Logistics as a service and cost driver

The function of logistics in the company

Logistics is a key operational function that affects the entire company.

The logistical challenge is to keep input materials, components, semi-finished goods (work in progress) and finished goods available in the required quantities, at the right time and in the right place at every stage of the business process and to support the value creation process. This optimization task, which is of existential importance to companies, falls to logistics. Achieving this result costs money. Depending on the industry, product and radius of action, the logistics costs of companies amount to 10-35% of sales revenues. This order of magnitude shows the relevance of logistics.

Logistics is essentially about optimizing three criteria:

  • Reliability,
  • speed
  • and costs.

The expression of these three criteria can be traced back to the availability of materials and equipment, logistical performance and the quality of logistical processes.

  • Availability can be achieved through stockpiling or through supply agreements with suppliers and cooperation partners.
  • Performance ensures short throughput times, short delivery times and consistent supply.
  • The quality of logistics processes ensures good tracking of operations in near-real time and low error rates.

All three criteria are interdependent. With service-oriented logistics, which focuses on reliability and short delivery times, companies can distinguish themselves in the competitive environment, secure customer relationships and achieve premium prices. However, logistics is also a cost driver. This gives rise to a natural conflict of interests between the best possible fulfillment of customer requirements and the optimization of logistics costs (trade-offs). For this reason, the design of logistics services is an important optimization task, both strategically and operationally.

Logistics as an integrated operational function

The logistic performance consists in an optimization of priorities and total costs. However, “merely” supporting the company’s previous operations through logistics is rarely sufficient for such an overarching optimization. Rather, new paths must often be taken for overall optimization. As a rule, the maximum positions between customer requirements and logistics cost optimization can be approximated by standardization. For example, the later in the process variants are created, the lower the complexity, the time required and the costs can be kept. A lack of reliability has a cost-driving effect on the entire logistics process. Measures that improve reliability may appear expensive on the surface, but are cost-reducing when viewed holistically. Accordingly, expensive express deliveries can reduce overall costs in situations where this avoids bottlenecks. In other cases, time-consuming transport routes can be chosen. The cost of a shipment is not limited to the carrier’s invoice. It does not matter how high the costs are for a specific logistics task, as long as the overall costs are optimized as a result.

However, logistics can only have a meaningful influence on the number of product variants and on the point in time at which variants are created in the value creation process if it is integrated into the overall business process.

However, the integration of logistics into the business process also makes the management of logistics increasingly complex. Logistics is influenced by forecast and order management and has an impact on storage and retrieval processes and thus on warehousing, but also on the transport of goods and delivery to the sales channels (marketing channels). Depending on the type of product, wholesalers and retailers may be involved in the marketing channels.

Depending on the market situation, logistics alternates between the priorities of providing the best possible support for the marketing concept (servicing demand) and ensuring access to input materials (maintaining supply and procurement).

As markets become increasingly dynamic, the demands placed on logistics evolve from reactive to proactive action. Instead of reacting to customer requests, the focus is on creating and tracking plans to avoid the more likely material shortages in advance. To do this, logistics models that can be used to run scenarios are gaining importance.

Supply chain management: How your logistics can unlock the potential of the entire value chain

If logistics is understood to include not only internal company operations, but also the processes of supplying input materials and distributing finished goods to sales channels, we speak of supply chain management.

There are basically two ways to implement supply chain management:

A continuous and synchronized coordination of the entire cross-value chain process, without buffer capacities and without intermediate warehouses (just-in-time) can be considered. In a simple variant, this option can be implemented with a Master Production Schedule (MPS) that follows a “Buying and Merchandizing Plan”. In supply chains, even the Kanban principle can be implemented. In this case, the next station in the value chain draws materials from the previous station as needed.

It is also possible to decouple the internal operations from the sales department, which buys its independence through buffer capacities and intermediate warehouses.

Goals for logistics: How your logistics can optimally support your business

Logistics must support your business in the best possible way. To do this, your logistics needs a target that aligns with your business model and strategy.

Logistics must follow a uniform logic that determines the entire process from planning, procurement options, internal material flow (process inventory) and warehouse management (warehousing) to the distribution of finished goods.

