ELSEVIER

An integrated storage system evaluation model

Charles J. Malmborg
Department
NY, USA

of Decision

Sciences

and Engineering

Systems,

Rensselaer

Polytechnic

Institute,

Troy,

A modelling strategy is presented that links three major policy issues associated with the distribution systems serving a random process of item retrieval demand. These issues include inventory management, space allocation between reserve and retrieval storage areas, and storage area layout. The analytical base for system cost components related to these policies is derived and incorporated into a computational eualuation model. A sample problem is used to demonstrate the model for analyzing costs associated with the design and operation of a distribution system.

Keywords: inventory,
item retrieval

storage layout, dedicated

storage, randomized

storage, replenishment,

reserve storage,

1. Introduction For storage systems that serve random item demands, service costs consist of capital and operating expenses associated with the facility design and its orderpicking and stock management functions. These costs are influenced by a range of management issues that include inventory policies for individual items, the volume of storage capacity allocated to item retrieval versus reserve storage areas, and the storage layout of a facility. Even when seemingly complex modelling tools are applied, policy decisions tend to follow a sequential strategy. For example, item stock levels are usually based on inventory related costs without explicit consideration of item retrieval costs. Tools exist for aggregate space allocation between reserve storage and picking areas but they do not generally consider storage layout alternatives or shortage costs in a retrieval area.3 Models have been successfully applied to evaluate alternative storage layout policies based on item retrieval costs but generally assume fixed replenishment levels for the items in a retrieval area.4 Modeling tools developed to address dependencies between these policy areas have generally focused on two of the three areas that are less commonly integrated in a single tool. For example, modeling tools have addressed such airwise dependencies as inventory and item retrieval costsB- or storage layout and space requirements. Failure to address simultaneously the three policy areas in applications where a distribution system serves a random process

of retrieval transactions can be a significant design limitation. Due to the analytical complexity of the problem, an effective design strategy relies on practical decision support tools that facilitate evaluation of system alternatives characterized by a range of design variables representing the three policy areas. The purpose of this study is to introduce an integrated computational performance evaluation model applicable to storage and retrieval systems serving a random process of retrieval transactions, The model characterizes cost relationships associated with item stocking policies, aggregate space allocation, and storage layout. Although the model does not provide a closed formulation amenable to indirect optimization methods, it does provide a computational linkage between the decision variables defining the three policy areas. As such it can facilitate the enumeration of a broadly defined solution space. The next section describes the application problem in more detail and presents assumptions that define a representative application. Based on these assumptions, the analytical strategy for the evaluation of the major cost components is defined. The third section presents a sample problem and illustrates the application of the computational tool in a simple study of the impact of alternative allocations of space between items in a retrieval area. The final section offers a summary and conclusions.

2. Model description
Address reprint requests to Dr. MaImborg at the Department of Decision Sciences and Engineering Systems, Rensselaer Polytechnic Institute, Troy, NY 12180-3590. USA. Received 1995 24 October 1994; revised 3 July 1995; accepted 15 August

The present study assumes that a distribution system procures products in economic lot sizes of items, stores the items at the point of distribution, and distributes unit quantities on demand. An example of this type of system is a spare parts distribution center. A conceptual sketch of

Appl. Math. Modelling 1996, Vol. 20, May 0 1996 by Elsevier Science Inc. 655 Avenue of the Americas, New York, NY 10010

0307-904X/96/$15.00 SSDI 0307-904X(95)00128-X

An integrated

storage system evaluation

model: C. J. Malmborg item retrieval policies is also the focus of an extensive body of modeling literature (see Refs. 14 and 15 for recent surveys). Several of these model based procedures have focused on integration of two of the three major policy areas. Examples in this area include models dealing with simultaneous development of inventory/retrieval policies and storage layout/space allocation policies.5,8P2~16 However, most published studies have focused on a single aspect of the problem. Examples include work focused on models of retrieval performance,7-20 storage area layout,4,18,21 unit load sizing,23 sizing of reserve and retrieval storage,3,24 retrieval area design,25-27 and other individual aspects of distribution system problems. This study addresses the integration of the three major policy areas affecting distribution systems. Table 1 summarizes notation for the parameters and variables included in the collective scope of these policies. The policy areas most closely related to each of the parameters defined in Table 1 are {Qi, qi, si, ei, ci, K,, A, ui, I), inventory management policy; {Ri, rr, Ai, k,, ui, P, p}, reserve versus retrieval storage capacity; and {CO, A S,, Nk, Mk, tjk}, retrieval area storage layout. As would be the case in most practical applications, certain relationships are assumed to hold between the parameter values described in Table 1. First, it is assumed

the distribution system is shown in Figure 1. The system depicted in Figure 1 is subdivided into a reserve storage and retrieval area. During operating periods, orderpickers retrieve items stored in the retrieval area in response to a random demand process. Following each operating period, the retrieval area is restocked from the reserve storage area in anticipation of the next operating period. It is assumed that each order is retrieved individually in response to a transaction demand with the item placed on an accumulation device by orderpickers in the retrieval area for immediate transfer to the point of delivery. As mentioned earlier, the cost of service in this system is influenced by management policies that include inventory management for individual items, the allocation of space between reserve storage and retrieval storage, and the retrieval area storage layout. The use of a sequential approach to the development of these three policies is not surprising given the extensive literature of analysis tools focused on the individual policy decisions. With respect to item stocking policies in reserve storage, extensive surveys of modelling tools applicable to lot sizing have been done 2,10-12 Specialized lot sizing tools have been developed for multiitem spare parts distribution systemsl,9,13 similar to the case envisioned in this study. Model-based analysis of

Table 1.
Q

Notation defining variables and parameters

included in the collective scope of the three policy areas

;.

