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Warehouse Improvement Evaluation using Lean Warehousing Approach

and Linear Programming
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ISIEM 12 IOP Publishing
IOP Conf. Series: Materials Science and Engineering 847 (2020) 012033 doi:10.1088/1757-899X/847/1/012033

Warehouse Improvement Evaluation using Lean Warehousing

Approach and Linear Programming

Y. Prasetyawan1, 2, N. G. Ibrahim 1, 3
1
Department of Industrial Engineering, Institut Teknologi Sepuluh Nopember, Kampus
ITS Sukolilo-Surabaya 60111, Indonesia
2
[email protected], 3 [email protected]

Abstract. Lean manufacturing tools have been applied for several years to improve company’s
internal logistic. Furthermore, a lot of factors such as globalization, competition and shorter life-
cycle product force companies to create production process more efficient and cheaper. The
acceptance of lean philosophy in the company means not only respecting the lean principles in
the manufacturing area, but also in all the process that performed inside the company. The
implementation of lean principles in the warehouse area is a certain step of improvement
warehouse process and performance, but also the whole company. However, the implementation
of lean principles in warehouse area is relatively new subject in logistics. Most of the research
that has been done before only focused on eliminate waste and didn’t count the cost that can be
saved after lean implementation. This paper’s objective is to identify waste that might be able to
appear in warehousing process using value stream mapping. After the waste successfully
identified, the next step is doing improvement using lean tool and count the implementation cost
using linear programming. The result of this paper is choose which tool that make lower
implementation cost and higher time reduction
Keywords: Lean warehousing, value stream mapping, linear programming

1. Introduction
In this modern era, factors such as digitalization, competitiveness, shorter product life cycle, advanced
technology and shorter time-to-market have a greater impact than in previous eras on the logistics
activities of a company [1]. In fact, to meet the customer needs, warehousing activities must be more
optimal in reducing inefficiencies and making warehouses more reliable in terms of cost [2]. Warehouse
is a place where there is a movement of goods in which there are activities of receiving, storing, orders
picking, sorting and delivering goods [3]. Warehouse is one of the main elements in the supply chain
because it involved in every company's business processes such as planning, purchasing, production and
distribution processes [4]. The trend in the current era is how to change the warehouse to be more flexible
to face demand changing, increase inventory transparency and efficiency of each process in the
warehouse [5]. The most popular approach of continuous improvement is lean. When the company
decides to implement lean, the company's main focus will shift to how to reduce waste and become more
efficient. According to the principles of lean management, there are eight types of waste: waiting,
transportation, over-processing, over-production, inventory, motion, defect or errors and underutilised
employees [6] [7].

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IOP Conf. Series: Materials Science and Engineering 847 (2020) 012033 doi:10.1088/1757-899X/847/1/012033

