DESIGN OF CROSS-CHAIN INTERNET ORDER FULFILLMENT CENTRES

Transcription

1 DESIG OF CROSS-CHAI ITERET ORDER FULFILLMET CETRES Kees Jan Roodbergen Rotterdam School of Management, Erasmus Unversty, P.O. box 738, 3000 DR Rotterdam, The etherlands Irs F.A. Vs VU Unversty Amsterdam, Faculty of Economcs and Busness Admnstraton, Department of Informaton Systems and Logstcs, De Boelelaan 05, 08 HV Amsterdam, The etherlands Jaap Boter VU Unversty Amsterdam, Faculty of Economcs and Busness Admnstraton, Department of Maretng, De Boelelaan 05, 08 HV Amsterdam, The etherlands Unversty of Amsterdam, Department of Boo Studes, Oude Turfmart 4, 02 GC Amsterdam, The etherlands Abstract Many consumers have embraced the opton of orderng va the Internet, whch has resulted n an enormous ncrease n drect orders compared to the tmes when drect orderng was done by catalogue and phone. The fulfllment process n the supply chan s an mportant factor for these consumers mpactng how long they must wat between orderng and delvery. Ths fact has sgnfcantly ncreased the mportance of the bac-end fulfllment process. We present a novel supply chan desgn to enable cross-chan coordnaton of order fulfllment operatons for nternet sales. Shared warehousng facltes are used more and more to acheve compettve advantage. Ths stuaton ass for new models to enable a smooth warehousng process for each web shop, but at the same tme to ensure overall effcency and effectveness. Ths paper ntroduces a layout model for shared operatons under one roof by smultaneously optmzng the overall faclty layout and the area layout.

2 Introducton The nternet has completely changed the ways n whch people communcate. Gradually, the nternet s now also gettng a frm grp on the physcal goods flows. More and more consumers are orderng products va the web nstead of buyng them n a retal store. In 2009, nternet sales n The etherlands have shown a 7% growth compared to the year before, whch s even more notable when compared to the 7.4% decrease n tradtonal retal sales over the same tme perod []. At least one product was purchased onlne by 8.6 mllon people n the country (on a total populaton of 6 mllon) n The average number of products purchased onlne was 6.2 products at an average value of 737 euro, whch s an ncrease of respectvely 5% and 3% compared to the prevous year. Smlar trends have been notced for the rest of Europe by the research center Forrester [2]. From a logstcs pont of vew, ths sales channel swtch has an enormous mpact. Delveres to tradtonal brc-and-mortar stores can be made n relatvely large quanttes at regular ntervals. Consumers then buy the product n the store and provde an mportant logstcs servce: they transport ther own products to ther own homes for free. Wth the nternet, products are ordered n small quanttes by ndvdual consumers and the web store has to arrange for transportng the products to the consumers' home address. It s almost needless to say that ths sgnfcantly ncreases logstcs efforts n the supply chan. From the consumers' perspectve, there seems to be a desre to ncrease onlne orderng, provded that some crcumstances are mproved. An mportant lmtng factor for consumers s the delvery process. In many web stores, the consumer has no nfluence on the tmng of delvery. As a result more than 30% of all orders cannot be delvered at the frst delvery attempt. Besdes plannng, there s also the ssue of speed. Informaton gatherng and orderng s so fast on the web, that even a delvery tme of 24 hours may feel le a lfetme. In the supply chan desgn, t must be decded whch varablty to accommodate and whch varablty to reduce. And, of course, to dentfy the means to acheve ths. Gven the pervasveness of the nternet as new channel and the new challenges t poses, t s surprsng how lttle research to date has addressed the desgn of supply chans wth onlne sales channels [3]. We ntend to study the desgn of supply chan networs where shpments n small quanttes have to be made from many supplers to ndvdual consumers. Consderng the small volumes nvolved, a servce provder wll typcally accommodate the operatons for multple web stores n one networ wth shared facltes. As a result, cross-chan coordnaton s needed to fulfll the requrements of both consumers as well as supplers. We propose that an mportant role wll be played by the cross-chan control center (4C), whch has a coordnatng role, spannng across multple supply chans [4]. To better explan the 4C concept n the context of nternet orders, consder the followng example: every web shop has ts own "shoppng cart", an electronc analogy of the supermaret shoppng carts, to collect products from the web shop before proceedng to the checout

