Forward-Reserve Storage Strategies with Order Picking: When Do They Pay Off?

52 Pages Posted: 23 Sep 2018 Last revised: 27 Feb 2019

See all articles by Wan Wu

Wan Wu

University of Science and Technology of China (USTC)

M. B. M. de Koster

Erasmus University Rotterdam (EUR) - Department of Technology and Operations Management

Yugang Yu

University of Science and Technology of China (USTC)

Date Written: September 4, 2018

Abstract

Customer order response time and system throughput capacity are key performance measures in warehouses, which depend strongly on the storage strategies deployed. One popular strategy is to split inventory into a bulk storage and a pick stock, or forward-reserve (FR) storage. Managers often use a rule of thumb: when the ratio m of average picks per replenishment is larger than a certain factor, it is beneficial to split inventory. However, research that systematically quantifies the benefits is lacking. We quantify the benefits analytically by developing response travel time models for FR storage in an Automated Storage/Retrieval system combined with order picking stations. We compare performance of FR storage with turnover class-based storage, and find when it pays off. Our findings illustrate that, in FR storage systems where forward and reserve stocks are stored in the same rack, FR storage usually pays off, as long as m is strictly larger than 1. The response time savings can go up to 50% when m is larger than 10. We validate these results using real data from a wholesale distributor. For generic replenishment systems, with manual or out-of-rack replenishments, the ratio m should be larger, up to 3, to justify FR storage.

Keywords: warehousing; forward-reserve storage; order picking; storage strategies

JEL Classification: M, M11, R4, C6, L9

Suggested Citation

Wu, Wan and de Koster, M.B.M. René and Yu, Yugang, Forward-Reserve Storage Strategies with Order Picking: When Do They Pay Off? (September 4, 2018). Available at SSRN: https://ssrn.com/abstract=3243879 or http://dx.doi.org/10.2139/ssrn.3243879

Wan Wu

University of Science and Technology of China (USTC) ( email )

96, Jinzhai Road
Hefei, Anhui 230026
China

M.B.M. René De Koster

Erasmus University Rotterdam (EUR) - Department of Technology and Operations Management ( email )

RSM Erasmus University
PO Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1719 (Phone)
+31 10 408 9014 (Fax)

HOME PAGE: http://www.rsm.nl/rdekoster

Yugang Yu (Contact Author)

University of Science and Technology of China (USTC) ( email )

96, Jinzhai Road
Hefei, Anhui 230026
China

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