The objective of logistics must be derived from the corporate strategy. Two extreme objectives are conceivable:

  • logistics that ensures reliable, consistent customer supply with short delivery times
  • or logistics with the lowest process costs.

In practice, however, such a black-and-white decision is not a sensible objective. With all the gradations, the logistics goals must be defined all the more concretely in order to give logistics an orientation.

When setting targets, the basic rule is that logistics costs increase exponentially with higher delivery service. Therefore, think carefully about how much customers are willing to pay for a given level of service.

The logistics system can then be designed based on the target. Each element in the logistics chain can be managed to contribute something to the overall objective.

Communication in logistics: How to achieve high logistics performance

Not only for communicating objectives, but especially for coordinated implementation of stable logistics processes, careful, timely (real-time) and effective communication, supported by appropriate applications of IT technology, is indispensable.

To achieve this, logistics must develop and deploy a suitable, integrated operational system. A business process-encompassing information flow is a necessary prerequisite for the expedient flow of materials. Errors in information flow can lead to serious problems in the supply chain. Two types of errors occur frequently:

  • Incorrect Forecast: When incorrect information leads to wrong conclusions about developments and trends, wrongly anticipated dispositions can lead to overstocking or out of stock.
  • Incorrect order: If order specifications are transmitted incorrectly, this can lead to misproductions, rejects and/or complaints.

Operational design of logistics: What your logistics should focus on

To enable a stable logistics process, the following areas of action are recommended:

  • Strive for minimal deviations (wrong specification, damaged goods, production interruption, wrong delivery address, etc.) by coordinating at all interfaces in the logistics process.
  • Logistic support of high production performance by avoiding missing material
  • Striving for minimum stock levels – explicitly not “zero inventory” – in order not to hold any slow-moving items, but without jeopardizing processes
  • Combining smaller operations (order quantities, production lot sizes, etc.) into collective operations
  • Logistical support of sold products throughout their life cycles
  • Automation of warehouse operations

In addition, energy costs are becoming a relevant factor in logistics concepts. If energy costs change significantly, logistical decisions can be completely re-evaluated and, if necessary, changed.

Finally, logistics processes are often extremely personnel-intensive. However, they often also harbor considerable automation potential that can be tapped through standardization. Standardization is therefore a preliminary step necessary for automation. In any case, automation replaces personnel costs with costs for capital goods. Whether this step is worthwhile must be analyzed in each individual case. Flexibility is often lost with automation.

Organization of logistics: How you should embed logistics in your organization

Logistics is still often underestimated, both in its complexity and in its influence on the performance and profitability of companies. It is a crucial operational function with a high need for coordination. Accordingly, you should carefully decide how you want to embed your logistics in the organizational structure of your company. As tempting as it may be to run logistics as a profit center, given its supportive nature and its overarching influence on all business units, it is advisable to run logistics as a cost center, with the aim of minimizing overall costs for the company.

However, the more sophisticated logistics becomes and the more specialized logistics expertise is required, the more attractive even the option of having specialized third-party providers deliver logistics expertise and capacity to the company’s own business process (outsourcing) may become, instead of maintaining expertise and capacity in-house.

Asset tracking with IoT (Internet of Things)

Asset tracking as a requirement

In logistics, information about where assets are located is essential. Location information can now be collected via devices that send signals over the Internet (Internet of Things (IoT)).

There are commercially available cloud-based applications that can use this information to identify bottlenecks and optimize processes; they can even automate processes. Typically, such applications are offered as software-as-a-service (SaaS). The cloud-based IoT applications can be integrated with enterprise resource planning (ERP) systems, management execution systems (MES) and management information systems (MIS) via open APIs.

Such IoT applications help industrial companies locate input materials, semi-finished products, equipment, finished goods and other operating resources, saving search effort and avoiding machine downtime. This is of particular interest to manufacturing companies that store starting material, semi-finished goods and tools on the store floor. But in many retail companies, too, the flow of materials can be made more efficient through the use of IoT applications.

Through the tracking function, IoT applications also support the efficient flow of materials in the business process, even outside the operational boundaries. However, IoT solutions are not only useful for locating and tracking assets, but also simplify inventories because items in stock can be recorded automatically. In the logistics process, IoT applications can also be used to avoid excess inventory and reduce costs.

