Improve your warehouse operational efficiency

by differentiating your stock handling


December 2018


Lars Smith Christoffersen

The ABC analysis method has been around for decades and has been used for both operations processes and warehouse management – and it should be part of the toolbox for all warehouse managers and supply chain managers.

Even though the ABC method is widely accepted as one of the go-to ways of improving warehouse processes, we still quite often experience warehouses that are not taking advantage of differentiated stock handling in their warehouse processes. If the principles are not used in your warehouse processes, low-hanging fruits will probably be right in front of you.

In this article, we would first like to introduce you to the ABC analysis to be used to segment your warehouse stock, reduce travel time and increase the efficiency of operations. Secondly, we will introduce a case example of the benefits gained by using the ABC principles.

ABC analysis

The efficiency of your warehouse operations is closely related to travel distance – and this is no matter whether you have a manually operated warehouse, where your warehouse workers are picking by forklift or by hand, or you have a highly automated warehouse running automatically on conveyers, with cranes and robots handling various processes.

On average, 60% of your warehouse workers’ (or picking-robots’) time is spent on transporting themselves around the warehouse. Since so much time is spent on transport, a highly effective way of increasing the efficiency of your warehouse operations is to ensure that you store goods in the right part of the warehouse.

The stock keeping units (SKUs) that you are picking and transporting most frequently should be placed in the most accessible areas of the warehouse and close to the shipping area, whereas the SKUs that you almost never touch should be placed in the off-beat, dusty and hard-to-reach part of the warehouse. A well-proven tool to ensure this is the ABC analysis.

Structure your warehouse stock in ABC categories

The ABC analysis helps classify your products based on how often they are moved and your warehouse storage bins according to how easy they are to reach.

As a rule of thumb, your “A” products take up about 20% of your stock, but they account for 80% of your warehouse movements. Your “B” products take up 30% of your stock and about 15% of your warehouse movements, and your “C” products take up about 50% of your stock, but only 5% of the total warehouse movements.

With the ABC method, you can classify your products as categories “A”, “B” or “C” based on how often they are picked. If your products’ demand patterns are very different, you can consider making a separate ABC analysis for each particular area in the warehouse depending on where in the warehouse they are used. This way, you can classify one product as an “A” product in the area of the warehouse where you pick full pallets, while it is treated as a “B” product in the area where you pick smaller quantities.

Similarly, you can classify warehouse areas as “A”, “B” or “C”. Here, the “A” locations are the storage areas that are the easiest to reach and that are placed close to the shipping area (or close to the exit conveyor for an automated picking crane), whereas the “B” and “C” areas are harder to reach or further away from the warehouse exit zone.

After having classified your products as well as your warehouse areas, you change your warehouse stock placement strategies to use this data to choose “A” locations for “A” products, “B” locations for “B” products and so forth. This way, you reduce time spent on picking goods and thereby significantly increase your warehouse operational efficiency.

Experiences using the ABC method

We recently assisted in implementing the ABC principles in a medium-sized high-rack warehouse in order to improve warehouse efficiency.

In this warehouse, the picking and put-away processes were performed using handheld terminals in an online warehouse management system. In the stock placement process of purchased goods, the warehouse workers would manually select a suitable location for the incoming products in the physical inventory. The idea behind this product handling strategy was for the warehouse workers to apply their in-depth knowledge about the products to select the best storage spot.

After having used the new warehouse management system for some time, the workers started blaming it for being ineffective: “Why does the system keep insisting that I have to pick this product from the top shelf? I have picked it from the same top pallet five times today”. In order to examine whether the worker was right, an ABC analysis of the warehouse movements was conducted. The analysis showed that the fast-moving items did not always occupy the best warehouse locations. It turned out that some of the best spots (“A” locations) were occupied by some of the real slow movers (“C” products).

Further analysis showed that even though the workers were doing their best to optimise the stock placement of each single pallet, they sometimes still made mistakes. This was the case when new employees without thorough product knowledge started in the job, when products looked the same but had very different demand patterns, or when the workload in the warehouse was high. If you were in a hurry or occupied by other tasks, you were much more inclined to place a “C” product in an “A” location, simply to get the job done faster.

In order to find a better solution, the put-away processes were changed. The ABC product classifications were implemented in the warehouse management system, so that the system would now use it and suggest the best placement for the product. This also meant that the warehouse workers would have to rely more on the put-away locations suggested by the system.

The new warehouse management solution with ABC classification led to great results.

  • The different rack levels were now utilised better, as all “C” products were now stored at the top level in the high-rack, while the “A” products were stored at ground level.
  • The number of fast picks increased by 30%, thereby increasing overall productivity.
  • The number of picks from “C” locations was reduced by 70%, and it was ensured that all products in the future would get the optimum placement based on their demand patterns.

Want to know more?

Please feel free to contact us, if this blog inspired you to take a closer look at how ABC classification can help you increase the efficiency of your warehouse management, or if you are wondering what parameter to base your ABC classification on. We will help you get started on your journey towards structuring your products and increasing your warehouse operational efficiency.

We are also happy to supply you with a quick guide on how to calculate your products’ ABC categories based on data you would normally be able to get from your ERP system. In case you need assistance in related areas within supply chain management, inventory management, warehouse management solutions, warehouse management systems or operations, we are also happy to help.