3 process. If a consumer wshes to buy products from three dfferent web shops, (s)he wll have to use three dfferent electronc shoppng carts, mae three payments, and wll have three separate home delveres of the ordered products. A company that would offer one shoppng cart that can be used to buy products at multple web shops wll mae the orderng process much easer for the consumer. Implementaton of such a concept s, however, far from straghtforward, consderng the potental consequences for nformaton sharng, contract negotatons and software nterfaces between all partes nvolved. Furthermore, the added value of the concept s only truly complete f all products from the electronc shoppng cart are also delvered to the consumer's home n one sngle shpment. Even though the above concept of a shared shoppng cart s stll a rarty, sharng of warehouse space s qute common. Even before the tmes of the nternet, there were already publc warehouses, that served multple companes. Wth the emergence of the nternet the faclty sharng, s however become dfferent n nature. Exstng facltes tend to eep processes for dfferent companes completely separated, essentally resultng n several operatons just sharng the roof and a common pool of employees. Ths s partly done, because ths maes t easer to mantan separate brandng,.e. to mae sure that pacagng, labelng and the nvoce all contan the logo of the rght web shop, not that of the 4C. The queston arses whether a hgher effcency s obtanable by more ntegraton of processes. The goal of ths paper s to show how to desgn 4C networs that effcently coordnate and ntegrate fulfllment operatons for delvery (and returns) of products from multple web stores to ndvdual consumers. Secondly, we derve a mathematcal model to determne concurrently the faclty layout and area layout for a warehouse servng multple web stores such that the operatonal effcency s optmzed. In Secton 2, we present a conceptual model how to desgn 4C networs for nternet sales. In Secton 3, we ntroduce the layout problem for shared warehouse facltes n more detal. Secton 4 shows the layout model tself. In Secton 5 we derve an estmate for the performance measure used n the model. Secton 6 presents conclusons. 2 Conceptual model to desgn cross-chan nternet order fulfllment In ths secton, we propose how to desgn a supply chan n whch onlne sales actvtes wll be outsourced to a logstcs servce provder responsble for coordnatng e- fulfllment operatons of multple web stores (.e., an 4C) to ncrease compettve advantage. Fgure depcts the physcal flows organzed n such 4C networs for nternet sales and dstngushes between the three man processes: replenshment, order fulfllment and delvery & return processes. The physcal flows depcted n Fgure can be descrbed as follows. Several companes (A-C n ths example) share an 4C networ for ther nternet sales. In such a networ, one or more shared Internet Order Fulfllment Centers (IOFC) may be avalable (here: X and Y). The IOFC(s) may be owned/operated by one of the nvolved companes or may be a separate entty.

4 Products are stored at the IOFC untl the arrval of a consumer's order. Order fulfllment operatons mae sure that the rght product s delvered to the rght consumer at the rght moment n tme. Ether the product s transshpped drectly to the home of the consumer or t s sent to a decentralzed coordnaton pont, where the product wats untl the consumer pcs t up (depcted wth numbers, 2 and 3 n Fgure ). It s also possble that a decentralzed coordnaton pont holds an nventory of products, n whch case only the order needs to be relayed f the product s locally n stoc. The decentralzed coordnaton ponts may have many dfferent manfestatons; from a consumer's perspectve some may even loo le a common retal outlet. In The etherlands, consumers have the rght by law to return products wthn 7 days and can ether send t drectly bac to the IOFC or brng t to a decentralzed coordnaton pont. The products are, thereafter, sent bac to an IOFC. For ease of readng we depct n Fgure only one delvery and return opton per IOFC. Clearly, also a mx n delvery optons can exst for each of the IOFCs. Bascally, nternet retalers compete n ther front-offce processes n attractng and servcng consumers and cooperate n ther bacoffce processes wth regards to e-fulfllment operatons. In ths way, economes of scale n handlng flows of small orders can be obtaned and the noted challenge of handlng "thnner" flows of products can be tacled. Manufacturng stes Suppler A Dstrbuton Centre of Suppler A supply Manufacturng stes Suppler B Manufacturng stes Suppler C Internet Order Fulfllment Center (IOFC) X Internet Order Fulfllment Center (IOFC) Y delvery Decentralzed coordnaton pont Decentralzed coordnaton pont 2 Customers Decentralzed coordnaton pont 3 Replenshment process Order fulfllment processes Delvery and Return process Fgure : Physcal flows n supply chans wth cross-chan e-order fulfllment centers The 4C s the coordnator n these supply chan networs and responsble for an effcent and effectve organzaton of all forward and return shpments of products.