IoT technologies and applications

IoT applications can use different transmission and location technologies, even combined, depending on the application, from ultra-wideband (UWB) to Bluetooth to global positioning systems (GPS).

Assets are tagged with mobile transmitters (tags) that communicate with the application via stationary receivers (IoT hubs).

Radio Frequency Identification (RFID) technology is characterized by the use of passive elements for transmitters, while batteries must be used for UWB and Bluetooth. The information can be accessed via Internet browsers or apps.

While RFID transponders and readers are suitable for small distances between transmitter and receiver, for example in rows of shelves, GPS systems can be used for long distances.

UWB technology, which can be applied in combination with RFID or beacons, makes it possible to track assets in operational processes in real time (tracking). Using the geofencing method, information about the entry and exit of assets into and from defined zones can be captured. Information about misrouted assets can also be displayed in the form of routes, heat maps or on driving paths (spaghetti diagrams).

Changed way of working through IoT

Digitization and IoT applications based on it are fundamentals for automating warehousing and material handling. They make the use of robotic storage systems possible. Such robotic storage systems can be supplemented by gripper robots, which are equipped with camera systems, can find and remove small parts in the warehouse. The removed parts can be fed to self-propelled industrial trucks which, as shuttle systems, take over the internal material transport within operational areas. In turn, they are connected by system technology to the workstations in the plant that demand parts. In this way, IoT applications enable the implementation of Industry 4.0 concepts, of which there is much talk. The systems can even learn through the use of artificial intelligence and continuously improve their performance and efficiency. Human work will shift to planning, setting up and rescheduling these systems and to maintenance and repair work. The actual work in the warehouse and in the internal flow of materials, which can be standardized, will increasingly be performed by networked, autonomously operating machines that exchange warehouse and process data with each other in real time. Increasing contingency requirements in logistics, the worsening shortage of skilled workers and rising labor costs are driving this trend.

In many cases, however, there will continue to be collaboration between robots and humans. Here, robots will not only perform simple tasks, but also contribute to better work organization. Communication between robots and humans will be simplified through meaningful voice exchanges. The chat bots used for this purpose will no longer work on the basis of rules, but will learn by using them. The interaction of people, information, hardware and software must be tailored to company-specific needs. A good understanding of customer requirements, processes, the capabilities and capacities of the work systems, and the required flexibility is an essential prerequisite for this. In addition, a careful analysis of potential should be carried out to avoid bad investments. Automating logistics is a correspondingly complex task.

Interplant material transport is also likely to be automated.

This starts with the efficient, autonomous loading of goods onto trucks or into containers. This usually involves implementing a predefined packing pattern in order to make optimum use of the trucks’ loading capacity, ensure transport safety and, at the same time, load the goods that are to be unloaded first last. Until now, companies have made do by placing the load in a field next to the truck loading bay, picked in such a way that forklift drivers can load it onto the truck in exactly the same way. In the future, with autonomous loading, this intermediate step can be eliminated in many companies.

Autonomous driving is already technically and legally possible. Autonomously driving trucks will pick up signals via the Internet and camera systems, process them against the background of their route planning, traffic rules and the current situation on the road, and convert them into independent decisions and actions. Work is also already underway to implement self-driving trains. This will help to counteract the shortage of drivers. Finally, freight drones that can carry out unmanned material transports in the air will also be increasingly used in the future.

One example of this is the project by the company Dronamics, which is working with Hellmann Worldwide Logistics to use autonomous drones to ship goods between company sites.

Freight ship transport will also increasingly take place without the use of personnel. Inland shipping is particularly suitable for this, which is also intended to take traffic off the roads.

One example of this is the project of the company Unleash Future Boats, which is building autonomous cargo ships that can even be operated in a CO2-neutral manner.

Environmental protection in logistics

In addition to process reliability, process speed, cost efficiency and contemporary working conditions, environmental protection is also becoming increasingly important in logistics. 

The demands on companies to operate in a sustainable, climate-friendly and socially responsible manner are increasing. Supply chain management has responsibility and great influence on the supply chain, especially on the suppliers used and on the supply routes. Therefore, supply chain management and in-house logistics can make valuable contributions to meeting these requirements.

This is an additional objective of logistics, which superficially collides with profitability goals. Finding and implementing a well-coordinated path is a challenge for logistics that is growing in importance.

