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The Study of Li & Fung Limited

Name: Kan Shing Fung Class: BA(Hons) Logistics and Supply Chain Management Word Counted: 3286

Content

Introduction Question 1 Question 2 Question 3 Question 4 Conclusion Reference

warehouse space and layout planning Appropriateness of mechanization and full automation Information technology application of Li & Fung Modern methods of inventory management & Compare with re-order point and EOQ.

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Introduction This report is majorly about the study of the warehouse management operation of Li & Fung Limited, a well-known specialist in supply chain management and introduces one-stop-shop solutions to customers with their international scope and network. The aspects focus are warehouse space and layout planning, the appropriateness of mechanization and full automation application, the benefits of

information technology and modern methods of inventory management.

Question 1

warehouse space and layout planning

In the realm of warehouse layout planning, warehouse space should be at one of the top of the priority of any company. The scarce space is a common problem of the warehouse at worldwide. A proper planning of the warehouse space and layout can help to address this predicament (Greenberg, 2000). In the process of planning, the objectives should be specified in order to have a clear path towards it. Some specific ways would be provided in the process. The specific steps and system on which the

warehouse would apply should be resolved in order to complement the desired plan with the set of circumstances in the warehouse emerged. In the technical side of the process, the allowances and intervals required to satisfy the space requirements should also be declared at first. (Kopcke & Brauman, 2001) This is imperative to establish the foundation in calculating the overall space requirement of the warehouse.

1.1

Warehouse Processes Refer to the study of Rouwenhorst (2000), the keys flow of items through the

warehouse can be divided in four processes: First step - The receiving process, it is the first process encountered by the entering items. The products would be checked or transformed into different storage modules and stand by for transportation to the next process. Second step The storage process, the items are placed in storage locations in order to provide easy retrieval by an orderpicker. Third step The orderpicking process, it refers to the retrieval of items and transportation to the sorting and consolidation process. Fourth step the shipping process, this step is for the order packed, checked and loaded to any carrier.

1.2

Considerations of warehouse planning The purpose of the planning is the warehouse space and layout to optimizing the

efficiency of the mentioned warehouse activities, especially the orderpicking process, and to satisfy the customers requirements. Gu (2010) indicated that the conceptual planning of a warehouse determines the functional departments. For example the number of storage departments, types of technologies employing and the amounts of orders will be assembled. At this stage, the goals of the planning are to meet storage and

throughput requirements, and to reduce the value of investment and future operating costs. Tompkins (2003) indicates the key factors of warehouse planning are to maximize the space utilization, equipment utilization, labout utilization, accessibility of all materials and protection of the materials. Besides, order picking systems, stock location management and shipping systems are needed to be clarified.

1.2.1Cost accounting Many studies express that the proportion of the warehousing cost is about 20% of the total logistics cost (ELA/AT Kearney, 2004 and Establish/Davis, 2005). It means that warehousing costs is a serious barrier to supply chain management whilst the cost of the labour, service, software, hardware, equipment and service from the vendors is necessary. Park and Webster (1989) point the selection of storage rules, equipment types, and order picking policies is crucial to reduce the total costs. The cost (initial investment and annual operational cost) for each alternative (receiving, storage, picking, sorting, and shipping) is accounted in simple analytic equations. This analysis is to meet the cost reduction goal of the warehouse planning as more companies look to cut costs within their warehouses and distribution centres.

1.2.2

Space utilization Gray et al. (1992) express a similar problem with Park and Webster (1989), and

propose a multi-stage hierarchical approach that uses simple analytic calculations to evaluate the tradeoffs and prune the design space to a few superior alternatives. According to the study of Kind in 1965 (Ashayeri, 1985) introduce both the peak season and the entire inventory circle of the product for the consideration of space utilization.

