picking can be the most labor-intensive activity in the warehouse, with as much as 75% of the employee’s time spent in activities other than picking, highlighted in Table 14-2. This is where a value stream map (VSM) for the warehouse process becomes necessary. The software algorithm discussed earlier highlights the best flow for warehouse workers to follow in order to minimize work time. After the workflow is defined, it is necessary to determine which activity is taking the pickers the longest to complete.

Table 14-2. Breakdown of Order Pickers’ Time

The first technique to start with is to batch-pick using a shelf cart. Since as much as 62.5% of the order picker’s time is walking, the more orders picked in the same walk sequence, the less time the picker will spend walking. This is one way to increase the VA component. When the largest NVA element is decreased, the VA part of the process automatically increases.

For example, cutting the walking time down by 50% increases the VA process from 24.5% to 24.5% / (1 − 62.5% / 2) = 35.64%. Therefore, picking more than one order at a time can dramatically reduce walking time and increase productivity.

In batch order picking, multiple orders are grouped into small batches. An order picker will pick all orders within the batch with one pass using a consolidated summary picking list. Usually the picker will use a multitiered picking cart, maintaining a separate tote or carton for each order or customer. Each tote is a different color, representing the different customers on the consolidated picking list. The more successful systems vary the batch sizes depending on the average picks per order or cubic size of the items per order. Batch order picking takes a group of orders and arranges the items on these orders in warehouse location sequence, allowing the order picker to make one pass using a Batch Order Summary Sheet. The system should sequence the order picking for the different passes through the aisles to minimize the distance the workers have to travel. Table 14-3 shows a typical batch order sheet used to pick items in a warehouse.

Table 14-3. Batch Order Summary Sheet

The summary sheet highlights customers and quantities for ease of use. The Green Code represents customer one, and the code (1- for Customer 1) tells the operator to fill a quantity of one and put it in the green tote. The Blue Code represents customer two, and the code (2- for Customer 2) tells the operator to fill a quantity of two and put it in the blue tote. The Purple Code represents customer six, and the code (3- for Customer 6) tells the operator to fill a quantity of three and put it in the blue tote. This visual aid is a lean management technique. It is harder for the forklift driver to make a mistake since he is simply matching colors and quantities to place in the correct tote.

The computer sequences the routes for the drivers so that the totes are as evenly balanced as possible. This allows for each order picker to have about the same amount of work. If there are multiple order pickers, the computer tries to match their skills to the warehouse location they work best in. This is a concept of cellular management, matching the skills of the laborer to the skills of the job. The computer also tries to minimize the time of picking by using the best utilization of the workers in the process. These improvements are found in the Warehouse Management System described earlier.

The Logistics IT Order Fulfillment Systems will perform the tasks listed next. This list is generally considered a wish list composed of a comprehensive list of the components of the entire order fulfillment system.

• Auditing/Claims/Freight Payment—This involves keeping the records accurate for the retailer and the customer.

• CRM (Customer Relationship Management)—All the documentation is available for the customer to see either on the Internet or from the customer service department.

• DM (Demand Management)—The order fulfillment system needs to balance demand with supply. If this is not done, the system will have service-level issues.

• Distribution Resource Planning/Material Resource Planning (DRP/MRP)—To fulfill a customer’s order, the proper inventory must be scheduled with manufacturing or distribution.

• E-Business Functionality—This functionality gives the system the anytime, anywhere capability. This can also be used to show alerts of pending problems in the supply chain.

• ERP—The enterprise needs accurate data to follow all the transactions of the order fulfillment system. Enterprise Resource Management will make this possible.

• Global Trade Management—This process is similar to the 4PL process in which several 3PLs are controlled by one 4PL for the process of global control.

• Inventory Management—Inventory management controls inventory item minimums, EOQs, and fixed-period or fixed-quantity buying.

• Load Planning—The process ensures that the procured item is brought into or out of the enterprise at the fastest schedule and minimum cost. This is possible only with leveled flow for receiving, shipping, and/or manufacturing.