In order to also meet the requirements legally, logistics companies must deal in particular with the Supply Chain Act, incorporate the requirements into their logistics decisions and fulfill appropriate reporting.

The requirements for short transport routes and CO2-neutral transport systems are influencing logistics decisions. The latter are influenced by lightweight construction concepts, further optimization of loading volumes and alternative drive systems. Replacing fossil fuels with renewables such as green electricity, green hydrogen and CO2-neutral manufactured synthetic fuels can make drive systems CO2-neutral. Green hydrogen promises to be particularly beneficial for rail transportation. Intra-company material transport is also increasingly using electricity-powered means of transport, be it industrial trucks, forklifts, ants or cargo e-bikes.

Packaging and avoiding returns are also important starting points for reducing CO2 emissions into the atmosphere. In online retailing, avoiding returns starts with product descriptions and high-resolution, three-dimensional images of the goods.

Logistics-relevant processes

Integration of logistics into forecasting

Dynamic fluctuations in demand and fundamental uncertainty regarding demand in volatile times require companies to be more flexible. Logistics must respond to this. The challenge of logistics is to continuously adjust supply to demand by managing resources and capacities in an agile manner. For this purpose, the use of AI-supported demand planning software is recommended in logistics. Demand fluctuations, supply chain disruptions, capacity bottlenecks can be incorporated into forecasting through artificial intelligence applications and reconciled by making adjustments that are effective at short notice…

Accompanying order management

Logistics should already be involved in order management to proactively plan logistical work.

Support of the procurement

The logistics has an interface to the procurement. Therefore, procurement must be co-ordinated with logistics. If operational round-trip is the first goal, then resilience must take precedence over the best possible procurement price. Consider costs for reduced processing speeds, scrap, and machine downtime that have their root cause in procurement as procurement costs. Optimize these comprehensively defined procurement costs instead of just looking at purchase prices.

This consideration will have influence on your procurement strategy (re-shoring): Keep multiple procurement sources on hand to ensure stable supply, rather than relying on single sourcing, even if it is supposedly more expensive per unit purchased. Also, weigh the advantages of sourcing from low-wage countries with the disadvantages and choose a balanced path that best supports logistics.

Product specifications and purchase prices are becoming more transparent with the availability of Internet-based procurement platforms for many standard components. When deciding on your procurement sources, place particular emphasis on the quality of delivery reliability (delivery consistency). Differences in competition are increasingly fed by the quality of logistics processes.

Support for production

The internal flow of materials is another important task of logistics, which has a major influence on operational round-trip, capacity utilization and production efficiency. This task includes the just-in-time provision of input materials or raw materials to the work systems in production, the collection of the finished workpieces from the work systems and forwarding to the next processing operation. This may well involve intermediate storage of the workpieces due to the process or deadline, which is organized by logistics.

The better logistics can avoid waiting times in the production process, the better the production results.

Logistics should be organized in such a way that the overall result consisting of production benefits and logistics costs is optimized.

Coordination and, if necessary, execution of material and goods transport (shipping)

One area of logistics work is the coordination and, if necessary, also the execution of material and goods transportation. This includes the supply of raw materials, auxiliary materials and input materials, the transport of semi-finished goods to service partners and back, and the delivery of finished goods to customers.

For some companies, it can make sense to have freight forwarders handle external transportation. To this end, some freight forwarders even set up offices on their clients’ premises and network closely with the company’s own business processes.

Logistical business cooperation

Flexible cooperative relationships in the supply chain or value network can help companies to manage cross-company material flows in an agile manner. Cooperation in corporate networks also lends itself to other tasks, in which logistics service providers, laboratories and development partners such as tool manufacturers can be integrated.

However, effective adaptations require a real-time flow of information between the cooperation partners. All partners must have access to the relevant inventory and transaction data in order to control their own processes in a meaningful way. To achieve this, “data silos” must be replaced with open systems that enable supply chain workflows with relevant real-time data transfer. This is not possible via email exchanges, but requires integrated, collaborative network platforms for cross-operational logistics process planning and control that encompasses the entire supply chain, if possible. Such platforms are often composed of “best-of-breed” special applications that are connected via APIs to form complete systems. Rights management is of course of concern in this context.