ri

si 4

ei fi i Ci Ki ki i I P P CO A
sk

Nk %
rjk

the total order quantity for item i for i= 1,. , N the reorder point for item i for i = 1,. . , N the replenishment quantity for item i in the retrieval areafor i= I,..., N the retrieval area replenishment reorder point i = 1,. , N the safety stock for item i in the reserve storage area for i= I,..., N the average cost of a stockout for item i in the retrieval area, i= 1,. , N (where all stockouts are assumed to result in lost sales) the cost of expediting item i when a stockout occurs in the reserve storage area the demand rate per operating period, i = 1,. . , N the average lead time in operating periods for item i, i= 1,..., N the cost per unit for item i, i = 1,. , N the average reordering cost for item i, i = 1,. , N the average cost to replenish item i in the retrieval area i=l,..., N the number of storage spaces in the retrieval area required per unit of item i, i= I,. . . , N the average carrying charge associated with inventory (excluding physical storage costs) the cost per storage unit of space in the reserve storage area the cost per storage unit of space in the retrieval area the cost per unit time of orderpickers performing item retrieval operations the number of storage aisles in the retrieval area the number of unit storage spaces in aisle k of the item retrieval area, k = 1,. . , A the number of items assigned to aisle k, k = 1,. . , A the set of items assigned to aisle k for k = 1,. , A the time required to retrieve an item from location j in aisle kfor j= I,..., Sk and k= I,..., A

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An integrated storage system evaluation model: C. J. Malmborg

ment. Therefore this study will assume that parameter I from Table 1 addresses holding costs apart from physical storage costs, i.e., it captures the time value of funds invested in inventory and other cost components not directly proportional to physical storage costs. With the Qi and q, values fixed, a sequential approach to the determination of the Ri and ri values could be based on the costs of shortages, retrievals, and replenishments. If inadequate stock for an item is maintained in the retrieval area, it can result in stockouts during the operating period and/or excessive costs associated with replenishment of the retrieval area. The disadvantage associated with increasing the amount of stock for an item in the retrieval area is that it creates increased orderpicker travel during retrieval work cycles and consumes costly retrieval space that could be saved or allocated to other items. A policy decision closely related to the determination of Ri concerns the replenishment criteria for item i. It is assumed that the replenishment decision is based on the stock level of an item at the completion of the operating period. In particular if the stock level for item i falls below ri + 1 at the end of the operating period, then it is brought up to R, during the replenishment cycle that occurs between operating periods. Therefore determination of the R, and ri parameters are interrelated in a manner analogous to the Qi and qi values. The major cost elements associated with the operation of the distribution system include item reordering, inventory carrying (exclusive of physical storage costs), expediting, item retrieval, stockouts in the retrieval area, item replenishment, and physical storage space. Some of these costs can be determined readily once the values of the policy variables are fixed. The evaluation of these cost elements relative to the Qi, qi, Ri, and ri parameters and the storage policy are described below.

High Density Rcsemc Smagc (Rcplcmshment)

Figure 1.
point.

The storage system configuration.

0,

load transfer

that e, >> K,, which implies that shortages in the reserve storage area are relatively uncommon since expediting costs are high relative to reordering costs. As a result, stockouts in the reserve storage area are assumed to be too infrequent to significantly influence the replenishment process. Second, p > p, which implies that shelf space in the orderpicking or retail area is scarce relative to the reserve storage area where high density storage methods can be used without concern over item accessibility. Third, it is assumed that, r, < Ri < Qi, for i = 1,. . . N, which implies that only a subset of the total inventory for any given item is stored in the retrieval area with the remainder held in the reserve storage area. The stock management policy reserves spaces for R, units of item i in the retrieval area and restocks the retrieval area up to Ri units when the stock level goes below ri + 1. Finally, it is assumed that no replenishment of the retrieval area occurs during operating periods. Traditionally the approach to determination of the Qi and qi values in a retail context such as a spare parts distribution system is based on a tradeoff between ordering, carrying, and expediting costs. in this case either a fixed storage facility is assumed (which may be unlimited in capacity or constrained to a specific maximum) or physical storage costs are assumed to be captured in a carrying charge parameter. The carrying charge parameter (defined as I in Table I) represents a proportion of the value of stored items which is charged as a cost associated with keeping them in inventory. Both approaches are inadequate for distribution centers since they do not address the partitioning of the facility between reserve/retrieval storage or the direct costs of item retrieval/replenish-

2.1 Inventory ordering, carrying, and expediting costs To illustrate the calculation of inventory costs, virtually any strategy for setting Qi and qi values could be assumed. With the expediting assumption, the average length of time that an item is completely out of stock (i.e., in both the reserve storage and retrieval areas) will be relatively small. Therefore a satisfactory approximation of item ordering costs is given by:

i=l

5Ki( L/Q,)

Similarly inventory carrying costs exclusive of storage can be approximated based on the average safety stock for item i, si. Letting hi(x) denote the marginal probability distribution of lead time demand based on the average lead time for item i, vi, and recognizing the expediting assumption, we obtain si= J? (q,-x),(x) + 2 ,(x>Qi .X=qi

x=0

for i= l,...,N

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model: C. J. Malmborg arising from randomized storage can result in reduced orderpicker travel times that actually offset the retrieval advantage of dedicated storage.8) A recent discussion exists of alternative dedicated and randomized storage layout policies.28 For the distribution system envisioned in the present study, the simplest layout alternative from a modelling perspective is dedicated storage. In this case item locations, and therefore retrieval times, are known with retrieval and replenishment costs easily computed. For example the expected cost per unit time for item retrieval with dedicated storage can be approximated using

Assuming that the inventory level for item i fluctuates approximately uniformly between the maximum value Qi + s, and the average minimum value of si, we obtain carrying costs exclusive of physical storage costs for item i: Ici[

Qi/2 + Si]

The cost of expediting for item i can be approximated using the product of the number of reordering cycles per unit time and the probability of a stockout during the reordering cycle:

IR, = CO i:
Therefore total inventory related costs for items in the distribution center, exclusive of physical storage costs, can be approximated by
K,+e, f
x=9,

5 [(t,d)/(h)]Xi,k

hi(x)

+ Zci[ Q/2

+ si]

where x,]~ is a binary variable equal to 1 if item i is assigned to location j in aisle k, and 0 otherwise. With the values of Ri fixed for i = 1,. . . , N, and assuming no item splitting between aisles, it follows that S,= c
icM,

uiRi fork=

l,...,A

2.2 Item retrieval and storage capacity costs The evaluation of costs associated with physical storage of items, item retrieval, stockouts in the retrieval area, and physical storage space are more complex. Among other factors, these costs are influenced by the configuration of the storage facility. Parameters defining this configuration are the number of storage aisles in the retrieval area and the number of storage locations in each aisle. Depending on the application, these values could be fixed parameters or decision variables. In the present study, we will assume that the values of Ri and the allocation of item combinations to aisles, i.e., Mk, for k = 1,. . . , A, determine the length of storage aisles in the retrieval area, i.e., the S, values for k = 1, . . . , A. For the type of application envisioned in this study, the Mk assignments are often based on item compatibility criteria. The product of the time required for the average item retrieval work cycle and the cost per unit time of orderpickers can be used to approximate the cost of item retrieval. The average retrieval time is a function of the storage layout. Two types of extreme storage layout policies are dedicated and randomized storage. With dedicated storage individual storage locations are reserved for specific items. With randomized storage a dispatching rule influenced by the random pattern of retrieval demand results in random item locations over different time periods, e.g., incoming items are dispatched by storing them in the closest open location within the aisle. Systems that utilize randomized storage tend to minimize space requirements but may be less efficient in retrieval since they do not consider retrieval demand characteristics in the storage layout. Systems utilizing dedicated storage tend to be efficient in retrieval but may require more space since unused locations reserved for specific items cannot be utilized by other items. (In some cases the space savings

for the case of dedicated storage. The specification of the x,,~ decision variables (and therefore the Mk values) defines the dedicated storage layout. In certain cases, it is possible to apply storage assignment rules that define xijk for i = 1, . . . , N, j = 1,. . . , S,, and k = 1,. . . ,A to minimize IR,.** For example with the storage facility shown in Figure 1, only one item is retrieved on each cycle and there is a single load transfer point in each aisle. Therefore, for a given item-to-aisle assignment, IR, can be minimized by assigning items to locations within the aisle based on the ratio of space requirements to retrieval demand. That is if the item population in aisle k is assigned to the lowest cost locations in accordance with the rank ordering given by

it is possible to show that IR, would be minimized for fixed values of Ri and Mk. A more extensive discussion of storage assignment rules for optimization of ZR, is provided elsewhere. 4,22 The issue of importance in the present study is that the solution to the dedicated storage layout problem is conditional on the values of Ri for i=l , . , N and Mk for k = 1,. . . , A. A more complex modelling problem arises with randomized storage layout where the assumption of fixed item-to-location assignments is relaxed. Consider a policy where the Mk values are fixed based on item compatibility but randomized storage is utilized within aisles. Such a policy has the potential to provide for coherent item groupings while achieving the majority of the space savings associated with purely randomized storage.8 However estimation of retrieval costs for this policy would require knowledge of the average number of spaces utilized within the aisle as a function of the Mk item-to-aisle assignments. The average retrieval cycle time for an aisle could then be approximated by the average retrieval time for the locations in that aisle since each location is equally likely to be accessed with randomized storage.

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An integrated With the average number of spaces utilized in an aisle a function of Mk for k = 1,. . . , A and R, for i = 1,. . . , N, this value can be approximated directly from the probability distribution of the number of units of each item in each aisle at the start of the operating period. It is necessary to consider the start of the operating period since the stock level in the retrieval area is at its daily maximum immediately following the replenishment cycle. Let rriky denote the probability that the stock level of item i in aisle k at the start of the operating period is y, where i = 1,. . . , Nk, k=l , . . . , A, and y = ri + 1,. . . , R;. Since an item will be replenished up to level Rj if the stock level falls below ri + 1 at the end of the orderpicking cycle, the stock level of the item at the start of the orderpicking cycle will vary only between ri + 1 and Ri. The probability distribution of the number of units in the retrieval area at the start of the orderpicking period can therefore be derived using a Markov chain of the form
ri + 1
ri+l PO

storage

system

evaluation

model:

C. J. Malmborg

The pkz terms represent the joint probabilities that the number of storage locations utilized in aisle k at the start of the order-picking period under randomized storage is z. These values can be approximated using
Pkz= 2 5 5 ... y zc fi rJq_,=O TNI=oy=l r,=o r,=O r,=O rrTZkry

where z2 = 2 - rl
z3 = z - r, - r2

k-l zk =z C
i=l

ri

ri + 2 0 PO

ri+3
0 0

...
... ...
ZNk-l = z -

N,-2 c i= 1 N=Nk = z-

ri and

ri+2 r,+3

p1 P2

Pl

PO

... ... ... ...

Cri
i= 1

Ri-2
RiRi 1

PR-r-3 PR-r-2 PRprp1

PR-r-4 PR-r-3 PR-r-2

PR+PS PRprp4 PR-r-3

... . ...