5 Fgure 2 llustrates how nformaton flows related to the replenshment, the order fulfllment and the delvery & return processes for each web store nteract and need to be ntegrated to acheve ths. The nformaton flows can be descrbed as follows. A consumer uses the webste of a company to browse and/or purchase a product. The order s receved at the 4C and the consumer s nformed about the avalable delvery schedule. The 4C shares orders and forecasts of orders (based on nformaton on e.g., promotons of companes) wth the IOFC to mae sure that the e-fulfllment process can be executed effcently. Based on actual orders and forecasts of returns and transactons, the 4C determnes replenshment orders such that space requrements are met. These replenshments orders are submtted to the manufacturers and/or dstrbuton centers of the companes. Forecasts can, among others, be based on browsng actvtes of consumers. As can be notced from Fgures and 2, there s a drect ln between the flows of nformaton avalable, the processes to be performed and the coordnaton of the 4C. IOFC X Webste A IOFC Y DCP customers Webste B Webste C order browsng Delvery schedule 4C MC B DCP 2 DCP 3 DC A Replenshment orders MC C MC A IOFC = nternet order fulfllment center MC = manufacturng center DC = dstrbuton center DCP = decentralzed coordnaton pont Fgure 2: Informaton flows n supply chans wth an 4C to coordnate cross-chan e-order fulfllment processes An mportant challenge n ths context s to desgn methods to effcently merge flows of varous web stores n IOFCs coordnated by the 4C. Closely related to ths s the layout

6 and organzaton of the IOFCs, whch should be arranged n such a way that t ensures a smooth order fulfllment process for all nvolved companes. Despte the need for facltes to eep up wth a servce economy, the underlyng desgn methods have not yet changed accordngly [5]. In the next secton, we wll present the layout problem for an IOFC n whch multple web stores share the faclty and show the need for a new layout model n whch overall and wthn-area effcency s beng optmzed. 3 Problem descrpton The fulfllment process n the supply chan determnes for consumers how long they must wat between orderng and delvery. Ths fact has sgnfcantly ncreased the mportance of the bac-end fulfllment process. As a consequence, the functonal requrements for the IOFCs need to come to nclude capabltes to handle a hgher frequency of shpments per consumer, a smaller number of tems per order, ncreased responsveness to changes n demand, and shorter delvery deadlnes [6]. There s a need for addtonal research that helps to dentfy the magntude of the mpact of layout on total cost over the lfe of the order fulfllment centre [7,8]. Due to the labor ntensty of the order fulfllment process, any future savngs n labor may more than outwegh other desgn cost consderatons, but ths obvously needs to be nvestgated for each and every faclty desgn anew. An addtonal challenge arses when operatons for multple web stores need to be taen nto account. amely, next to effcency and costs consderatons, avodance of errors s a vtal aspect. Operatons of varous web stores should not be mxed up (e.g., a promoton leaflet of one company should not be added to the pacage of another company) to prevent effects on mage and brandng of the web stores. It s n ths space that we am to mae a contrbuton, by defnng a method that optmzes the layout of IOFCs whle smultaneously consderng wthn-area operatonal effcency. Very roughly, we may dstngush three phases n desgnng facltes. The frst phase conssts of placng the varous areas related to the varous companes wthn the faclty (e.g., [9]). The second phase conssts of determnng the detaled layout of each of the areas. The thrd phase conssts of fndng control polces that organze the processes both on a faclty level as well as for separate areas. The approach we tae heren s not the usual, myopc, analyss-based approach, but n fact ventures nto developng an ntegrated methodology that consders several aspects smultaneously. The goal of the shared faclty layout model presented n Secton 4 s to smultaneously desgn the overall layout of the faclty and the layout of each of the areas desgnated for each of the web stores to optmze operatonal effcency. amely, we formulate a lnear programmng model to determne the layout of each of the storage areas n an IOFC such that the total layout fts n the total warehouse. We assume that each area conssts of a sngle bloc wth a front and bac cross asle and that random storage s beng appled. The objectve s to mnmze the total tme requred to pc orders and replensh the tems related to these orders n all areas. We wll show n Secton 5 how to derve an estmate wthn each area for travel tmes as part of ths objectve for several well nown routng polces such as the S-Shape polcy. We relate travel tmes to