1.2.3Equipment Utilization The appropriate application of material handling equipment can easier increase the efficiency of the entire operation within warehouse. The considerations of this part are applying the right amount of equipment in the right place, right position, condition right method as well as right cost (Tompkins et al, 2003). The typical examples of equipment are mostly the material transport equipment like conveyors, trans pallets, forklifts trucks and industrial vehicles. The information technology equipment is very important and crucial to create a high-level operation and routing & sequencing process. For example: Li & Fung Limites has applying the automatic storage and retrieval system (AS/RS), Radio Frequency Identifications (RFID) and bar-code system in its warehouse. It is important for the installation of the corresponding devices of the IT. Storage racks was separated by aisles in a calculated lengths. (Li & Fung research centre, 2003)

1.2.4Accounting inventory levels This accounting for stock keeping units (SKUs) stored in the warehouse is an operational decision impacting directly to the estimation of space requirement. For example, the distribution centre of IDS Logistics (Li & Fung Limited) in Sha Tin is a small scale. It estimated about the available space utilization and the fluctuation of product storage needed. It decided to collaborate with only one to two customers brands and provide the warehouse service in each floor.

1.2.5Routing The use of racks could improve space utilization by the enabling of narrower aisles. The suitable coordination of narrower aisles the stored goods along any one aisle

should be routed in a path of upward and downward undulation.

1.2.6Safety and security It is harmful for warehouse owners to bear the disasters after a fire accident or thefts in a warehouse. There will be a great amount of cost for equipments repairing or stock compensation. In the case of Li & Fung, it applied the fire preventing systems (such as automatics fire sprinklers) and alert systems and installed Closed Circuit Television (CCTV) in storage areas, lifts and unloading docks to prevent the fire accidents and theft. Fire sprinklers were install in every rack. The monitoring of the CCTV systems is operating in 24 hours a day. Besides, all the entrance and exits of the warehouse were monitoring by security staffs so as to maintain the high level of safety and security. (Li & Fung research centre, 2003)

Question 2

Appropriateness of mechanization and full automation

Warehouse automation has been described as The direct control of handling equipment producing movement and storage of loads with unmanned operation (Rowley, 2000). This term can be known as the human work is replaced by robot and operation would be carried out by machinery. Meanwhile, labour cost can minimize. In this decade, automation is fairly commonplace in large warehouses operation, particularly with regard to conveyor, and automated storage and retrieval systems

(AS/RS), with each of similar types of equipments being applied in more than a third of large warehouses (Baker, 2004). Many sources indicate the reason of the trend of warehouse efficiency development is the advances in warehouse technologies and the raise of the agility supply chain concept.

2.1

Levels of automation warehouse systems Warehouse technologies are used for 3 main achievements: enhance space

utilization, improve productivity and reduce errors (Aminoff et al., 2002). With respect to the level of automation, it is possible to classify warehousing systems into 3 types (van den Berg & Zijm, 1999). Manual warehousing systems (picker-to-product) The orderpicker collects the required material in the warehouse by travelling to the storage area. Automated warehousing systems (product-to-picker) The picking process is performed by an automated warehouse device, delivering the required items to a stationary orderpicker. Automatic warehousing systems This performance is similar to the automated warehousing system level except that the picker role is assumed to a robot.

The selection of the appropriate level of warehouse automation is a difficult task. However, the cost of installation and operation of automation and mechanization is expensive. Capital investments can be considerable but the rewards often include significant savings in the labor costs and productivity aspects, inventory accuracy, or order processing times (van den Berg & Zijm, 1999). Cost is still an important factor as a market qualifier in a turbulent market (Christopher & Towill, 2000). So the cost effective is one of a good reason to clarify the development trend of warehouse automation.

2.2

Coordinating processes of implementation of warehouse automation Emmett (2005) address that there are numbers of high profile instances faces great

difficulties in the beginning stage of implementation and led to profit warnings. In this stage, the burn-in difficulties or service level dip would be experienced in the short term (Naish & Baker, 2004). Emmett (2005) adds that there is a need for commissioning, substantial testing and rectification of automated equipment.

2.3

Questionnaire results of warehouse automation projects Naish (2004) had conducted a survey about the main steps and issues in warehouse

automation projects of companies. The interviewees are the members of the Warehouse and Materials Handling Forum of The Chartered Institute of Logistics and Transport in UK.

2.3.1Concern of warehouse automation implementation According to the questionnaire result, staffing issues were a very important consideration as regards the change in culture associated with automation. For example, one company recognized that there was a need a fully involvement of the whole workforce in testing procedures so that there would be ownership phenomenon of the automation project. Besides, a further concern related to the fear of the technology not working in immaturity of automated systems. On the cost aspect, there was certainly a concern about the high investment cost involved.