• Modeling/Forecasting—Using the correct forecast model will make it possible to have the lowest inventory with the highest service level to ensure the delivery of the product.

• Optimization—This can make possible the development of the process to allow inventory or profit to run at the highest possible levels with the lowest overhead.

• Procurement—This is the act of buying and should be done with the best terms and dating. This enables the organization to be the lowest cost provider of goods in the competitive arena.

• Product Life Cycle Management—This process helps determine whether to continue to make or sell the product. Cost and profitability of the product is measured throughout the four growth stages: Introduction, Growth, Maturity, and Decline.

• Reverse Logistics—This is the process of returning the customer order because of a wrong shipment or a defect. Not controlling this cost bleeds the profitability of the value-adding processes of the company. Reverse logistics is a non-value-added function and should be minimized as much as possible.

• RFID—This technology minimizes labor and maximizes the speed of the system. In the fulfillment system, it would help in getting the product delivered expeditiously.

• Routing/Scheduling—The routing refers to the network optimization presented earlier. The largest cost is in the network of the delivery of the product. Lower cost and faster delivery will magnify the difference between competitors.

• Security—If the customer feels unsafe buying the product, he will go elsewhere and sales will take a hit.

• Supplier/Vendor Management—This focuses on the collaborative efforts of the distributor with the suppliers and customers. It is all about partnering with suppliers to maintain the best compatible set of processes for both the supplier and the distributor or retailer. This enables the procurement process.

• Supply Chain Management—This is the largest cost for most companies. It is the movement of goods from raw material to product creation, disposition, and finally disposal of the product. There are a lot of flows in supply chain. These include the following:

• Information flow—the information needed to properly forecast and deliver the product

• Product flow—the movement of the product

• Financial flow—the procurement process

• Sustainability—This process uses the least amount of resources possible while meeting goals. Creating a lean environment with green sustainability accomplishes this task.

• Transportation Management System—In the world of procurement, saving mileage means delivering merchandise at a lower cost more expeditiously.

• Warehouse Management System—The system smoothes the labor schedule throughout the warehouse so that the merchandise can be received and picked at a faster rate. This allows for employing fewer personnel.

• Wireless/Mobile Technology—This system allows for 24/7 connectivity with personnel, “anytime and anywhere.” This definitely acts as a stimulant to the supply chain by keeping all processes monitored.

• Yard Management—This acts as a product identifier in the yard which facilitates location, storage, and retrieval for procurement processes.

Picking Technologies are used to enhance the procurement system and enable faster throughput with better quality. This process is enabled only through the use of technology. The more commonly used technologies are listed here:

• Voice Picking—The WMS that allows the computer voice to regulate the flow to control the movement of the employee in the warehouse.

• Pick to Light—The WMS that allows the lighting on the bin to regulate the flow to control the movement of the employee in the warehouse.

• RF Pick Cart—The concept of using the RF gun to verify each pick or receipt. This helps maintain the highest accuracy of the procurement picking process.

• A-Frames—The system in which gravity drops the product at the base, allowing employees to go through the aisle and pick the product needed. The process speeds up the picking procurement process.

• Order Picking Robots—Mechanization of the process without the aid of a human.

• Automated Storage Retrieval Systems (AS/RS)—A fully mechanized system with high upfront costs but that enhances the picking procurement system.

Material Flow Technologies are used to control the flow of the goods in the warehouse. In its truest sense, it is considered a lean technology because it minimizes the amount of travel through the warehouse. In every economy, the fastest growing cost component of warehousing and order fulfillment is labor cost. The transportation cost of warehouse and fulfillment is approximately 35% to 40% and the logistics systems cost is approximately 54% to 66%. This can be further broken down into three categories:

• The inventory cost is 21% to 26%.

• The administrative cost is 3% to 5%.

• The warehouse fulfillment costs are 30% to 35%.

The use of Lean Six Sigma can be used to analyze the process to add more value to the operation. Technology, graphs, and charts are excellent tools to use in determining which processes are causing the most problems. Further, considering RF, Pick to Light, and voice-picking systems can increase productivity and enhance VA activity levels.