Requirements-based personnel policy for logistics

Structural changes in logistics

While logistics has been an extremely personnel-intensive function to date, the employees who will work in logistics in the future will be highly qualified. Simple activities such as packing items, picking from the warehouse, picking customer delivery volumes with gripper robots and moving goods will become increasingly automated. In-house, proven automation solutions for warehouse management and shuttle tasks have long been available and are already in use in many companies. As a result, the cost structures in logistics are changing from personnel costs to costs for investments in automation equipment. Processes will become less dependent on the availability of personnel. While personnel are expensive at night, energy costs are cheaper at night, and machines do not care what time of day they are used.

Future demands on logisticians

The goal of logistics is to keep operations running smoothly. The increasing demands of logistics tasks, which are becoming more complex, require increasingly qualified personnel to achieve this. After all, logistics is not just another operational function; rather, all operational functions with their diverging interests converge in logistics. The holistic optimization of logistics requires logisticians to understand the entire business operation. In addition, effective supply chain management increasingly requires an understanding of and exposure to data-based logistics concepts, tracking systems. That’s why it often makes sense to bring into logistics experts with experience in other operational functions and recruit lateral hires with cross-functional expertise in, for example, digitizing processes, data management and analysis, implementing powerful communication systems or process automation, and for that, robotics and machine learning.

When logistics doesn’t run smoothly, the stress begins, especially for employees in logistics. That’s because the logistics job is basically proactive and reactive management of exceptional situations. That’s why logisticians have to keep their nerves and a steady hand despite all the hustle and bustle. Not everyone has this personal quality.

Finally, logisticians must also be able to assert themselves against higher-ranking managers. This is because individual interventions in the logistics process, with which managers want to fulfill special customer wishes, usually trigger cascading consequential problems, for which logistics is then held responsible once again.

The use of data-driven systems, with which logistics decisions are not only supported but increasingly even made by AI applications, is also shifting roles and responsibilities in companies. Logisticians are taking on greater responsibility for the company’s bottom line. And functioning logistics requires appropriate corporate management that creates the necessary conditions for logistics to be able to work effectively and transfers decision-making power without exception. The increasing demands in logistics also suggest special programs for employee retention.

In addition, corporate management should promote the standardization, digitization and automation of logistics processes where this makes sense.

Logistics is a central function in companies and it is essential to keep it efficient.

Container management

Container management is a particular logistics issue. Logistics involves handling materials that must be transported and stored intact in an efficient manner. Special transport packaging is usually used for this purpose. Depending on the application, disposable or reusable packaging is an option. Depending on the application, either circulation systems or single-use systems can be more cost-effective and environmentally friendly.

Both in industry and in the food trade, standardized container systems have emerged that can be used in circulation. These standardized pallets, mesh boxes and plastic crates are called Returnable Transport Items (RTIs). Roughly, these RTIs include small load carriers (KLT) and large load carriers (GLT). The former are lockable crates, while the latter are returnable pallet and mesh box systems for components and returnable intermediate bulk containers (IBCs) for bulk materials and liquids.

The containers can either be owned by the companies involved in intra- or inter-company circulation or rented from pool operators. There are various rental concepts, of which two have become established. Costs are usually based on days of use. This motivates users to return the containers. This is important so that as many containers as possible are available in circulation and shrinkage is minimized. Otherwise, many more containers would have to be held as buffer stock in the pool system and more losses would have to be replaced by an ongoing replenishment.

For users of returnable load carriers, availability is most important. Load carrier costs often play a secondary role, but become more important as margins shrink. Careful container management can both improve availability and reduce costs.

Managing containers in circulating systems is a particular challenge, and RFID technology can help decisively. Read more …

RFID technology for container management in pool systems

Containers can take on additional functions beyond their pure packaging function. They can be used to identify the position of containers, provided they are equipped with tracking functionality. Tracking technologies include

  • Global positioning systems (GPS),
  • active radio-based systems (Bluetooth Low Energy (BLE), Ultrawide Band (UWB)),
  • optical systems, i.e. barcodes in one (1D) or two dimensions (2D), optical character recognition (OCR) or optical object recognition (OOR)

                as well as passive, radio-based systems, i.e., Radio Frequency Identification (RFID) systems with low-frequency (LF), high-frequency (HF) and ultra-high-frequency (UHF) operation, are commercially available.