2.3.2

Concern of ongoing operation There is some concern in the literature concerning the impact of projects ongoing

operation. There are only 5 out of 24 projects experienced no disruption to operations,

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whilst 8 undergone moderate or extensive disruption. The results indicated the technology would not work well for at least a short-term. In fact, most automated equipment systems have been practiced for many years and are therefore fairly mature, many testing and commissioning involved in the complexity of the projects. Although those problems are normally resolved, there can be a risky period when service levels suffer before the predicted benefits are emerged.

2.4

Warehouse automation project in Li & Fung In the Li & Fung logistics centre in Hong Kong, there are two pallet hoists

operating for vertical delivery of goods. This facilities help company to handle the high goods throughputs accounted in 140 pallets per hour. On the other hand, the centre in Singapore adopted the automatic storage and retrieval system (AS/RS) and set up 36 full automatic loading and unloading regions. The system performs full automatic storage, retrieval and sorting processes (Li & Fung research centre, 2003) Christopher (2000) claim that a successful AS/RS can save the operations cost about 20%. Li & Fung satisfy the high storage requirement with its automatic systems. At the beginning, it had undergone the high cost investment in the substantial testing and rectification of the systems for years. The 36 full automatic loading and unloading regions are the typical example of the successful development and improvement of the ongoing operation problems.

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Question 3

Information technology application in Li & Fung

A robust common regional IT system is one of the key factors for the scalability and reliability maintenance of Li & Fung logistics service. Its systems enable the interaction of each supply chain partners and ensuring smooth flow of information across all business units. These are many outstanding IT applications and systems in Li & Fung and it subsidiary IDS Group. The typical examples are SSA WMS EXceed (Warehouse Management System, WMS), electronic data interchange system (EDI) and radio frequency identification (RFID) application of IDS Logistics. All of these systems are standardized across the region and are fully integrated of operations with fully

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transparency on a regional basis. IDS also build up its in-house regional technology center and support teams to respond both Malaysia and Hong Kong service region (Lee & Lee, 2007). The successful IT application helps the company accommodate the vary requirements from customers and its warehouse objectives.

3.1

Case 1 Warehouse Management System of Circle K (Li & Fungs

subsidiary) For warehouse management, problems like shortage of goods is often occurred in many retailer, as well as large scale firms. It indicates the insufficient of warehousing efficiency like the collaborative planning, forecasting & replenishment and time compression. In order to meet the customers and warehouse managers needs, Circle K introduced new warehouse management system (WMS) called Exceed Technologies in 1999. It enabled Circle K to schedule the receiving, forwarding process, manage storage and forecasting activity with the warehouse unit. With the enhancement of management in storage level, real-time respond and reliable of replenishment and the movement of the goods, the shortage of goods can be resolved. Moreover, the stock accuracy and visibility can be enhanced and some of the paperwork can be eliminated via WMS application.

3.2

Case 2 IT application in IDS warehouse centre There are many types of information stored in logistics warehouse. For example:

quality, name of goods, details of manufacturers, packaging methods and others. It is necessary for the high level IT application take place. IDS Logistics introduced the traditional bar-code systems, RFID to capture all the required information. RFID is one of the famous high performances IT in the Supply Chain Management and it has been a

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hot topic for different academic report. Their outstanding performances in warehouse are the fleet management, long-range of data capture without a flat surface of a parcel or goods and transferable of the data to other warehouse IT systems. Once readers are installed in the parcel and vehicles, IDS warehouseman can capture the data of the goods inside the parcel. By the data captured, the parcel could be checked the right packaging method applied and allocate to the vehicles that go to the right destination. As the vehicles passes with the range of the transponder in the warehouse docks, the time and location would be recorded in the database of the vehicles reader. It allows the warehouse manager to modify the delivery models and routing process (Shepard, 2005). In the outbound picking stage, RFID responds to the stage from sorting to parking stages. Systems are used to check the appropriate storage rack location and loading dock by the code number so as to guarantee the 100% accuracy of the whole operation. The Electronic Data Interchange system (EDI) helps IDS to schedule the logistics activities for customers in real-time and accuracy manner. The essential documents like invoices and purchase orders transfers to partners in this standardize platform. A high-performance warehouse management system in IDS logistics centres achieves the electronic management in entire warehouse operation. The system can monitor the change of inventory level and orders and integrate/sort the orders automatically, and provide an auto memo to the staff for replenishment. It can combine the application with RFID technologies to implement real-time treatment and prevent the disaster of sudden situation. Besides, the IT systems of IDS are based on network. The systems break the barrier of communication between supply chain units and itself and provide an efficient path for the units to tracking the inventory storage, goods in forwarding and the location of sales. The online tracking systems show the visibility of the current status of the