R,-2
0 0 0

R,-1 0 0 0

R, P21 P22 P23

PO Pl P2

0 Pl PI

P2R-r-2 P2R-r-1
PO +P2R-r

The pkr joint probabilities represent a numerically rigorous strategy for computing the state probabilities associated with the number of spaces required in the retrieval area at the start of the orderpicking period. Unfortunately the magnitude of the calculation increases rapidly with the product Nk( R,-ri-1). Given the state probability distributions at the start of the orderpicking period, the retrieval cost associated with randomized storage could be obtained using the expected maximum number of spaces utilized in aisle k. This maximum has a theoretical upper bound equal to the sum of the Ri values for the items assigned to an aisle. However unless the retrieval demand for all items is very large relative to R,, the maximum will tend to be smaller in practice since the probability of all items in the aisle being replenished during the same replenishment cycle is small. To develop a practical estimate of this maximum, consider a limiting probability value for aisle k, 6,. This limiting value can be used to find the practical maximum number of spaces utilized in aisle k as the smallest value, S;, satisfying ;
j=l

where p, represents the probability that the retrieval demand for item i will be x unit loads over the orderpicking period. The steady-state vector for the Markov chain approximates the probability distribution of the number of unit loads of item i in aisle k at the start of the orderpicking and is denoted as

Pki 2 Sk

In this context, 6, represents a cutoff value (e.g., 6, = 0.9999) beyond which the pkj probability values are insignificant. With this definition we can compute the expected retrieval cost for aisle k as

The nik item probability distributions can be used to generate state probabilities for the total stock level of all items in aisle k of the form pkq for z = zmin, z,,,~,,+ 1,. . . , z,,, where: z,,,~= c
ichf,

ri + 1 and z,,,

= Sk

Thus the policy decision concerning randomized versus dedicated storage requires comparisons of retrieval costs JR, versus IR, and the costs of physical storage capacity. Physical storage costs are comprised of storage costs in the

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model:

C. J. Malmborg generate these cumulative probabilities, we can exploit the fact that the stock level for item i in the retrieval area at the end of the ordering period fluctuates between 0 and Ri for i= l,..., N. The Markov chain shown below describes this variation as a function of item demand:
0 0 1 1
PRi-I
h-1

retrieval and reserve storage areas. In the retrieval physical storage costs are given by p i
k=l

area,

S, and p 2
k=l

S;

for dedicated and randomized storage, respectively, where both the Sk and S; values are directly influenced by the Ri values for i = 1 , . . . , N. Since the reserve storage area must be designed to accommodate lot size receipts of all items, a reasonable estimate of physical storage costs is given by
N

ri

ri + 1

PZR,
PzR,

PRt-ri PRt-ri

PI?-rt-I
PRI-rtI

r* ri +

PZR,
1

h-1

PRi-ri
Pl

P/Z-,,PO
Pl

P C Qz + Si
i=
1

P>ri+l Px
r,+2

Prt P,r+1

. .
. . .

r; +2

P2

Thus the expected cost of space and item retrieval the optimal storage policy is given by ISR=min i
N

under
R,-1 Ri
PrRt~l

PR, h-1

... ..

PRi-ri-1 &-r~

PRi-~1-2 PRr-rr1

PaRt

IR,,+p$S,,IR,+ptS;
k=l

ri+2 k=l
PRi-ri-2 h-r,-2

...
.

Ri-1
Pl Pl

R, PO PO

+PxQi+Si i= I

..
PRi-ri-2

2.3 Shortage

and replenishment

costs

0 PO

Pl 0 0

PO 0 0

Shortage costs for an item occur when there is insufficient stock in the retrieval area to meet demand during the operating period. The expected number of shortages can be determined directly from the rriTikvectors and the f, demand distributions for i = 1,. . . , N. In particular if we assume that stockouts in the reserve storage area are relatively rare, the expected value of the number of shortages resulting from stockouts in the retrieval area can be estimated using the expected value

.
PRi-rr-3 h-r,-2 . PO

0 PO

Pl

?
i= 1

A,

5
r=r,+ 1

k
y=r,+l

(zey)Tiky)Piz

where p, once again represents the probability that the demand for item i is equal to x. For the case of stock levels in the retrieval area at the end of the operating period, the steady-state vector describing the probability distribution of the stock level for item i in aisle k is denoted as Tik = (rjk0 ,rikl, * 2ikRi- 1YTikRl )

where piz denotes the probability that the demand for item i is z during the operating period for i = 1,. . . , N. Since 7rrky = 0 for y > R,, i = l,.. ., N, the expression above can be written as

These probabilities can be applied to approximate of replenishment per operating period as

N EL) i=l 4 i y=o r, 7y

the cost

Replenishment costs are determined by the frequency of replenishments as opposed to the volume of units replenished since it is assumed that as many units as required for a given item are supplied in the replenishment work cycle. (However, assuming variable replenishment costs for different items would be a straightforward extension of the approach described below.) For a given item, the number of replenishments per operating period is a function of the amount of stock on hand in the retrieval area at the end of the operating period. In particular it is necessary to estimate the probability that this stock level is li or less. To

Thus, the costs of shortages in the retrieval replenishment are given by: IR= 5
i=l

area and item

hi

5
z=r,+l

i
i y=r*+ 1

(Z-y)riky
I

piz

+ck,
i=l

&
( y=o )

In the next section a sample problem is presented illustrates the application of the cost model.

that

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An integrated 3. Sample problem As described in the preceding section, the total facility and operating costs for the distribution center can be approximated using ZM + ZSR + ZR. That is total costs are given by the costs associated with the inventory management, reserve storage space allocation, and retrieval area storage layout policies. Using the integrated cost model, it is possible to create a computational tool to enable decisionmakers to study the cost effects of alternative policy scenarios. Specifically the model could be applied in a direct optimization scheme integrating the three policy
Table2. Item
1

storage system evaluation

model: C. J. Malmborg

areas. For example a direct optimization search routine may fix an inventory management policy in terms of the Qi, q,, and si decision variables. With these values fixed, the system could enumerate alternative space allocations between reserve and retrieval area storage through variation of the Ri and ri decision variables. For each space allocation, conditionally optimal storage configurations and layouts in terms of the S,, Nkr and Mk decision variables could be determined. Ultimately, overall policy optimization could be achieved through enumeration of alternative inventory management policies. The development of an