• Product Inquiry—This involves the initial inquiry about offerings, visit to the Web site, and catalog request. This option maintains information on past customer purchases so that it can show options that can be considered by the customer in the future. If an item is out of stock, the system shows that there are items similar to the out-of-stock items that can be shipped immediately. If the customer is not interested in similar items, it will notify the customer of the date the item will be available. The Web site also offers up-selling opportunities.

• Sales Quote—This includes the Request for Quote (RFQ), which allows for quote creation with promotional credits and volume discounts factored in. The quote is also based on budgetary and availability constraints. The budgetary constraints are based on the buyer’s credit history.

• Order Configuration—This configures a product based on the customer specifications. This value-added process performs the postponement option in distribution. The product is configured as the customer order comes into the shipping horizon.

• Order Booking—This step covers the formal order placement or closing of the deal using the customer’s purchase order. The purchase number shows total dollars ordered and amount of credit left. The system must be very user-friendly.

• Order Acknowledgment/Confirmation—This involves confirmation that the order is booked and/or received. This is normally an e-mail sent just after the booking. The confirmation shows all future delivery times and any out-of-stocks.

• Billing—Billing is the presentation of the commercial invoice/bill to the customer. The billing procedure should also give allowance to members who pay within 30 days. The norm is 1% within 30 days or 2% over 30 days. The billing should also show all the future bills due and the current account payable in dollars.

• Order Changes and Order Processing—After all orders are ready to be processed, they are sent to the warehouse for filling and delivery.

• Shipment—This includes the shipment and transportation of the goods. The shipment process should use an Advanced Ship Notice to notify the customer of what product is in the shipment and that the shipment has been shipped.

• Delivery—The delivery of the goods to the consignee/customer. The important part of this concept is the scheduling options for the customer. Delivery must comply with customer expectations and needs, as well as transportation options according to delivery time-of-day.

• Settlement—This is the payment of the goods received. It is performed with the terms agreed to with the vendor. It is usually prepaid or collect. There may also be extra terms on the merchandise such as extended dating.

• Returns—In case the goods are filled wrong or have quality issues, the merchandise will be returned to the vendor. Each vendor can determine the requirements for this reverse logistics function. These are the four options generally used:

• The vendor will pay for the return of the merchandise.

• The vendor will charge a service or return charge. This may also include the cost of freight and restocking.

• The vendor will give options for salvaging the product.

• The customer must take a picture of the product’s damage and send this to the vendor.

Recall from Table 14-1 that the picking operation has the highest value-added of 21% to 26%. Picking results in the highest non-value-added activity, walking, which is 55% to 70% of the order-picking time. The use of technology can increase value-added and decrease non-value-added in the picking process.

Picking without automation requires the use of paper. Picking by paper decreases picking rates by 30 to 60 lines per hour, depending on the industry and complexity of the operation. It requires careful reading of each document in low-light conditions. In today’s competitive environment, it is necessary to utilize the available technologies to decrease errors and increase speed.

• Tracking of shipments

• Monitoring of carrier performance

• Reduction in paper documentation

• Receipt of multiple POs at one time

The scanning of the pallet will also give the receiver the priority of the merchandise on the pallet. It will provide the status of the shipment by showing the following information:

• Out of Stock—restock immediately

• On Sale—restock immediately

• Central Stock—send to other centers

• Discontinued—do not stock, return to supplier

• Replenishment Inventory—Not imperative so there is no rush to stock

If the merchandise is a new item, the scanner will scan the bar code for the UPC number. The new number is looked up and entered into the scanner. This process updates the table for associating UPC numbers with internal numbers.

Material will be expedited to stocking locations based on the status code provided. The license plate is scanned per pallet, so the employees know what product is on what pallet and the location of each pallet. Each item, carton, or bag is labeled with the appropriate bin location number. The RF system will track all locations within the warehouse. The system will recognize all empty overstock locations.