7 the number of tems to be pced n each area. Calculatons are performed on a daly base to dstngush between the worloads n each of the areas. Furthermore, we tae nto account n ths objectve, dstances to be travelled for both replenshments and order pcng from the areas to the doc doors. 4 Shared faclty layout model In ths secton, we derve a shared faclty layout model to smultaneously determne the faclty layout and area layouts. Frst, we defne the requred parameters and varables. Important nput conssts of faclty specfc nformaton (e.g., total avalable space, wdth and depth of faclty, products beng stored and number of web stores), specfc nformaton for each area n the faclty (e.g., asle wdth, cross asle wdth, requred capacty) and web store customers' nformaton (e.g., sze of orders). Travel tmes for both replenshments and pcng wthn and between areas, whch depend on the layout of the specfc area and the number of pcs, are beng consdered. Parameters: Z set of areas for Z companes E maxmum number of empty areas used to fll up total area A total avalable space (.e. storage area) n warehouse (meters 2 ). Clearly, A = W*D W wdth of the storage area D depth of the storage area maxmum number of asles to be used for each of the areas M maxmum number of pcs n a sngle order pcng route J total number of products to be stored u m probablty that a pc lst n area ( Z) contans m tems ( m M ) λ number of orders per day n area ( Z) α average number of orders that can be collected of a pallet n area ( Z) w asle wdth n area ( Z) v cross asle wdth n area ( Z) T total travel tme requred to perform pcng (gven a certan routng polcy) for a sngle route n area ( Z) R total travel tme requred to perform replenshments (gven sngle command) for orders n a sngle route n area ( Z) g' m average travel dstance wthn asles for area ( Z) wth ( ) asles, 2 cross asles and m ( m M) pcs n an order. h' m average travel dstance wthn cross-asles for area ( Z) wth ( ) asles, 2 cross asles and m ( m M) pcs n an order. S total length of area ( Z) expressed n meters. Ths total length needs to be chosen such that there s suffcent space to store all products n ths area. K large nteger value The values of g' m and h' m can be determned upfront for each combnaton (,,m) and a routng polcy. We wll show n Secton 5 how these values can be obtaned and

8 used for the S-shape routng polcy. We dstngush between two categores of decson varables. On one hand, we have common faclty layout varables to assgn areas to specfc postons n the warehouse. Empty areas are also set to mae sure that the total area s beng used. In defnng X and Y coordnates to represent the locaton of a department, we assume that the doc doors are located at the lower end of the area (.e., y-coordnate equals zero). The other group of varables presents the sze and layout of each area. Varable: A sze of area ( Z) n meters 2 E c sze of empty area c ( c E) n meters 2 n number of asles n area ( Z) q = f the value of ( =.. n ) s equal to the number of asles n n area for ( Z). Else, q = 0 l length of each asle n area ( Z) x horzontal poston of the upper left corner of area ( Z) y vertcal poston of the upper left corner of area ( Z) x p = f area j rght of area. Else, p = 0 x j p = f area j rght of area. Else, p y = 0 y j j j The objectve of the model s to mnmze the total tme requred to pc orders and replensh the tems related to these orders n all areas and conssts of wthn and between area travel tmes. These travel tmes can be estmated based on the values of the varables obtaned n the model. We wll explan how to derve travel tme estmates for T and R for a certan routng polcy wthn-areas n Secton 5. The shared faclty model can now be formulated as follows: Model: Z M Mn [ um λ { R + T }] + [( y l ) λ ( + α )] m= = = Z Constrants: () q = Z = (2) q = n, Z, =.. (3) Z E = c= A + E = A c