Initial item parameter fi 28.23 13.32 10.54 9.06 8.10 7.41 6.88 6.46 6.11 5.81 5.56 5.34 5.15 4.98 4.82 4.68 4.55 4.44 4.33 4.23 4.14 4.05 3.97 3.89 3.82 3.76 3.69 3.63 3.57 3.52 3.47 3.42 3.37 3.33 3.28 3.24 3.20 3.17 3.13 3.09 3.06 3.03 3.00 2.96 2.94 2.91 2.88 2.85 2.83 2.80 Qi 120.50 61.12 150.88 36.80 29.80 26.97 30.19 32.50 23.04 36.65 26.35 41.66 24.10 23.33 53.05 27.78 26.27 53.48 20.41 95.57 29.03 28.46 19.72 55.30 36.94 90.06 23.82 22.11 27.79 17.53 21.95 45.30 22.65 63.20 17.53 39.68 18.77 22.55 19.49 81.75 18.18 22.30 64.61 23.91 20.06 21.56 20.71 58.50 24.70 33.01

values in the sample problem

4i Ri ri ei i ci k K; i

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

36.35 35.04 29.48 26.24 24.32 22.93 29.04 13.99 20.62 31.66 30.36 12.01 11.81 28.02 22.87 27.13 16.35 10.52 21.39 10.03 9.64 9.85 20.31 15.32 14.02 17.06 21.72 21.77 9.08 22.49 14.47 16.35 14.28 8.54 14.11 8.17 8.13 7.80 17.79 23.88 20.64 5.35 7.34 7.89 8.15 13.06 7.81 22.66 7.75 16.80

5 6 9 8 7 6 3 5 4 5 6 6 7 6 8 5 9 9 3 3 4 7 8 9 4 5 4 9 4 3 6 7 4 4 5 4 4 6 8 5 3 7 7 7 4 5 4 6 8 5

2 2 1 3 1 2 1 1 1 2 2 2 3 1 2 2 1 1 1 1 1 2 3 3 1 2 1 2 1 1 2 1 1 1 1 2 1 2 3 2 1 1 3 2 2 1 2 2 1 1

0.75 6.37 0.44 6.27 4.31 17.54 10.30 1.32 2.49 1.46 11.70 2.15 1.92 19.27 1.33 8.97 2.03 1.01 19.54 0.52 5.92 1.09 4.41 0.94 5.36 0.48 10.89 2.31 3.09 2.97 5.47 3.32 1.83 1.79 3.60 2.41 10.44 4.17 4.89 0.80 12.03 9.47 0.46 8.37 9.27 10.44 2.85 0.53 4.24 3.41

457 1259 76 1123 3784 469 2700 1402 1673 1397 1616 480 2427 1341 376 286 413 376 4221 175 425 671 1586 214 145 19 133 114 827 3352 921 79 680 344 4576 303 405 298 1542 130 3247 26 132 395 2136 2160 1709 191 1944 972

2 2 2 2 2 3 1 2 4 4 1 1 4 3 4 2 1 3 1 1 1 3 2 2 3 4 4 1 4 2 3 2 1 2 1 1 1 3 5 4 1 1 1 1 2 1 5 1 3

84 154 20 289 394 440 326 264 497 187 346 133 383 395 74 262 285 67 449 20 212 216 441 55 121 20 281 321 200 495 311 72 284 36 462 89 393 269 356 20 400 263 31 224 315 270 290 36 200 111

10

10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10

30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30 30

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model: C. J. Malmborg allowances. Travel times are generated by assuming that orderpickers move at a speed on 100 ft/min in the horizontal dimension and 15 ft/min in the vertical dimension with sequential travel in the horizontal and vertical dimensions. Load transfer times are assumed to equal 15 s, and adequate retrieval capacity is assumed to retrieve all arriving orders for which sufficient stock in the retrieval area is available during the operating period. The storage layout in Figure 2 minimizes the cost of item retrieval by assigning items within a given aisle in accordance with the dedicated storage criteria described in the preceding section. Assuming a Poisson demand distribution with the f, parameter values defined in Table 2, the estimated costs for the sample problem are summarized in Table 3. The results in Table 3 are based on fixed cost parameter values of p = $4.00/spate per operating period, p = $O.O4/space per operating period, CO = $2.00/min, and I = 0.5 (annual figure). For the sample problem, the total cost of replenishment and shortages in the retrieval area were computed as IR = $686 per operating period. Total inventory costs were computed as IA4 = $719 per operating period. With respect to the comparison of dedicated and randomized storage layout policies, the service level used to compute randomized storage space requirements was set equal to 8, = 0.99999 for k = 1,. . . , 10. For a dedicated storage layout, a total of 286 storage positions were required in the retrieval area in addition to an expected value of 1,027 storage positions in the reserve storage area. This yielded a total cost of space equal to $1,555 per operating period. The retrieval cost per period with a dedicated

overall optimization method is beyond the scope of this study. However an aspect of policy analysis associated with an important subproblem is presented in this section to illustrate the application of the integrated cost model. Specifically the model is used to study the impact of alternative retrieval space allocations among items through an experiment involving the systematic, incremental variation of the Ri values. The sample problem is based on a 50 item 10 aisle distribution system with the randomly generated parameter values of fi, Ri, ri, A,, ei, ui, and ci which are summarized in Table 2. The values of Qi and qi, also shown in Table 2, were obtained by applying a simple stochastic lot sizing model based on minimization of the ZM formulation. The S,, Mk, and Nk parameter values for the sample problem are summarized in the form of Figure 2, which illustrates the dedicated storage retrieval area layout. In Figure 2, each retrieval location reserved for an item is denoted by a two letter index. For example, AA denotes a space reserved for item 1, AB denotes a space reserved for item 2, and so forth with BX denoting spaces for item 50. As suggested in Figure 2, the retrieval area is assumed to be comprised of 10 identical storage aisles with each aisle having a capacity of 32 storage positions. The 32 storage positions in each aisle are assumed to be arranged in a two-sided aisle that is four positions deep and four positions high on each side. For the purpose of computing retrieval operator travel times, a storage address depth clearance of 6 ft and a height clearance of 6 ft is assumed, including all applicable space