At the stocking location, the operator scans the item again before putting it away. The location tag is scanned on the rack to make sure that the item is being placed in the correct spot. If the employee is in the wrong location, the WMS system shows an invalid location code on the scanner. This is an excellent way to cut down on errors in the system. If the location is correct, the operator places the merchandise in the bin. The operator verifies the quantities and keys it in the scanner. The receipt file is updated and the operator returns to the dock for the next pallet. The scanner will determine the sequence of put-away to reduce travel time and distance.

Here are some other considerations for order filling:

The forklift operator is directed to the location from which overstock is to be pulled via display screen on the scanner. The scanner sequences the locations to be pulled in order by priority and for the shortest distance. There will be opportunities to fill member orders from overstock locations. The RF system will search locations to

• Combine bin replenishment and order filling with one move

• Avoid returning partial pallets to overstock—Automatic Let Down

• Fill orders requiring a full pallet of merchandise

• Remove partial pallets from overstock, opening locations for the storage of full pallets

• Scan the sequences of the locations to be pulled in the order by priority and for the shortest distance and time

• Direct the driver to the correct shipping door by the use of the scanner.

• Order filling experiences the greatest increase in productivity because orders are continuously filled with little distraction from other tasks. The only limit is the speed the worker could scan, fill, and walk. The average time needed to fill an order decreases by 40%.

• Productivity should be around 50 to 100 lines per hour as an average, depending on the type of product and the warehouse environment. The manual productivity with the use of paper is normally 30 to 60 lines per hour. This is an average of 66.66% savings in productivity.

• This is the least expensive way to start with the RF automation. At later stages, automation and other software can be tested for increased productivity. At this stage, any new productivity tools brought in to advance automation will assume the use of RF technology.

• Typical costs for hand-helds and related components range from $1,100 to $4,000 each, depending on the size, complexity, and environmental needs.

• Typical base costs for an RF system range from $30,000 to $80,000 including site analysis, consulting, and training.

• The average accuracy rate increases from around 99.2% without an RF system to around 99.5% or more, depending on the system design and the quality of the bar codes.

• The main issue with the technology is to the need for wireless access and the elimination of all dead zones in the warehouse. Site walk-off and site analysis require testing of all areas of the warehouse to make sure that the RF is not getting interference from other equipment in the facility. During this site analysis, a spectrometer is used to see whether any other device is giving off a 900 MHz signal that would interfere with the reader’s 900 MHz signal.

Each operator works in a zone. The zone can also be configured by the computer. In the zone, the picker will scan the tote and the appropriate lights will turn on in the picker’s zone. The entire picking process in is now visible to the employee. The lights will show the quantity to pick for each bin. After the worker has filled the bin, the picker will hit the confirm button and go to the next bin and start picking, hitting the confirm button when done. This process will continue until all the items in the zone are picked.

In the zone context, the picking of the order is called pick and pass. The operator stays in close quarters while picking the order. When done, he puts the tote on a conveyor and it is passed to the next picker, hence “pick and pass.” In the world of lean, this is one of the best technologies. One of the eight wastes—walking—is almost eliminated because the worker stays nearly stationary. From this perspective, it is one of the greatest tools used to maximize worker productivity. Another advantage to the system is that it is visible to the manager. The worker’s productivity and time of completion can be monitored on a real-time performance.

Light-directed order fulfillment systems use light indicator modules mounted to shelving, flow racks, workbenches, pallet racks, or other storage locations. Whenever product is needed from a particular location, the light indicator turns on, drawing attention where action is required. The operator picks the product quantity displayed. The operator then confirms the pick by pressing the lighted button.

Pick to Light works best in a piece-pick or broken-case-pick environment where there are high-density order picking areas. The general rule is if 80% of a distributor’s item-level picking volume comes from 20% of the SKU base, Pick to Light is an ideal solution to optimize productivity and accuracy. Pick to Light can easily be configured to add performance and efficiency to many popular order-picking methodologies, including Order, Wave, Zone, and Batch picking techniques. Variations on light-directed technologies such as Put to Light or Pack to Light are ideal for high-speed sorting processes, in which a batch of orders is sorted to individual customer orders or used to maximize throughput for retail-store order distribution.