9 (4) n l = S Z (5) A = w S + 2 n w v Z (6) x 0 Z (7) x W ( n w ) Z (8) y D Z (9) y ( l + 2 v ) 0 Z x x (0) p + p =, j j y y () p + p =, j j x (2) ( x + n w ) x K ( p ), j j x (3) ( x + n w ) x K( p ), j j j j y (4) ( y + l + 2 v ) y K ( p ), j j j j y (5) ( y + l + 2 v ) y K ( p ), j j (6) A 0 Z (7) E j 0 j =.. E (8) n 0 Z (9) l 0 Z (20) x, y 0 Z x y (2) p, p {0,}, j j (22) p {0,} Z, =.. Constrants () and (2) ensure that q s set to one for all = n and otherwse q = 0. These constrants are requred to calculate the values of T and R and wll be explaned n more detal n the next secton. Equaton (3) ndcates that the complete storage space avalable s flled by areas for Z companes and further E remanng areas wth empty space. ot necessarly all empty areas E are requred and as a result for some of these areas the soluton E c = 0 mght be obtaned. o addtonal constrants are requred for these empty areas where as they are drectly created from the empty space between the varous areas. Equaton (4) ndcates that the total length of area equals the product of the number of asles n that area and ther respectve lengths. Clearly, each asle has the same length wthn a area. Wth Equaton (5) we calculate the surface of each of the areas. Ths surface conssts of space requred for the asles and the cross asles. Combnng constrants (3) and (5) maes sure that no more than the avalable space wll be used. So far, we have ensured that n total no more square meters are used than avalable. However, we do not test f t s possble to ft all areas wthn the area such that length

10 and wde constrants are met. Therefore, we need to perform a feasblty chec by dervng the locaton of the system wthn the area. Equatons (6) and (7) chec that horzontal coordnate of the upper left corner s chosen such that total area fts wthn the gven wdth of the area. amely, wth equaton (7) we mae sure that the dstance from the upper left corner to the outer boundary of the total area s smaller than the total wdth of the area. In equaton (8) we ndcate that the upper left corner can never be located outsde the vertcal boundary D of the total area. Furthermore, the dstance, ncludng asle length and the wdth of both cross asles, from the upper left corner to the lower left corner needs to be larger than 0 as expressed n equaton (9). Fnally, we need to mae sure that the areas do not overlap. Frst, we use equaton (0) to ensure that ether area j s located at the rght of area or the other way round. Smlar, ths holds n equaton () for the vertcal postonng. Secondly, f area j s postoned rght of area, the followng constrant should hold: x + n *w x j. We can use the logcal expressons of equatons (2) and (3) to ncorporate both f-condtons for the horzontal postonng. Smlar condtons (4) and (5) can be derved for the vertcal postonng. The remanng constrants defne the non-negatve and bnary constrants. Thus, we try to fnd values for n, l and A for each of the areas ( Z) such that both replenshment and order pcng dstances and handlng tmes are beng mnmzed. The method can be used for any routng method. In the next secton, we wll show how a lnear estmate can be derved for one commonly used routng polcy, namely S-shape. In a smlar way, estmates can be derved for other routng polces, as largest gap, combned and asle-by-asle. We refer to [0] for a detaled descrpton of these routng polces. 5 Lnear estmates travel dstances In ths secton, we wll show how to derve lnear estmates for the average order pcng and replenshment travel dstances. Both the terms R and T n the objectve requre some addtonal nformaton. amely, we need lnear estmates to determne these travel tmes. Frst, we wll derve a lnear estmate for T.Based on the results n Roodbergen and Vs [] we use the property that the travel tme wthn an area exst of travelng wthn asles and travelng wthn cross asles and depends on the number of asles and the number of pcs per route. The values for g m and h m for S-shape routng can be derved smlar to the procedure descrbed n [2]. The number of asles, however, s a varable n the model. As a result, we need the bnary varable q that can be used n combnaton wth constrants (3) and (4) to ndcate the number of asles as found n the soluton. We now can express T as follows: (23) T = q ( g l ) + ( h w ). m m = =

