Concepts for efficient storage in the mail-order business

Introduction

Efficient storage has long since been a factor critical to success for mail-order businesses. As such, it is little wonder that companies in the sector constantly endeavor to optimize the efficiency of their intralogistics processes. The type of storage concept plays a key role here, because it is crucial to the fast and accurate picking of ordered goods. Among the large suppliers dynamic storage has established itself as a proven solution alongside the fixed location system. In the following we wish to briefly present and contrast the concepts.

Another question the mail-order businesses have to ask themselves is whether to opt for central or decentralized distribution centers for storing and picking goods for shipping. We will address this issue in the second part of the text.

Yet regardless of whether a company ultimately opts for a fixed location system or chaotic storage, central or decentralized distribution centers, it will always come down to a choice between the various shelf storage systems available on the market. At companies in whose warehouses the employees retrieve goods with scanners and pick lists, simple shelf-based solutions are frequently found. Furthermore, they are not built especially high (keyword: picking height) so that the items can be easily stored and retrieved by warehouse employees. Systems of this kind are relatively easy and cost-effective to install, but have the disadvantage of requiring a great deal of space due to the limited storage height and area per square meter. This may only be a marginal problem for large companies such as Otto or Amazon, because they can afford to build huge distribution centers on greenfield sites. Among smaller suppliers and retailers that operate several decentralized warehouses which aren’t quite so big, it is more a question of how many goods as possible can be efficiently stored within a limited space.

This is where modern, high-bay storage systems, paternosters, and other lift systems come into play, because they permit the optimal storage and retrieval of the retailers’ products within a small area. Due to the wide range of options available in terms of the dimensions of the automated high-bay systems, their tray height and depth, and the various software solutions, the companies which use these units are able to devise a detailed concept tailored to the available space and their needs. The latest generation shuttle systems, such as the XP-1000 supplied by Kardex Remstar, can also load entire pallets, which are placed in the trays by means of an integrated hoist. It is therefore little wonder that a growing number of online retail companies are now considering the idea of procuring storage solutions of this kind. It may initially necessitate investing a not inconsiderable amount of money, but this is soon recuperated thanks to the high efficiency of the systems when storing and retrieving goods.

Chaotic storage vs. fixed location storage

In contrast to fixed location storage, which involves the items being allocated a fixed and simultaneously long-term location, dynamically managed storage space allocation is based on a flexible structure. This is often also known as chaotic storage, and although dynamic storage space allocation is a more suitable term for this system, chaotic storage is the expression that is fixed in most people’s minds. Accordingly, this is also how the solution will be referred to in the following.

At first glance, the way in which the goods are wildly stored all over the place on the shelves really does look a little chaotic. But there is a clever system behind it all. A system which appears anything but chaotic to the warehouse management software and simultaneously helps to manage the flow of goods of a highly diverse product range in a highly effective manner. Since online businesses frequently operate with a broad product portfolio and the number of items kept in stock is often not especially high, chaotic storage is of particular interest to this sector. That is undoubtedly one reason why big players such as Amazon or Zalando use this kind of storage method in their logistics centers.

How chaotic storage works

Chaotic storage is designed to make optimal use of the available space in the warehouse and thus represents the “intelligent” counterpart to the fixed location system. While every item has its fixed location in a conventional warehouse and is stored in the same place every time it is ordered and delivered, this fixed space allocation does not happen with the chaotic version.

If new goods are stored away, an employee searches for the free shelf space specified by the handheld data device which is carried around at all times. Just like every product, each individual storage space is also clearly labelled with a bar code. The warehouse employees use the data reader to scan these codes and advise the warehouse management software that the corresponding item is now located in the designated position on the shelf. If the item is later requested again, because it has been ordered by a customer, this information is retrieved from the ERP system and automatically added to a pick list which sends the employee to pick the item from the shelf location where it is stored according to the database. When the product is removed from the shelf, it is scanned again, which advises the software that this location is now free again.

The starting point when deciding which of the two alternative forms of storage to choose is the question of which is more efficient, although the decision is of almost existential significance for large mail-order businesses in particular with their huge inventories and broad product portfolios.

Let’s take a look at an example. Mail-order business X works with the fixed location system and sells such high quantities of its bestselling product Y that it can barely keep up with repeat orders. But what happens when the item is sold out? From this point in time the fixed storage location allocated to the product will stand empty until the repeat order arrives. At the same time a larger quantity of product Z is sitting in the incoming goods section and cannot be stored in its usual place because it is already full. However, product Z cannot be stored in the free space where product Y is usually stored, because it is reserved for product Y. The retailer’s incoming goods section is thus overflowing while other parts of the warehouse are standing empty.

And this is precisely where chaotic storage comes in. In this sense, chaotic doesn’t mean that the items lie around haphazardly and unsorted so that people ultimately no longer know where the products are stored. It is more a case of a new, perhaps completely different item being assigned to each freed up storage space using a clever system. However, the assignment of such storage space is no longer performed by a human being, but warehouse management software, which optimizes the efficiency of the flow of goods. Strictly speaking, the chaotic solution is based on a much more complex system than fixed location storage.

However, the system is very much dependent on the functioning software, because all the storage spaces on the shelves and all the items are given bar codes so that they can be optimally stored and later found again by the warehouse employees. The bar codes are of existential importance for a functioning system, because they record all the relevant information about the item or storage location. Besides information such as article name, article number, etc., all manner of information relating to the size, volume, weight, or shelf life is also stored. The right storage strategy is then created on the basis of this information.