The implementation of lean management not only in manufacturing area but also in another area in
company such as supply chain, warehousing and even organization itself. The lean principle must be
made a priority when a company wants to maintain and improve its competitive advantages. However,
it isn’t true to believe that lean management and company’s competitiveness can be possible by only
achieving lean production. All business processes involved in the company must have the same
understanding so that the main goal of lean is achieved by reducing unnecessary activities that do not
provide added value. Warehousing is one of the many aspects that are important in achieving lean
implementation goals. Lean warehousing is a concept that requires stability, systematic continuity and
measurable improvement that involving all employees [8]. Lean warehousing can also be defined as the
concept of reducing waste in the upstream or downstream parts of the supply chain to direct customers
to the right time and place [9]. In lean warehousing area, a lot of researches have been done with different
combination of lean tools and results. Studies that have been done by Swank, 2003 have an effect of
reduction in response time 60%, 28% labour cost reduction and 40% reduction of reissues due to errors,
Cook et al, 2005 (71% decrease in inbound cycle time, 76% decrease in inventory levels, required
storage space decreased by 51%), Pan et,al. 2010 (Used value stream mapping in shorting delivery time),
Jaca et al. 2012 (9,34% improvement on the whole warehouse productivity), Bozer, 2012 (Development
‘house of lean warehousing’ and identified fundamental operational or asset-based changes required to
implement lean principles in a warehouse), Dehdari et al. 2013 (Increase warehouse productivity by at
least 5%) and Dotoli et al. 2013 using VSM to identify non value added activities and used Gemba
Shikumi technique to choose the best response actions [10] [11].
Implementation of lean concepts in warehouses can increase value and reduce costs because
warehousing activities are not only a source of cost, but also a source of competitive advantages to
achieve higher service levels [12]. The implementation of lean warehousing can also have an impact on
internal and external improvements, as indicated by McKinsey study in 2010. The improvement in
internal warehouse area could be people (Increase labours’ efficiency and flexibility by 1-5%), process
(2-9% Reduce handling movement for each product between receiving and shipping), performance
management (2-5% Assure continuous improvement of efficiency) and layout (3-4% optimize layout
structure and align with local requirements and restrictions). Area of improvement for external
warehouse could be interaction with third party (Matching supplier and customer requirement to
warehouse restriction) and ownership (Optimise contract of service provider) [13].
According to that fact, most of the research in lean warehousing only focussed on reducing waste.
None of them calculate the impact of lean improvement from cost’s point of view. It might be happen
when a company try to implement lean tool but it takes costly and even the benefit that the company got
was less than the cost that company’s spent. Therefore, this paper will try to calculate the cost of
investment that will be spent in implementing lean tool using linear programming. Linear programming
(LP) is a tool for solving optimization problem [14]. Linear programming consist of three component;
decision variables, objective function and constraint. Decision variable is a decision variable is a variable
whose value will be sought; objective functions a quantitative statement of an optimization case such as
maximizing profit or minimizing operating costs while constraint is a number that limited the value of
decision variable. This paper will introduce some variable that related on lean warehousing which will
be taken into consideration in the selection of lean implementation tools. The overall variables that will
be used in considering alternative choices will lead to implementation costs and the tool that resulting
the lowest implementation/investment cost to be chosen. The objective function of this problem is
minimizing total implementation cost and the decision variables will be in areas such as man, machine,
material, method and time.
The aim for the research is to create leaner warehousing system using lean warehousing approach
and choose the alternative that given the lowest investment cost using linear programming. In order to
deliver the purpose of the research project, the following objectives have been established: Identify the
current activities/processes that appeared in warehouse, develop current value stream mapping, calculate
current cost that spent for warehousing activities, analysis and eliminate waste based on current value
stream mapping using fishbone diagram and 5whys , develop future value stream mapping that have

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IOP Conf. Series: Materials Science and Engineering 847 (2020) 012033 doi:10.1088/1757-899X/847/1/012033

been implementing lean tool such as kanban ,5S and re-layouting and then calculate total implementation
cost after applying improvement and choose the tool that resulting lowest implementation cost.

2. Methods
There are two main methods that used to make this paper, value stream mapping and linear
programming. Both of the method will be described in subsection below.

2.1. Value Stream Mapping

Value stream mapping (VSM) is one of the lean tools that can be used to find out the latest conditions
of the company's business processes, in which there is a flow of information and material flow that
serves as a consideration for solving problems and helping to make improvements for the future [15].
VSM application in warehouse operation can be used to underline the waste activities (value/non-value
added) by concentrating on present state of value stream map. As we know, implementation of lean
techniques (both information flow and material flow). There are several step of draw VSM: 1) Draw
current state map; 2) Analyse existing conditions. Existing conditions are used to determine waste,
bottlenecks and other obstacles; 3) Remove waste. How to eliminate waste in the existing conditions
depends on its priority; 4) Draw future state map. After being eliminated, a future map was made and 5)
Implementation.

2.2. Linear Programming

After creating VSM and eliminate waste that found on it, the next step is implementing lean tool for
improvement. The decision to choose which lean tool will be used must be consider the
implementation/investment cost. In this paper, linear programming used to calculate the
implementation/investment cost by optimizing on variable that related on lean warehousing such as man,
machine and materials. The notation used in this simple mathematical model is as follows.
LT : lean tool SLI : salary of indirect labour
TCi : total investment cost of tool i LI : number of indirect labour
Ii : implementation cost of tool i Ei : material handling i
TCPi : total cost of man power of tool i HDi : total handling cost of material handling i
TCMi : total cost of machine of tool i Mt : maintenance rate/time
TCIi : total cost of inventory of tool i Mr : movement rate per day
W1 : warehouse raw material Er : energy consumed by material handling i
W2 : warehouse finished good HC : holding cost
SLD : salary of direct labour To : turnover rate
LD : number of direct labour SS : safety stock