11 The frst part of equaton (23) s however not lnear, due to the fact that both q and l are varables n the model. Therefore, we need to reformulate ths part of equaton (23). S Frst of all, we now that l =. As a result, equaton (23) becomes: (23') T = S q ( g ) + ( h w ). n m n m = = As explaned the values for g m Therefore, we can use the term n to adjust the values of g m model. Clearly, g m g m are nown and depend on the number of asles. =. The values of the g m ( 2 ) to g m before we solve the then become g 2 respectvely m g3m gm g 2 m = 2, g3m = 3,.., gm =. As a result, we get a lnear estmate for T wth equaton (23). (23') T = S q ( g ) + ( h w ). m m = = Smlar, we can formulate an expresson for R. Sngle command operatons are beng performed to replensh products at a certan locaton. For each locaton to be vsted n an order, a replenshment needs to be performed. Therefore, we need to nclude the order sze m n ths estmate. Wth a sngle pallet multple orders can be replenshed. As a result, we need to dvde the replenshment tme by the number of orders that can be replenshed to get a replenshment tme per order. Furthermore, we follow the same procedure as ntroduced for T. Except ths tme, we only need to use the values g and h to get the order pcng and replenshment travel tme related to performng a sngle command operaton. Thus, m (24) R = [{ S q ( g)} + { ( h w )}] { α } = = 6 Conclusons Consumers have adopted nternet as a valuable sales channel and t s reasonable to expect a further sgnfcant growth of the onlne retal sales, whch emphaszes the need for mproved ways of handlng the product flows effcently and effectvely. In ths paper, we presented a new concept to desgn supply chans for onlne shoppng and proposed a new model to derve the layout of shared nternet order fulfllment centers for multple web stores. We showed n Secton 2 that an mportant role n ths type of supply chans can be played by a cross-chan control center (4C), whch has a coordnatng role, spannng across multple supply chans. In Secton 3-5 we derve a mathematcal model to concurrently desgn the faclty layout and area layout for each web store whle mnmzng travel tmes.

12 Acnowledgements Ths wor was supported by Dutch Insttute for Advanced Logstcs (DIALOG), Grant R. References [] (vsted Aprl 5, 200) [2] Keunng, W., De onlne shop groet, crss of net, De Volsrant (29 maart 200). [3] Hll, A., Coller, D., Froehle, C., Goodale, J., Metters, R. and Verma, R., "Research opportuntes n servce process desgn," Journal of Operatons Management, 20, (2002). [4] Commsse Van Laarhoven, Logste en Supply Chans: Innovateprogramma, The etherlands. [5] Cross, C.S., "Warehouse desgn elmnates slm pcngs," Industral Engneer 38, 0, (2006). [6] Olson, D.R. (994), Desgnng and mplementng order pcng systems. In: Perspectves on Materal Handlng Practce, Materal Handlng Insttute, Charlotte, orth Carolna, -24 [7] Gu, J., Goetschalcx, M. and McGnns, L.F. "Research on warehouse operaton: A comprehensve revew," European Journal of Operatonal Research 77, -2 (2007). [8] Gu, J., Goetschalcx, M. and McGnns, L.F. "Research on Warehouse Desgn and Performance Evaluaton: A Comprehensve Revew," European Journal of Operatonal Research 203(3), (200). [9] Meller, R.D. and Gau, K.Y. "The faclty layout problem: recent and emergng trends and perspectves," Journal of Manufacturng Systems 5(5), (996). [0] Roodbergen, K.J. and De Koster, R. Routng methods for warehouses wth multple cross asles, Internatonal Journal of Producton Research, 39 (9), (200). [] Roodbergen, K.J. and Vs, I.F.A. "A model for warehouse layout,", IIE Transactons 38, (2006). [2] Vs, I.F.A. and Roodbergen, K.J. "Smple procedures for warehouse layout optmzaton," Progress n materal handlng research: 2006, R Meller et al. (eds), Materal Handlng Insttute, Charlotte, orth Carolna, (2006).