Pick to Light is acknowledged to be the fastest operator-based picking strategy available to execute broken-case quantity-order fulfillment operations. This is because the worker usually stands in a zone and has very little movement because the products are in close proximity. Ideal for team-based approaches like zone picking, the Pick to Light (P2L) solution increases the pick-rate productivity, accuracy, and cost efficiency of this labor-intensive operation by reducing the walk time, eliminating the reading errors, and simplifying the task throughout the pick process. Arguably, it is more expensive than Voice Pick or RF. This is why it is used based on the 80/20 rule. Only the 20% of the items which account for 80% of the volume use the P2L solution. A much smaller area configuration is needed for the P2L solution, but the entire area must be wired for the lighting.

The employee fills smaller items and many more items are being picked per hour. The worker does not have time to walk too far so zone picking is the typical application. The dynamic balancing of zones is the key to high productivity. This is the result of the WMS system. Cellular technology allows for work to be done in groups by having expected work and individual productivity used to define zone groups and their size. P2L technology is for merchandise that will fit in a more compact area where employees can work in a fixed zone.

Each operator is given a voice-enabled RF device. These devices need not have screens or keypads—operators communicate with the system via headset. Managers use the WMS or middleware to assign operators work—jobs such as picking, put-away, replenishment, and truck loading. How this assignment process takes place is largely a function of the specific job, the specific skill of the workers, or the end result of the optimization of the work schedule from the WMS. For example, operators might be assigned to pick specific orders or load specific trucks based on their past qualifications and specified times of completing the work. Jobs are assigned priority codes based on the time of completion. The standardized job times for each worker can be used to schedule the entire day or might simply be used to assign picking or to place employees on the highest priority job.

With voice picking, the voice system directs the operator to perform each pick, giving directions to the pick location. The following is an example of a picking dialog:

It all starts with the voice training, which can last for up to 20 to 30 minutes. The system has to learn the user’s voice inflection, tone, and speed. A computer voice directs the workers to their destinations in the warehouse. This gives the workers an environment in which they can have a hands-free and eyes-free operation. Work is transmitted from the host to the voice server and subsequently to the belt worn by the workers.

• Operators are guided by voice to a location and respond with a location check via digit(s). This can be either a UPC scan on the label on the bin or the operator responding with a voice command of the bin location.

• Operators are given quantity and respond with a verbal acknowledgement.

• Item verification with UPC check digit(s) is optional.

Guides to enhance the accuracy:

• Be cautions of inaccuracy due to confirming checks by digits of location before arriving and picking afterward from the wrong location. This is why some voice-directed systems make the user scan the location upon arrival.

• Inaccuracy occurs due to operators memorizing their SKUs and relating check digits instead of visually reading the check digits. This is done to cut down on the time of the picking operation. Any workers identified doing this should face loss of incentive pay per error.

Added Voice Pick functionality:

• Low- and high-hit-density environments work well with voice picking. The entire warehouse can actually be picked by one worker. If there are multiple workers, they should be assigned to sections in the warehouse to minimize their distance traveled. Work balancing and parallel picking can affect productivity. This again is the function of the WMS system. Its goal is to lay out the path for the worker in which it will minimize the workers’ distance and time.

• The voice-directed picking system can be used to perform multiple warehouse tasks and receive multiple benefits:

• It can be used in receiving to minimize the time of receiving. This can also cut the receiving-to-stock time that is part of overall lead time. Remember that cutting the lead time by one day can reduce overall inventory by approximately $3 million.

• Put-away-to-stock is the second leg of dock-to-stock. If this can be shortened, all inventory gets into stock at a quicker pace and consequently improves service levels and also decreases the need for higher inventories.

• Better error rate and speed in loading the picked stock into the outbound carriers can increase customer satisfaction by giving faster deliveries and reducing the cost of reverse logistics.