Horizontal Storaoe Position - Aisle #l 1 2345678 9 10 11 12 13 14 Level 1: AA AA AA AA AA AY AY AY Level 2: AY BH BH BH BH EN Love1 3: BN BN AR AR AR AR AR AR Level 4: AR AR AR XX XX XX Horizontal Storase Position - Aisle 12 12 3 4 5 6 7 0 9 10 11 12 13 14 kvd 1: AG AG AG AJ A3 AJ A3 AS Lava1 2: BG BG BG BG BU BU Level 3: AQ AQ AQ AQ AQ AQ AQ AQ Level 4: AQ BM BM BM BM BU Horizontal StOraqe Position - Aisle 83 1 2345678 9 IO 11 12 13 14 Level 1: AB AB AB AB AB AB AK AK LolrSl 2: AK AK AK AK BI BI Level 3: El1 AW AW AW AW AW AW AW Level 4: AW BW BW BW BW BW Horizontal Storase Position - Aisle 14 12 3 4 5 6 7 8 9 10 11 12 13 14 Level 1: AI AI AI AI BO BO BO BC Level 2: BC BC BC AM AM AM Level 3: AM AM BF BF BF BF BF BF Lovd 4: BF XX XX XX XX XX Horizontal Storase Position - Aisle #5 12 3 4 5 6 7 8 9 10 11 12 13 14 Leval 1: AS AS AS AE AE AE AE AE Lava1 2: AE AE BJ BJ BJ BJ Level 3: BT BT BT BV BV BV BV BV Level 4: BV XX XX XX XX XX Horizontal Storase Position - Aisle #6 12 3 4 5 6 7 0 9 10 11 12 13 14 Lsvel 1: AT AT AT AD AD AD AD AD Level 2: AD AD AD BS BS BS Level 3: BE BE BE BE BE BP BP BP Level 4: BP BP BP BP XX XX Horizontal Storaqe Position - Aisle 17 1 2345678 9 10 11 12 13 14 Level 1: AH AH AH An AH AP AP AP Level 21 AP AP BK BK BK BK Lsvel 3: AV AV AV AV AV BQ BQ BQ Lava1 4: BQ BQ BQ BQ XX XX Horizontal Storaoe Position - Aisle #8 1 2345678 9 10 11 12 13 14 Level 1: AF AF AF AF AF AF BA BA Level 2: BA BA AZ AZ AZ AZ AXAXAXAXAXXXXXXX Level 3: BXBXBXBXAXAXAXAXLevelI: Horizontal Storaqe Position - Aisle 19 12 3 4 5 6 7 8 9 10 11 12 13 14 L0vd 1: BD BD BD AU AU AU AU AL Level 2: AL AL AL AL AL A0 uvd 3: A0 A0 A0 A0 A0 BR BR BR LOvOl 4: BR BR BR BR XX XX Horizontal Storacre Position - Aisle 110 12 3 4 5 6 7 8 9 10 11 12 13 14 Level 1: AC AC AC AC AC AC AC AC Level 2: AC AN AN AN AN AN Lava1 3: BL BL BL BL BL BB BB BB Level 4: BB BB BB BB BB BB Figure 2. Summary within the aisle. of the retrieval cost minimizing

15 16 BN BN XX XX 15 16 BU BU BM BM 15 16 BI BI BW BW 15 16 AM AM XX XX 15 16 BT BT XX XX 15 16. BS BE XX XX 15 16 AV AV XX XX 15 16 AZ BX 15 16 A0 A0 XX XX 15 16 AN BL XX XX

dedicated storage layout for the retrieval area. XX, unutilized storage positions

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An integrated storage layout was equal to $487 per operating period. For a randomized storage layout, a total of 227 storage positions were required in the retrieval area in addition to the 1,027 storage positions in the reserve storage. The resultant total cost of space with randomized storage was computed to equal $1,319 per operating period. The retrieval cost per period with a randomized storage layout was equal to $540 per operating period. These results yield, ZSR = min(487 + 1144, 540 + 908) + 411 = $1,448 per operating period. Therefore the total cost of the policy
Table3. Item 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 Cost

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summarized in Table 1 is given by IR + IM + ISR = $2,853 per operating period with randomized storage the preferred storage layout policy for this case. To illustrate the application of the model in policy analysis, an experiment is undertaken to analyze incremental variations in the allocation of space among items in the retrieval area. Starting with the base policy illustrated in Table 2, variation in the Ri values was undertaken by randomly selecting items j and k, and setting Rj = Rj + 1 and R, = R, - 1. This space interchange approach is used

elements by item forthesample problem

Replenishing IR, 36.24 56.71 9.82 21.59 18.41 45.29 50.68 Il.74 15.54 11.51 19.79 10.04 8.84 26.94 6.50 16.03 5.76 4.96 42.29 10.10 14.41 6.24 6.54 5.05 12.57 7.92 16.56 4.65 9.85 11.99 7.66 5.86 8.46 8.33 7.70 9.54 13.23 6.63 5.14 7.03 17.74 7.07 5.51 5.90 11.03 9.38 8.89 5.37 4.38 6.42 Ordering Carrying Expediting IM; 22.17 29.93 4.62 25.98 44.22 23.76 39.59 15.19 25.35 21.61 31.82 9.07 17.31 27.55 6.79 14.57 13.85 5.61 27.55 2.83 10.35 10.49 19.85 4.85 7.44 2.70 12.77 13.64 9.41 27.20 13.10 5.31 12.08 3.46 17.68 5.58 13.08 10.29 14.65 2.59 19.25 9.31 3.00 9.04 11.57 11.33 10.70 3.48 8.60 6.54