The information is entered and retrieved on mobile scanning devices carried around by the employees. This means that the warehouse management software always keeps the employees informed about which items have been stored in a particular space and which storage space is empty and ready to be filled again. If an employee wishes to store a new item, for instance, the software will suggest the ideal storage space based on the available information. If necessary, items can also be stored according to their importance. As such, items which are sold especially frequently are assigned to more quickly and easily accessible places than items which are not sold as often and thus less frequently accessed by the employees.

It is therefore no wonder that warehouse management software plays such a crucial role in the management and monitoring of the flow of goods. What is more, by taking on the task of charge and serial number management, it permits the tracking of every single article from the time it arrives at the warehouse to the time it leaves and beyond.

Chaotic storage requirements

In order to ensure that employees do not lose track of the process of assigning items to storage spaces, it is essential that:

• All items are digitally readable (generally by being labeled with a bar code)
• All item movements and locations are digitally recorded
• The storage requirements in relation to the products are similar (for instance, temperature, air humidity)
• Warehouse management software is available to help monitor and manage the flow of goods
• The software functions flawlessly, because if the electronic management process fails, the entire inventory must be determined manually, which takes a great deal of time and effort

The items are frequently categorized using the so-called ABC classification system: Frequently requested items (so-called fast-moving goods, group A) are positioned in the locations where they can be accessed most quickly – generally only on pallets close to where the goods are picked. Goods in group B, which are requested less frequently, are stored in central locations in the warehouse, where they can also be accessed easily. Finally, items which are ordered more rarely (group C) are stored in an area at the back of the warehouse.

In practice this type of storage with no fixed storage space allocation can only be used for items with a long storage life. Easily perishable goods (e.g. food in cold stores) or products which have to be stored under certain conditions (e.g. electronic components in dry boxes) must be handled separately. Accordingly, in practice there are also mixed concepts which involve part of the inventory being stored chaotically in free spaces, while the rest is assigned to fixed locations within the warehouse.

Compared to the rigid fixed location system, chaotic storage has the following advantages:

• Fast storage and retrieval saves time: When new items are delivered, they are immediately allocated an empty storage space by the warehouse management software without the warehouse employee having to search for a free space
• Maximum utilization of capacity: Direct and immediate storage of new goods in free locations makes optimal use of the space, minimizing empty storage spaces
• Efficient order picking: The warehouse management software always determines the most efficient processes for individual items. This shortens the distance that employees have to travel, thereby conserving energy and saving time. Consequently, more orders can be processed.
• Flexibility: It is much easier to react to changes to the product range and fluctuations in stock levels. In addition, this cuts the amount of time spent on planning, because neither the product range, nor the precise sales volume must be planned or even known in advance.
• Brief familiarization of employees: Compared to the fixed location structure, the intelligent control system reduces the training time for employees. With the fixed location solution the employees must learn the storage spaces inside out in order to be able to work efficiently. It is not necessary to be familiar with the layout of the warehouse with the chaotic concept, because this step is taken care of by the software.

In summary, it can be said that chaotic storage offers mail-order businesses more efficient storage solutions and – thanks to its digital control system – guarantees better control and transparency in relation to the flow of goods within the company. Even though its name suggests otherwise, the chaotic storage solution is more systematically structured than the fixed location system.

It only appears chaotic to human beings. For the computer, on the other hand, it is intelligent!

Central vs. decentralized warehouses

Besides the issue of individually consistent storage, companies in the area of e-commerce are also confronted with the problem of the geographical arrangement of their storage and order picking centers. Two contradictory approaches clash here: central or decentralized storage of goods.

Central storage

Since central storage solutions are responsible for supplying a considerably larger catchment area and thus must keep many more goods in stock, they are generally considerably larger in terms of volume than decentralized units.

Advantages

• Simplification: One advantage of setting up central distribution centers is the fact that intralogistics processes are simplified, because storage, retrieval, and order picking takes place in just one or a small number of locations.
• Automation: Due to the size of the centers it is often worth automating storage processes, which saves money and increases order picking speed.
• Handling: In terms of procuring machinery, storage systems, and software, warehouse management is also easier at a distribution center concentrated in one location.
• Space requirements: In addition, the supplier saves space, because they generally need fewer items in stock than would be the case if they had a number of warehouses to fill.

 Disadvantages

• Delivery times: Besides the high investment costs associated with one location, this solution also has the disadvantage that delivery times are comparatively longer due to the longer distances involved.
• Flexibility: In addition, the central warehouse doesn’t have the flexibility that smaller centers distributed across the sales region have.

Decentralized storage

However, despite the flexibility and shorter delivery channels, this concept also has a few disadvantages. For instance, it is often not possible to keep the entire product range in stock due to the limited space available. On the other hand, a certain number of particular items must be available in every warehouse, which unnecessarily increases overall stock levels. Warehouse management is also more difficult across several decentralized units than is the case in one single warehouse complex. In addition, it is often impossible to operate automation technology economically in smaller warehouses, thereby compromising picking performance and resulting in more manual work.

Ultimately, if an item isn’t available in one particular place and has to be requested from a different warehouse, this inevitably leads to longer delivery times than would be the case with a central solution.

Depending on how the priorities are weighted, each company must opt for one solution or the other on an individual basis. If the focus tends to be on ultra-fast delivery times (keyword: same-day delivery) or if perishable goods or a manageable amount of fast-moving goods are supplied, decentralized storage is the ideal option. However, if a wide range of products are kept in stock and products are sold which need to be with customers within 24 to 48 hours, the company should consider storing its goods in central distribution centers due to the associated cost benefits.

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