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order, the information of product inventory level and freight forwarding. It provides a platform for forecasting of the potential problem such as late complete of order or problems occur in forwarding stage. Moreover, there is a special function of the system, providing an alert column and emergency column for the all supply chain units to notice the warning messages or problems occurring (Li & Fung research centre, 2003)

Question 4

Modern methods of inventory management & Compare with

re-order point and EOQ.

4.1

Re-order point Re-order point (ROP) consists of when products should be order (fixed order

interval system) or how many products should be ordered at a fixed interval (fixed order quantity system). The aim of this method is to keep the inventory level in a relatively low and fixed level (Donald & Murphy, 2004) . The formula of ROP is: ROP = (Average daily demand) X (Replenishment cycle)

4.2

Economic order quantity

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Economic order quantity (EOQ) refers to the numbers of inventory should be ordered at a particular time. The formula is used to clarify the point where the blend of inventory carrying costs and order costs are at its lowest level (Bassin 1990, 48). The order will be set when the EOQ falls lower than re-order level. The major assumptions of EOQ are a constant and known replenish cycle and rate of demand, and without inventory in transit(Donald & Murphy, 2004).

4.3

Just-In-Time approach One of the most popular and contemporary method in inventory management is

the Just-In-Time approach. This approach was come out in the trend of lean business principle(Donald & Murphy, 2004). It promotes minimize inventory level by greatly reduce of safety stock and materials and products arrived at the time that they are needed. The assumptions of JIT are focusing the Real-time communication with their supply chain partners and customers and no wastage is accepted.

4.4

Comparison between traditional and contemporary approaches The traditional and contemporary approaches have no conflicts to each other and

both of their assumptions are similar. They both focus on the returns of investment and reduce the unwanted cost. There might be a confect between the uses of the both sides. It could be known that they are walking in different path but the final destinations are close.

4.5

Case 1- CATSCAN IDS Marketing invented a calculating systems called CATSCAN. It is a

specialized system for the low inventory application or Just-In-Time retailer to analysis and forecast the sales margins with different factors. The climate is one of the factor

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affect the analysis result. The system would also recommend the best combination of products that achieve good sales. (Li & Fung research centre, 2003)

4.6

Case 2 Inventory management system Warehouse has the responsibility to monitor the appropriate level of the customers

inventory. IDS staff uses the warehouse management system to control the inventory level. Once the inventory level fall below the safety level, staff will sent out the replenishment memo to the manufacturers immediately. Besides, the system will sent a auto replenishment memo to inform the staff. Even the inventory level is keeping in a very low rate, IDS can have the just-in-time information and take the real-time treatments. It is a common activity for IDS to operate with the small brand in Sha Tin.

Conclusion Li & Fung Limited is a worlds leader in providing supply chain solution to its final clients. This company is never stop to invest vast cost on the develop information technology application and warehouse equipments. There should be failures but the company is resolute to achieve improvement and innovation. The typical example is the development of the AS/RS system. Besides, the company has a good understanding and forecasting about the market trend and the customers requirement. In the turbulent marketplace, development a customized information system is a crucial point to maintain the long-term business relationship. The concept of lean and agile is popular. The company can reduce its wastages and reduce unwanted cost of its clients. Moreover, the well-planned warehouse management systems can provide just-in-time service and treatments in the

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entire supply chain management. Li & Fung has well-planned in the layout design, as well as in the security aspect. These are the reasons of how it maintain competitive edge and good operation in the entire supply chain flow.

Reference
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