Shortage

cost
26.24 46.71 1.32 12.09 9.96 35.88 40.77 2.78 6.08 2.18 11.46 1.89 0.86 20.16 0.74 7.40 1.34 0.63 32.96 0.83 6.28 0.42 0.81 0.15 4.79 0.21 8.93 0.53 2.36 3.22 1.55 1.43 1.23 1.16 1.83 1.05 6.24 0.92 0.36 0.19 9.45 3.05 0.03 1.32 2.90 4.02 0.84 0.08 1.02 1.21

cost
10.00

cost
7.03 6.54 2.10 7.39 8.15 8.24 6.84 5.96 7.95 4.76 6.33 3.85 6.41 6.40 2.73 5.05 5.20 2.49 6.36 1.33 4.27 4.27 6.04 2.11 3.10 1.25 4.65 4.93 3.86 6.03 4.74 2.26 4.47 1.58 5.62 2.45 5.12 4.21 4.82 1.14 5.05 4.07 1.39 3.72 4.39 4.04 4.17 1.46 3.43 2.54

cost
7.99 8.36 2.33 10.66 12.61 13.21 10.67 8.71 13.76 6.96 10.27 5.07 9.91 10.88 3.59 8.13 8.07 3.04 11.61 1.49 5.86 5.97 11.19 2.69 4.17 1.41 7.38 8.18 5.35 11.81 7.98 2.88 7.42 1.83 10.43 3.04 7.72 5.88 8.97 1.37 9.72 4.90 1.57 5.19 6.59 6.74 6.08 1.88 4.74 3.84

cost
7.15 15.03 0.19 7.94 23.45 2.31 22.09 0.53 3.64 9.88 15.21 0.16 0.99 10.27 0.47 1.38 0.59 0.08 9.58 0.02 0.21 0.25 2.62 0.05 0.16 0.04 0.74 0.54 0.20 9.36 0.38 0.17 0.19 0.05 1.63 0.09 0.24 0.20 0.87 0.09 4.48 0.34 0.04 0.13 0.59 0.55 0.45 0.13 0.42 0.16

9.99 8.50 9.50 8.45 9.41 9.92 8.96 9.45 9.33 8.34 8.15 7.98 6.78 5.77 8.63 4.42 4.33 9.33 9.27 8.13 5.81 5.73 4.90 7.79 7.71 7.63 4.12 7.49 8.76 6.11 4.43 7.23 7.17 5.87 8.49 7.00 5.71 4.78 6.84 8.28 4.03 5.48 4.58 8.13 5.36 8.06 5.28 3.36 5.21

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Table 4. Iteration number

model: C. J. Malmborg
changes Optimal storage layout policy randomized randomized randomized randomized dedicated -IM+ IS+ ISR

The five successful incremental Dedicated space requirements Randomized space requirements

6 14 159 168 332

286 286 286 286 286

237 234 239 233 245

$2,847 $2,839 $2,800 $2,872 $2,867

since it enables the analysis of retrieval space reallocation without changing the allocation of total space between the reserve storage and the retrieval areas. Variation in the Ri values affects shortage costs in the retrieval area, replenishment costs from reserve storage, orderpicking costs, and the relative cost effectiveness of alternative storage policies. The isolated analysis of space reallocation in the retrieval area may be applicable in situations where the physical configuration of an existing facility is fixed. To illustrate the analysis of the subproblem, 500 feasible iterations of the space interchange procedure were undertaken. Feasibility in this case implies that sufficient space in an aisle is available when the space allocation for an item in the aisle is increased by one unit. Whenever an interchange is found to result in a decrease in ISR, the incremental reallocation is fixed and the procedure proceeds to the next randomly selected item pair. If an

interchange does not result in a decrease in ISR, the original allocation is restored (i.e., the incremental changes in Ri values are discarded) before the procedure proceeds to the next randomly selected item pair. A total of 500 feasible reallocations were randomly generated and evaluated. Of these a total of five incremental changes were successful, i.e., resulted in a decrease in ZSR. The results from these five successful iterations including space requirements in the retrieval area and retrieval costs were as seen in Table 4. The columns in Table 4 indicate the iteration number, the space requirements in the retrieval area under dedicated and randomized storage, the optimal storage policy, and the total cost values associated with the corresponding Ri space allocations for each iteration. These results illustrate the difficulty in generating successful interchanges, i.e., only 5 of 500 feasible perturbations were successful. This

