Nelson, Jody and Nigel (NJN) operates a warehouse and distribution centre, storing and distributing 5,000 product lines on behalf of its client, an overseas sports equipment manufacturer.

NJN receives goods in shipping containers, which should include a packing list of the items they contain. Sometimes, packing lists are lost in transit and the manufacturer is asked for duplicates. Packing lists are manually input into NJN’s warehouse information system (WIS) in batches, usually within 48 hours of the goods being received. Goods are first unpacked into a sorting area, and later moved to wherever there is available warehouse space once the packing list has been input. The WIS records the location within the warehouse where each item is located. The client’s customers, who are retail stores, place orders by email, and do not currently have access to real-time inventory levels in NJN’s warehouse.

Each morning picking lists are printed in the warehouse office. These lists show the quantities of items to be picked and the items’ 12 digit product codes. Staff use these codes to retrieve items from the warehouse locations for despatch to retailers. In 8% of picking lists, at least one item is not in the location or does not have the quantity specified by the WIS. As a result, the item is not despatched, or the wrong item is picked. A small team investigates these discrepancies, using special reports which the warehouse manager extracts from the WIS. The team manually reconciles quantities of missing items in the warehouse to the sports equipment manufacturer’s own records of the items which should be in inventory. If missing items cannot be found, the customer is informed via an email that they are unavailable.

The sports equipment manufacturer has a service level agreement with NJN, covering the accuracy of picking and the proportion of customers’ orders successfully fulfilled. NJN’s performance on these has deteriorated, especially when there is increased seasonal demand for certain products. At these times staff are under increased pressure to pick items quickly, and so picking accuracy deteriorates and absenteeism increases. There have also been accidents where goods have not been safely placed or safely picked from warehouse locations at busy times. These accidents have resulted in minor injuries to some employees.

The sports equipment manufacturer has threatened to end NJN’s contract if performance does not improve. In response, NJN has recruited more staff to investigate discrepancies between items physically in warehouse locations, and those shown on the WIS at busy periods. It has also begun a series of cyclical inventory counts where every product line is counted every month to correct the quantities and locations shown on the WIS. NJN has rented an additional nearby warehouse in which to sort incoming items before they are put away.

NJN has hired a management consultant who is an expert in ‘lean’ principles and the application of these to management information systems. She believes that the WIS is wasteful, not adding value to the business or to its customers, and has suggested that NJN would benefit from the application of lean principles to this system.

She has suggested three proposals:
– that NJN reorganise the warehouse by storing high volume items close to the despatch area,
– shut down the additional warehouse, and
– discontinue the cyclical inventory counts.

To help with the adoption of lean principles in the warehouse reorganisation, the management consultant recommends NJN apply the ‘5Ss’* of lean principles, and she has suggested performance metrics which can be used to evaluate NJN’s progress towards adopting these (Appendix 1).

*Structurise, Systemise, Sanitise, Standardise, Self-discipline.

Required:

(c) Evaluate whether the application of each of the 5Ss following the warehouse reorganisation at NJN is adequately measured by the performance metrics in Appendix 1. (9 marks)

Appendix 1 – Performance measures for 5Ss relating to warehouse reorganisation
1. Warehouse manager’s daily assessment of the tidiness of the warehouse on a scale of 1–10.
2. The proportion of inventory not stored in order of its alphabetical description with products with names beginning with ‘A’ nearest the despatch area and ‘Z’ furthest away.
3. The number of accidents caused by goods being incorrectly stored or picked.