The requirements in logistics include identification

  • without visual contact
  • without power supply to the tags (passive)
  • even if the containers are dirty
  • in different lighting conditions
  • several containers at the same time, e.g. stacked on a pallet.

Barcodes are still very common in logistics. However, they cannot be generated automatically in large quantities, are sensitive to soiling and must be scanned individually. They therefore do not meet all the criteria that logistics demands.

Because passive, radio-based identification systems meet all requirements, they are becoming increasingly popular in logistics. The load carriers are equipped with passive radio frequency identification (RFID) tags. Such tags are available for all common container materials, i.e. for plastic, for wood, for signal-reflecting metal and even for ESD materials. They can be used at up to 230 °C without degradation. LH and HF tags are suitable for reading individual containers over short distances. UHF tags allow large numbers of containers to be read simultaneously, even from greater distances. They are also significantly less expensive than the active BLE and UWB tags and independent of power supply.

In the ERP systems of the companies, the assignment of containers and contents based on the RFID tags of the containers (marriage of load carrier and contents) can also be used to manage the inventory in the cycle in a controlled manner.

RFID-based load carrier management refers to the complete cycle of load carriers. The positions and movements of load carriers can be tracked at defined transfer points using permanently installed or mobile readers. Such transfer points (gates) can be gates or forklifts, for example. In this way, transfers of goods in the plant can also be recorded. For the management of containers in inter-company systems, it is important to use a uniform data format and uniformly defined information. As a consequence, it is necessary that all integrated gates can really provide this information.

This allows the usage of the load carriers to be determined and charged to the users. Depending on the industry, many pool providers calculate usage per loop, while others calculate it per day of usage.

With applications of RFID technology for container management, container pools and inventory can be managed effectively and efficiently. This can effectively avoid bottlenecks, supply chain disruptions, and the costly fetching of both totes and merchandise in business processes. Good container management can help companies reduce capital lockup and increase process efficiency in a profitable way.


Warehouse management, warehouse operations (facility location)

The performance of warehouse management is largely determined by the construction, size and layout of the property used for operations. Forward planning of the real estate is therefore indispensable.

When goods are delivered, they must first be identified and the transport order accepted before the goods are unloaded and then either directly fed into a production process or put into storage. Goods urgently required by customers can also be routed directly to order picking (cross-docking) and bypass the warehousing process.

Even when receiving delivered goods, the efficiency of the process depends on the means available. The better ramps, gates, functional areas and forklifts support the handling of delivered goods, the more efficiently the work can be done.

It is helpful to have a warehouse pre-zone where the goods are first deposited, inspected and clearly marked. The marking can be done with labels, barcodes, QR codes or RFID tags. The type of labeling sets an important course with regard to the automation capability of warehouse movements.

Now it must be decided how and where the goods are to be stored. Depending on the type of goods, open areas, covered areas, racks, high-bay warehouses or small parts warehouses are suitable.

Small items are usually placed in small load carriers (KLTs). Larger items can be placed in large load carriers (GLTs) or on pallets. Both KLTs and GLTs and pallets are then tagged with information about the items using a barcode, QR code or RFID tag.

Warehouse management systems are usually equipped with information about the designated storage locations for specific items. This allows warehouse employees or automatic conveyor systems to move the goods to the respective designated storage location and store the goods. The choice of storage location or storage compartment is influenced by physical conditions of the goods and the warehouse and by operational processes. In particular, fast access is relevant. Finally, quality and safety-related specifications must also be taken into account when selecting the storage location. Not all items may be stored together. Stainless steels, for example, are stored separately from normal steels. Labor regulations on the storage of flammable or explosive articles must also be taken into account when choosing a storage location.

The best possible utilization of storage capacity is also a criterion when determining the storage location. Good warehouse management systems take all factors into account and provide storage locations that optimize the overall situation. It is important to know that the optimum of the storage location determination is usually a compromise.

Once the goods have been put away, the putaway must be confirmed at the storage location in order to have an overview of the warehouse stock. This acknowledgement is again done by marrying the identification of the load carrier with the identification of the storage location.