• There are two kinds of cycle counting: periodic and perpetual. In either case, the voice-directed picking system can help speed up the process. In the perpetual system, there is a quarterly count to see whether the system is actually working correctly. Use the voice-directed system to highlight all out-of-stock items and check whether the stock is really out. Check the sale items periodically to see whether the count has changed from the computer count. These self-checking techniques can be done daily by a small percentage of the workers after their main jobs have been completed. This keeps the checking process up to date.

• The voice-directed picking system can be used in cross docking to make it easier to match the receipts to the item file of the receiving company. The faster this matching process is, the more likely the cross-docking operation will be successful. This assumes that the item is out of stock and there is a pending order for the product. In the system not using cross docking, stock the item before picking it for the customer. In this scenario, the customer order may have been zeroed out because the shipment was sent before the item was filled. Cross docking knows in advance that the item is being received, and it can be taken from receiving and put on the customer outbound orders. The process creates an agile system able to adapt to changing conditions. In many cases, agility adds to customer satisfaction.

• It also has been noticed that worker motivation has increased because of the technology. The worker works at a faster pace and is paid incentives to perform the operation. As a result, there is less employee turnover.

• Other soft benefits derived from the Voice Pick system are the following:

• A hands-free environment makes it easy for the worker to react and pick the merchandise.

• The system provides real-time feedback for proactive management of people and processes. As the schedule changes, the entire staff is notified in real time.

• As soon as the stock is entered or pulled, the system is updated in real time.

• Worker safety is improved in the warehouse because employees are more attentive to the operation. There are fewer distractions because of the hands-free environment.

• Training time is reduced considerably.

• The biggest cost benefit is the increase in efficiency and the increased accuracy. These two metrics have been the biggest contributor to the return on investment for the company.

The typical costs range from $80,000 to $225,000 per system, which also includes the site survey. The site survey is important because it is performed by the vendee or supplier of the software. If there are any dead spots in the warehouse, they must be found and rectified. If the dead spots cannot be resolved, performance in the voice-picking area is impossible. The communications network, server, chargers, and training and project services are also included in the pricing.

The productivity is typically 100 to 300 lines per hour with Voice Pick, depending on application. These figures were compiled during technology meetings with users:

• Increased accuracy: 99.9%-plus

• Increased productivity: 15% to 20%-plus

The average cost of a picking error for most wholesalers is in the range of $6 to $60. This is an average of the extra handling and reverse logistics cost.

With an accuracy of 99.8% using a voice-directed system and a conversion from an RF system in which the standard average of accuracy is 99.5%, the hypothetical wholesaler can now pick 500,000 cases per week with an error rate of two per thousand. This amounts to .002 × 500,000 × 52 = 52,000 errors per year. The analysis of the potential savings of the system is as follows:

• The old system had an error rate of .005 × 500,000 × 52 = 130,000 errors per year.

• The comparison of the error rate between the two systems is 130,000 − 52,000 = 78,000 fewer errors per year.

• Using an average of ($6 + $60) / 2 = $33 per year. The saving is represented as $33 × 52,000 = $2,574,000 annual savings. This more than pays for the cost of the system.

• The system cost is computed as ($80,000 + $225,000) / 2 = $152,500. Now add the total headset costs of $2,700,000 to the system cost. The total becomes an upfront cost of $2,852,000.

The ROI is now $2,852,000 / $2,574,000 = 1.1 years to break even. These figures are industry averages, but they show the possibility of absolute cost savings from the technology. The other thing to keep in mind is that after the first year, most of the cost of the equipment will have been paid, and the savings is still generated each year.

The previous explanation is a great introduction to the automated picking processes and its benefits. The Lean and Green increases in productivity include these:

• Training time cut by 50%. This allows for better employee cross-training. On vacation shifts and medical leaves, the staff is more efficient. This helps in the reduction of training time for new employees. Some of the employees are trained in two days when it took several weeks to fully train them in the past.