2.2.1. Choose lean tool. After waste successfully identified, the next step is choose lean tool that will
implement in warehouse. The tool that will be chosen must consider the total cost of implementation.
The consideration can be described as follow:
𝐿𝑇 = min {𝑇𝐶1 , 𝑇𝐶2 , 𝑇𝐶3 … 𝑇𝐶𝑛 } (1)
The total investment cost can be described as follow:
𝑇𝐶𝑖 = 𝐼𝑖 + 𝑇𝐶𝑃𝑖 + 𝑇𝐶𝑀𝑖 + 𝑇𝐶𝐼𝑖 (2)

2.2.2. Cost of man power (man). This mathematical model used to determine number of direct labour
(warehouse operator) and indirect labour (administration officer). The calculation can be described as
follow:
Objective function:

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IOP Conf. Series: Materials Science and Engineering 847 (2020) 012033 doi:10.1088/1757-899X/847/1/012033

𝑚𝑖𝑛 𝑇𝐶𝑃𝑖 = (𝑆𝐿𝐷 × 𝐿𝐷𝑊1 ) + (𝑆𝐿𝐷 × 𝐿𝐷𝑊2 ) + (𝑆𝐿𝐼 × 𝐿𝐼𝑊1 ) + (𝑆𝐿𝐼 × 𝐿𝐼𝑊2 ) (3)
Subject to:
𝐿𝐷𝑊1 + 𝐿𝐷𝑊2 ≤ 𝑇𝐿𝐷 (4)
𝐿𝐼𝑊1 + 𝐿𝐼𝑊2 ≤ 𝑇𝐿𝐼 (5)
𝐿𝐷𝑊1 , 𝐿𝐷𝑊2 ≥ 1 (6)
𝐿𝐼𝑊1 , 𝐿𝐼𝑊2 ≥ 0 (7)
𝐿𝐷𝑊1 , 𝐿𝐷𝑊2 , 𝐿𝐼𝑊1 , 𝐿𝐼𝑊2 𝑖𝑛𝑡𝑒𝑔𝑒𝑟 (8)
Constraint (4) describe the maximum number of direct labour in warehouse 1 and warehouse 2 while
constraint (5) describe the maximum number of indirect labour in warehouse 1 and warehouse 2

2.2.3. Cost of material handling (machine). This mathematical model used to determine the number and
type of material handling that will be used in both warehouses. The calculation can be described as
follow:
Objective function:
𝑚𝑖𝑛 𝑇𝐶𝑀𝑖 = ∑𝑛𝑖=1(𝐻𝐷1 × 𝐸1 ) + (𝐻𝐷2 × 𝐸2 ) + … + (𝐻𝐷𝑛 × 𝐸𝑛 ) (9)
Subject to:
𝐸1 + 𝐸2 + ⋯ + 𝐸𝑛 ≤ 𝑀𝑡 (10)
𝐸1 + 𝐸2 + ⋯ + 𝐸𝑛 ≤ 𝑀𝑟 (11)
𝐸1 + 𝐸2 + ⋯ + 𝐸𝑛 ≤ 𝐸𝑟 (12)
𝐸1 , 𝐸2 , … , 𝐸𝑛 ≥ 1 (13)
𝐸1 , 𝐸2 , … , 𝐸𝑛 𝑖𝑛𝑡𝑒𝑔𝑒𝑟 (14)
Constraint (10) describe the maximum number of maintenance rate/time for each type of material
handling, constraint number (11) describe the maximum movement rate per day for each type of material
handling in a day and constraint (12) describe the maximum of energy consumed for each type of
material handling.