Horizontal Storaae Position - Aisle #1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Level 1: AB AB AB AB AB AP Rp AP Level 2: AP AX AX AX AX BD Level 3: BD BD BO BO 80 BO BO BO Level 4: BO BO 80 AB AB AB Horizontal Storaae Position - Aisle #2 12 3 4 5 6 7 8 9 10 11 12 13 14 Level 1: AC AC AC AK AK AX AX AX Level 2: AU AU AU AU AZ AZ Level 3: BM BM BM BM BM BM BM BM Level 4: BM BW BW BW BW BW Horizontal Storaae Position - Aisle 13 12 3 4 5 6 7 0 9 10 11 12 13 14 Level 1: AD AD AD AD AD AD AR AR Level 2: AR AR AR AR BF BF Level 3: BE BN BN BN BN BN BN Bi1 Level 4: BN BX BX BX BX BX Horizontal Storaae Position - Aisle #4 12 3 4 5 6 7 8 9 10 11 12 13 14 Level 1: AA AA AA AA A0 A0 A0 AV Level 2: AV AV AV BC BC BC Level 3: BC BC BP BP BP BP BP BP Level 4: BP XX XX XX XX XX Horizontal Storaae Position - Aisle #5 12 3 4 5 6 7 8 9 10 11 12 13 14 Love1 1: AE AE AE AL AL AL AL AL Level 2: AL AL AY AY AY AY Level 3: BG BG BG BQ BQ BQ BQ BQ Level 4: BQ XX XX XX XX XX Horizontal Storaae Position - Aisle #6 12345678 9 10 11 12 13 14 Level 1: AF AF AF AM AM AM AM AM Lava1 2: AM AM AM BE BE BE Level 3: BJ BJ BJ BJ BJ BS BS BS lava1 4: BS BS BS BS XX XX Horizontal Storaae Position - Aisle #7 12 3 4 5 6 7 8 9 10 11 12 13 14 Lavel 1: AG AG AG AG AG AQ AQ AQ Lava1 2: AQ AQ BA BA BA BA Lava1 3: BI BI BI BI BI BT BT BT Level 4: BT BT BT BT XX XX Horizontal Storaae Position - Aisle #S 1 2345618 9 10 11 12 13 14 Level 1: AH AH AH Ati AH .AH AS AS Level 2: AS AS BB BB BB BB Lava1 3: BK BK BK BK BR BR BR BR Level 4: BR BR BR BR BR XX Horizontal Storaae Position - Aisle #9 12 3 4 5 6 7 8 9 10 11 12 13 14 Lnval 1: AI AI AI AN AN AN AN AT Level 2: AT AT AT AT AT BH Lava1 3: BH BH BH BH BH BV BV BV Love1 4: BV BV BV BV XX XX Horizontal Storaae Position - Aisle (10 12 3 4 5 6 7 8 9 10 11 12 13 14 hval 1: AJ AJ AJ AJ AJ AJ AJ AJ Level 2: AJ AW AW AW AW AW Lav.1 3: BL BL BL BL BL BU BU BU Level 4: BU BU BU BU BU BU Figure 3. Summary of the optimal positions within the aisle. retrieval cost minimizing dedicated

15 16 BD BD AB AB 15 16 AZ AZ BW BW 15 16 BF BF BX BX 15 16 BC BC XX XX 15 16 BG BG XX XX 15 16 BE BJ XX XX 15 16 BI BI XX XX 15 16 BB BK XX XX 15 16 BH BH XX XX 15 16 AW BL XX XX

storage layout for the retrieval area. XX, unutilized

storage

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An integrated results from the fact that the Mk values in the initial solution were generated by assigning items to aisles based on the ratio of retrieval demand to space requirements. As proven,* this procedure produces near optimal retrieval cost solutions for both dedicated and randomized storage layouts in multiaisle distribution systems when no item splitting between aisles is allowed. Solutions generated in this manner are very difficult to improve upon (see Ref. 28 for an in-depth discussion of this issue). The optimal dedicated storage layout after 500 iterations is shown in Figure 3.

storage system evaluation *i

ki
i

mode/: C. J. Malmborg

P & A s,
Nk Mk $k

N IRD 4. Summary
miky

and conclusions
ix

An integrated evaluation model has been formulated which allows distribution system designers to estimate costs associated with inventory carrying, reordering and expediting, item replenishment and retrieval, shortages in the item retrieval area, and storage space. These estimates are based on management policies that address inventory management, space allocation, and storage layout. The model simultaneously addresses the inventory management and retrieval functions of a distribution center and enables the integration of physical facility design and operating plan development for a distribution center. A limited computational experiment has been used to demonstrate how the model could be applied to investigate alternative policy scenarios. Although the model does not lend itself to analytical optimization methods, it does provide a means for exploring alternative facility design and operating plan combinations. It represents a computational core for a decision support systems through which system designers can evaluate policy scenarios. Therefore future work should investigate the optimal partitioning of distribution system design tasks between the designer and the computational model. This work should address the development of user protocols through which designers can efficiently generate and evaluate policy alternatives and algorithmic utilities for the decision support systems. Algorithmic utilities include simulation-based methods to explore restricted policy perturbations, conditional optimization routines for subsets of design variables (e.g., lot sizes, replenishment levels, etc.), and automated configuring of physical storage areas to general facility design alternatives.

Z max
aria :n Ii,

ISR

stockout cost for item i replenishment cost for item i storage spaces required for item i reserve storage space unit cost retrieval storage space unit cost cost per unit time of order pickers storage aisles in retrieval area length of storage aisles in retreival area number of items assigned to aisle k set of items assigned to aisle k retrieval time for space j aisle k total number of items item retrieval cost with dedicated storage the probability that stock level of i in aisle k at start is y the probability that the retreival demand for i will be x unit loads over the orderpicking period max storage level in the aisle min storage level in the aisle a limiting probability value for k retrieval spaces in aisle k retrieval costs with random storage total cost of space and retrieval

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4.

5.

6. I. 8. 9. 10. 11.

Nomenclature

12.

Qi
4i i

;i fi
i

I
Ri i

order quantity for item i reorder point for item i safety stock for item i expediting cost of item i average reordering cost of item i demand rate of item i average leadtime for i carrying charge replenishment level of i stock level for item i

13. 14. 15. 16. 17.

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24. Rosenblatt, M. J. and Roll, Y. Warehouse capacity in a stochastic environment. ht. J. Production Res. 1988, 26(12), 1847-1851 25. Azadivar, F. Optimum allocation of resources between the random access and rack storage spaces in an automated warehousing system. ht. .I. Production Res. 1989, 27(l), 119-131 26. Goetschalckx, M. and Ratliff, H.D. Optimal lane depths for single and multiple products in block stacking storage systems. IIE Trans. 1991, 23(3), 245-258 27. Marsh, W. H. Elements of block storage design. Int. J. Production Res. 1979, 17(4), 377-394 28. Malmborg, C. J. Optimization of cube-per-order index warehouse layouts with zoning constraints. Int. J. Production Res. 1994, 33(2), 465-482 29. Khoshnevis, B., Wolfe, P. M., and Terrell, M. P. Aggregate planning models incorporating productivity. Int. J. Production Res. 1982, 2ow

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