• Shortages and claims are reduced by 25%. This is a much more efficient use of the worker’s time and minimizes the workload of the claims department. An average for retailing is .5% to 3% shortages and claims. Each 1% reduction in claims is equivalent to approximately $125,000 in savings. Assuming a 1.5% shortage and claims rate, the cost advantage for the reduced claims is 1.5 × $125,000 × 25% = $46,875.

• The returns and allowances have been reduced by 4%. This enables the staff to be more productive in not chasing the returns. The Lean cost of returns and allowances is 10% of the supply chain expense. This can be approximated as 10% × $954,373,200 × Gross Margin (18%) = $17,178,717. The $954,373,200 is the new revenue after the CPFR process. Reverse logistics accounts for 3% to 4% of a company’s logistics cost.⁽¹⁾ It is also assumed that the cost of reverse logistics is 10% of the profit margin. The savings is now computed as the reduction of returns and allowances of 4% × $17,178,717 = $687,149.

• Warehouse labor hours dropped by 10%. A warehouse with 450,000 square feet of space would need about 125 workers using an existing WMS and RF system. This is not an exact formula so to be conservative the savings in employees is rounded to 1,000 employees. The 10% savings in voice-directed pick and stock operations allows for a savings of 100 employees, but to be conservative and for the purpose of this example, there is a reduction of 50 employees. Using 50 people with a savings of $18 per hour and benefits of 25%, the total cost is $22.50 per hour. Total savings is 365 days per year × 8 hours × $22.50 × 50 people = $3,285,000 in labor savings per year.

• Service levels improve slightly. Voice Pick is used not only to pick merchandise but also to stock the product into the stocking locations. The error rate goes down with this technology by a factor of .25%. The savings is much higher when an RF system is not used prior to the Voice Pick system. This is because a lot of productivity has already been added to the process because of the RF technology. For every 1% increase in error rate, the service level is decreased by .1%. In this example, the service level will be increased by .1% × .25 = .025% of sales. Assume that 1/3 of out-of-stock is lost to no sales. The added profit saving would be $954,373,200 × .18 (GM) × .00025 = $42,947.

• There is less computer usage. Table 4-8 in Chapter 4, “Transportation Management System (TMS),” shows that 3,060 kWh × $0.16 = $490 dollars was saved in electricity usage by the reduction of one computer usage for the distribution center. With 50 fewer people the total reduction is $24,500.

• Shortages and claims savings = $46,875.

• Returns and allowances savings = $670,320.

• Service-level increase to added profit = $42,947.

• Total Lean is $4,045,142.

Total Green of the voice-picking system:

• Less computer usage = $24,500.

Total savings of the voice-picking system is $4,069,642.

Conclusion summarizing the differences in the picking systems:

• Low- and high-hit-density environments work well with voice picking.

• Work balancing, slotting, and system layout, such as pick and pass or parallel picking, affect productivity and work best with Voice Pick and Pick to Light.

• Slow movers with large SKU counts and large real estate may best be served by RF picking.

• Medium movers with large SKU counts and large real estate may best be served by voice picking or light picking on a smart cart.

• Fast movers with high density may best be served by Pick to Light.

• No technology with human picking will currently outperform Pick to Light in close quarters.

• Broader applications with RF and voice for receiving, stocking, and so on enhance the value for these technologies, making them easier to justify.

• RF has a low cost of implementation and allows for flexibility, but it is not as productive as Voice Pick and Pick to Light.

• Pick to Light has the largest cost and is less flexible because you are picking in small zones. Usually you use the 80-20 rule: 20% of the inventory which accounts for 80% of the value may be a candidate for Pick to Light. This system may give the greatest accuracy compared to the other two technologies, RF and Voice Pick.

• Voice Pick has a high cost, but it is much less than Pick to Light. It is flexible because an order picker can go anywhere in the warehouse and use the system. Voice Pick is also accurate, and many times your greatest savings come from the accuracy of the system.

The employee picks the order after he has received instructions on location and quantity. Note that both hands are free. The P2L system also offers this advantage. The worker in the RF system usually has only one hand free because the other hand is used to hold the RF gun.