The entire storage process can be automated by a forklift guidance system that is linked to the warehouse management system by data. In this way, the operation of racking systems and small parts warehouses can be fully automated. Whether this makes sense depends heavily on the individual circumstances. If automated picking systems are to be reloaded, they could also be loaded automatically.

Picking systems in logistics

Picking: What matters in order picking

The (specialized) wholesale trade fulfills the functions of assortment formation and delivery readiness. Both functions usually require their own warehousing, apart from drop shipment, where goods are physically transported directly from the manufacturer to the wholesaler’s customer.

Warehousing requires the handling of goods once for storage and then for retrieval for transport to customers (shipping). During retrieval, items ordered by the customer are picked according to the order, i.e., taken from the warehouse stock (picking), packed and shipped. This picking is labor-intensive. The lower the value of the goods, the more important cost-efficient picking becomes. Traditionally, warehouse employees use a picking list derived from the customer order to find the items to be picked in the warehouse and assemble them into the ordered scope of delivery. The picking must be documented at the same time in order to update the warehouse stock.

Meanwhile, picking can be supported by picking systems of different designs. In this process, the warehouse worker receives an instruction from the picking system to remove a certain number of items from a specific container. The container to be selected is often marked by a light signal. After picking, the warehouse worker acknowledges the activity by pressing a button. Alternatively, the removal can also be acknowledged by reading barcodes attached to the bins and to the items by fixed or mobile scanners.

Finally, the picked items, which have been combined into a delivery, must be completed with delivery bills, including customs documents if necessary. The sensible combination of several orders into one delivery is also part of picking.

In companies, either single-order picking or multi-order picking is used, depending on the requirements. In single-order picking, each warehouse worker handles exactly one customer order at a time. In multi-order picking, a warehouse worker picks items from the storage locations for several customer orders at the same time. This increases the efficiency of warehouse workers while increasing the error-proneness of their work. The high-end solution is so-called bin picking, in which robots remove ordered items from bins and feed them to a picking station.

Picking is also a metric in logistics. To quantify logistics performance, it is measured how many picking operations are performed per shift, per month and per year. To record how time-consuming it is to assemble deliveries, the average number of picks required per pick is recorded.

Picking is followed by the process of packing. The packing process includes the use of the intended packaging, the packing itself, checking the weight and labeling the packaging.

Measures to improve picking efficiency

Various measures can be taken to improve picking efficiency. Powerful warehouse management software is needed to implement them.

The warehouse layout has a great impact on picking efficiency. The more picking-friendly the warehouse is organized, the fewer time-consuming and expensive trips there are. The arrangement of products in the warehouse should therefore take aspects of efficient picking into account. The stock turnover rate of the individual articles plays just as important a role as the usual composition of deliveries. A picking-friendly warehouse is therefore not necessarily organized in such a way that similar items are stored together, but rather in such a way that items ordered together are stored as close together as possible. Restrictions are, of course, imposed by differences in size and weight between items. The optimal warehouse organization will therefore always be a compromise. However, it is important that these aspects are known and taken into account when organizing the warehouse.

Another measure to improve picking efficiency is to select the appropriate picking method to optimize employee productivity. There is no best method; rather, suitability depends primarily on the size of the warehouse, the variety of items, and the typical scope of supply. An appropriate analysis can provide insight into the most suitable picking method.

Machine support, even automation of picking processes, can also be an option to make picking more efficient. Storage and retrieval machines and floor conveyor systems are available for this purpose, some of which can be used fully automatically. Whether and to what extent automation is worthwhile must be determined on a case-by-case basis. The decision depends above all on the order volume and the number of similar operations and similar articles.

Not to be forgotten is the packaging at the end of the picking process as a source of increased efficiency. Depending on the variety of items, the type of packaging can be better or less standardized. As the packaging becomes more standardized and the volume increases, automation of the packaging process becomes an obvious option. A wide variety of packaging machines are available on the market that automatically perform tasks such as packing, stacking and palletizing. Such machines can even be integrated into a packaging line. Special packaging materials, be they prefolded packing materials or folding cartons suitable for automatic packaging machines, are also commercially available.


There are several options for shipping goods. Goods can be shipped as general cargo with a parcel service or with freight forwarders. To decide, as is often the case, schedule goals and cost goals must be reconciled.