2.2.4. Cost of inventory (material). This mathematical model used to determine the maximum number
of inventory that kept for each warehouse. The calculation can be described as follow:
Objective function:
𝑚𝑖𝑛 𝑇𝐶𝐼𝑖 = (𝐻𝐶 × 𝑊1) + (𝐻𝐶 × 𝑊2) (14)
Subject to:
𝑊1 + 𝑊2 ≤ 𝑇𝑜 (15)
𝑊1 + 𝑊2 ≤ 𝑆𝑆 (16)
𝑊1, 𝑊2 ≥ 1 (17)
𝑊1, 𝑊2 𝑖𝑛𝑡𝑒𝑔𝑒𝑟 (18)
Constraint (15) describe the maximum number of turnover rate for each warehouse while constraint (16)
describe the maximum inventory level based on safety stock for each warehouse.

3. Result And Discussion

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IOP Conf. Series: Materials Science and Engineering 847 (2020) 012033 doi:10.1088/1757-899X/847/1/012033

Before creating VSM, first thing that have to do is identify all the process in warehouse. In this case,
warehouse that the process will be observed divided into two warehouse types; raw material warehouse
(warehouse A) and finished good warehouse (warehouse B). Both the warehouses consist of same
activities; receiving, storing, picking and shipping. From all the process, there are some differences
activities in the process of receiving and shipping. In warehouse 1, the goods that received by the
warehouse comes from suppliers (raw material) while in warehouse 2 received finished good from
production floor. Shipping activity for warehouse 1 is deliver raw material into production area while in
warehouse 2 deliver finished product to the customer. Warehouse 1 consist of 27 activities (receiving
with 11 activities, storing 5, picking 8 and shipping 3) while warehouse 2 consist of 26 activities
(receiving with 2 activities, storing 7, picking 9 and shipping 8). Here is the VSM for warehouse 1 and
warehouse 2

Figure 1 Current VSM for Warehouse A

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IOP Conf. Series: Materials Science and Engineering 847 (2020) 012033 doi:10.1088/1757-899X/847/1/012033

Figure 2 Current VSM for Warehouse B

After create the current vsm, the next step is identify waste that came up from current vsm and find
lean tool for improvement based on linear programming consideration. The proposed lean tools for this
case are: re-layouting, invest new material handling, e-kanban, poka-yoke and 5S. Here is the cost and
time comparison for the entire proposed lean tool

Cost (Rp) Lean Tool Cost Comparison

Rp700000000.0 Total Investment
Rp600000000.0 Cost
Rp500000000.0
Implementation
Rp400000000.0
Cost
Rp300000000.0
Rp200000000.0 Total Cost of Man
Rp100000000.0 Power
Rp- Total Cost of
Re-layouting Material E-kanban Poka-yoke 5S Material Handling
Handling Tools
Investment
Lean Tool Option

Figure 3 Lean Tool Cost Comparison

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IOP Conf. Series: Materials Science and Engineering 847 (2020) 012033 doi:10.1088/1757-899X/847/1/012033

Time (s) Warehouse 1

3500
3000
2500 VA Time
2000 NVA Time
1500
Cycle Time
1000
500
0
Current Re-layouting Material E-kanban Poka-yoke 5S
Handling
Investment
Lean Tool Option

Figure 4 Time Consumed for Each Lean Tool in Warehouse 1

Time (s) Warehouse 2

16000
14000
12000
10000 VA Time
8000 NVA Time
6000 Cycle Time
4000
2000
0
Current Re-layouting Material E-kanban Poka-yoke 5S
Handling
Investment
Lean Tool Option

Figure 5 Time Consumed for Each Lean Tool in Warehouse 2

4. Conclusion
Lean warehousing can be used as one of the powerful tools for improves warehouse operation. The
combination between lean warehousing and linear programming could make lean warehousing more
powerful by considering cost of implementation for each lean tool. Figure 3 showed that the lowest lean
implementation cost is 5S, but figure 4 and 5 showed that there is no significant time improvement for
implementing 5S. The most significant time improvements are using E-kanban for warehouse 1 and
invest new material handling for warehouse 2. Invest new material handling is the most expensive
investment cost. Top level management must give the best solution for this problem to find the best
solution. This study could be done better by doing simulation for each tool to make sure that the chosen
tool gives the best improvement for warehouse performance and using multi criteria decision making to
prioritise between cost and time saving.

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IOP Conf. Series: Materials Science and Engineering 847 (2020) 012033 doi:10.1088/1757-899X/847/1/012033

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