Industrial companies usually use freight forwarders. Industry- or product-specific semi-trailers are available for every purpose.

A distinction is made between

  • Tarpaulin semi-trailers (tautliners),
  • box trailers,
  • dump semi-trailers (tippers),
  • platform trailers,
  • low-bed trailers (mega trailers),
  • silo and tank trailers
  • and container trailers.

Special features include walking floor trailers, which enable automatic loading and unloading of bulk materials.

This involves the loading and unloading possibilities, but also the volume and weight of the cargo to be transported.

The efficiency of the use of trailers increases with the utilization of their capacity. But the efficiency of transport also depends on route planning. The more goods are shipped, the better loads and tours can be optimized.

Software applications can help with load optimization. Some companies place the goods to be transported next to the trucks’ loading points in boxes drawn on the floor exactly as they are to be loaded on the truck. The loading pattern takes into account not only the trailer’s capacity utilization, but also the sequence of unloading at the unloading stations along the route. This saves time during unloading.

Key figures for logistics

Key figures for logistics cover the areas of warehousing, transportation and supply chain. They relate to logistics performance, logistics quality and logistics costs. Common key figures for logistics are compiled here:

Logistics costs

In order to better assess logistics costs, it is useful to relate them to the turnover with the transported goods.

Delivery accuracy (consistency)

Delivery accuracy includes what proportion of all deliveries were delivered at the agreed time, complete and undamaged.

Delivery quality

The quality of delivered goods is measured as the proportion of all deliveries in which the ordered goods arrived complete and undamaged and no complaint was made.

On-time reliability

On-time reliability (OT) indicates the percentage of all deliveries that were delivered at the agreed time.

Order lead time

Transportation costs

To better assess transportation costs, it is useful to relate them to sales of transported goods.

Capital tied up in inventory

Capital tied up in inventories drains liquidity from the company. The cost of holding inventories can be determined by comparing what the same capital would earn on the capital market for a comparable risk.

To do this, the interest rate must first be determined, which is derived from the risk-free prime rate and a risk premium. The risk premium is determined from the probability of being able to use or sell the goods promptly at the full price.

The cost of tying up capital in inventory is calculated from the product of the inventory interest rate and the capital invested in stored goods (value of inventory) and the storage period.

Capacity utilization

The capacity utilization metric can be determined, run and managed for the warehouse, transportation equipment, putaway, picking, and personnel.

Inventory turnover rate

Inventory turnover ratio indicates the overall marketability of stored goods. The ratio is a dimensionless quantity. However, the inventory turnover rate does not show which products turn over better and which turn over worse.

Stock range

The stock range shows the time in which the supply from the stock is given on average.

Applied to the total stock, the ratio is only an orientation. In order to know the actual stock range, it must be determined for each article.

Stock accuracy

The more accurately inventories are recorded in the ERP system, the more smoothly processes run. It is therefore interesting to know the differences in order to eliminate them. Physical stocktaking on the occasion of annual inventories can provide data that can be used to record inventory accuracy. A trend over time allows conclusions to be drawn as to whether inventory accuracy is improving or deteriorating. Appropriate action can then be taken. Sometimes certain items are recorded incorrectly in the ERP system for some reason.

Relative stock

The inventory level depends, among other things, on the sales revenue. In order to secure the stock range, the stock level must “grow” with the growth of the business volume. However, care must be taken to ensure that inventory levels are reduced when business declines. Whether the relationship can and should always be proportional depends on the business. In any case, the development of inventories in relation to sales gives an indication of the need for action.

Supplier Compliance

Picking performance

To determine picking performance, this performance can be recorded per shift, per month, and/or per year and the metric can be used as a leadership index.

Goods delivery

The number of merchandise deliveries can be an indicator of sales activity and sales. The metric is also interesting for identifying changes in delivery volumes over time.

Transport time

The average transport time required is a quality characteristic that influences customer service. As the transportation time increases, so does the delivery time. Short delivery times can bring competitive advantages that justify higher prices. This metric can also be used to measure freight forwarders.

In addition to analyzing one’s own key figures, a comparison with industry key figures is useful as a way of determining where one stands. The comparison reveals potential for improvement that can be tapped. Some meaningful industry indicators are accessible via industry associations. But also an exchange in an industry cluster can provide information.


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