UNIVERSITY OF VAASA 
FACULTY OF TECHNOLOGY 
INDUSTRIAL MANAGEMENT 

 
 
 
 

 
 
 
 
 

Renja Gauriloff 
IDENTIFYING PROBLEMS IN THE WAREHOUSE PROCESS 

Case China 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 

Master’s thesis in  
Industrial Management 

 
 
 
 
 

VAASA 2012  



1 
 

TABLE OF CONTENTS 
 
1. INTRODUCTION ...................................................................................................................... 6 

1.1. Thesis background ........................................................................................... 6 

1.2. Research problem and objectives ..................................................................... 7 

1.3. Thesis structure ............................................................................................... 9 
 
2. PROCESS OF WAREHOUSE MANAGEMENT...................................................................... 10 

2.1. Warehouse design .......................................................................................... 10 

2.2. Warehouse operations .................................................................................... 12 

2.3. Investigating warehouse operations ............................................................... 14 

2.4. Innovating, optimizing and simplifying warehouse operations ....................... 19 

2.5. Warehouse automation ................................................................................... 24 

2.6. Management of workforce ............................................................................. 28 
 
3. EMPIRICAL STUDY OF WAREHOUSE PROCESSES ........................................................... 31 

3.1. Methodological framework ............................................................................ 31 

3.2. Investigation of warehouse operations ........................................................... 32 

3.2.1. Background of case company ............................................................... 32 

3.2.2. Warehouse process ............................................................................... 35 

3.2.3. Problems in the warehouse process ...................................................... 36 

3.3. Innovating, optimizing and simplifying warehouse operations ....................... 39 

3.3.1. Receiving process design ..................................................................... 39 

3.3.2. Warehouse sizing design ...................................................................... 44 

3.3.3. Warehouse layout and material flow design .......................................... 46 

3.3.4. Staffing process design ........................................................................ 54 

3.4. New warehouse process ................................................................................. 57 

3.5. Implementing new designed processes........................................................... 60 
 
4. DISCUSSION AND RESULT ................................................................................................... 62 

4.1. Challenges in process improvement and implementation ............................... 64 

4.2. How to solve problems related to process improvement ................................. 66 

4.3. Future suggestions for the company ............................................................... 67 



2 
 

5. CONCLUSION ......................................................................................................................... 69 

 

6. LIST OF REFERENCES .......................................................................................................... 71 

 

7. EXHIBITS ................................................................................................................................ 77 

Exhibit 1: Receiving file and data.................................................................................................. 77 

Exhibit 2: Warehouse area forecast model ..................................................................................... 80 

Exhibit 3: Improved outside layout ............................................................................................... 81 

Exhibit 4: Old layout ..................................................................................................................... 82 

Exhibit 5: New layout ................................................................................................................... 83 

Exhibit 6: Skill matrix of warehouse workers ................................................................................ 84 

Exhibit 7: New warehouse process flow chart ............................................................................... 85 

 

  



3 
 

LIST OF FIGURES 
Figure 1: Scope of the thesis ......................................................................................... 8 

Figure 2: Structure of the thesis ..................................................................................... 9 

Figure 3: Warehouse master planning .......................................................................... 12 

Figure 4: Distribution of cost and working time according to operations ..................... 14 

Figure 5: Storage capacity requirements ...................................................................... 21 

Figure 6: Value stream map of warehouse process ....................................................... 33 

Figure 7: Warehouses at factory area ........................................................................... 34 

Figure 8: Warehousing process in the case company ................................................... 36 

Figure 9: Distribution of warehouse problems ............................................................. 37 

Figure 10: Storage location markings .......................................................................... 41 

Figure 11: Receiving profile based on number of receiving order lines ........................ 44 

Figure 12: Warehouse area forecast profile .................................................................. 45 

Figure 13: Main problem areas in storage .................................................................... 49 

Figure 14: Warehouse item profile by pieces ............................................................... 50 

Figure 15: Warehouse fill rate chart ............................................................................. 51 

Figure 16: Cost of pallet place ..................................................................................... 54 

Figure 17: Age distribution, staffing profile ................................................................. 55 

Figure 18: Right side of the warehouse before and after .............................................. 60 

Figure 19: Left side of the warehouse before and after ................................................ 61 

 

LIST OF TABLES 
Table 1: Warehouse design .......................................................................................... 11 

Table 2: Warehouse design profiles ............................................................................. 15 

Table 3: Warehouse key performance indicators .......................................................... 17 

Table 4: Different material handling equipment ........................................................... 23 

Table 5: Space and location utilization examples ......................................................... 23 

Table 6: Comparison of small items storage systems ................................................... 24 

Table 7: Stages for the development and implementation of a bar code system ............ 27 

Table 8: Warehouse job roles ....................................................................................... 29 

Table 9: Warehouse design framework ........................................................................ 39 

  



4 
 

 
UNIVERSITY OF VAASA 
Faculty of technology 
Author:           Renja Gauriloff 
Topic of the Master’s Thesis: Identifying problems in the warehouse 

process, case China 
Instructor:          Petri Helo 
Degree: Master of Science in Economics and 

Business Administration 
Department:         Department of Production 
Major  subject:         Industrial Management 
Year of Entering the University:    2010 
Year of Completing the Master’s Thesis:  2012    Pages: 85 

 
ABSTRACT: 
The aim of the thesis is to identify and improve problems in the warehouse process in 
the case company, which is located in China. Improving the process is based on a 
warehouse design framework. The framework’s purpose is to guide the company to 
improve overall performance in the warehouse process. The research problem is based 
on company’s interest and the actual study is accomplished in Shanghai, China during 
autumn 2011.  
 
The study was conducted by normative case-study method. The study is composed of 
theoretical literature survey and empirical part. The theoretical part presents the process 
of warehouse management and introduces warehousing design framework. In addition 
the study includes relevant theory of Chinese culture aspect in process improvement 
project. The empirical part concentrates on stages of process development. Current 
stage of the process is analyzed by interviews and data from the company’s information 
system. Actual process improvement is conducted with help of benchmarking and 
design frameworks.  
 
The result of the study is the designed framework and new warehouse process. Design 
framework includes receiving process design, warehouse sizing design, warehouse 
layout design and staffing process design. Financial impact of the results is remarkable, 
but fastest savings are gained by warehouse layout design. With the help of new layout, 
utilization of fill rate is improved and it is authenticated that expansion of the 
warehouse facilities is not relevant. In addition, results include analysis of Chinese 
culture impact on warehouse improvement process. Main findings in this area consist of 
guanzi aspect.  
 

 
KEYWORDS: materials handling, warehousing, processes, China, layout 
 
  



5 
 

 
VAASAN YLIOPISTO 
Teknillinen tiedekunta 
Tekijä:           Renja Gauriloff 
Tutkielman nimi: Identifying problems in the warehouse 

process, case China 
Ohjaajan  nimi:         Petri Helo 
Tutkinto: Kauppatieteiden maisteri 
Laitos:           Tuotannon laitos 
Oppiaine:          Tuotantotalous 
Opintojen aloitusvuosi:      2010 
Tutkielman valmistumisvuosi:    2012    Sivumäärä: 85 

 
TIIVISTELMÄ: 
Tutkielman tavoitteena on selvittää varastoprosessiin liittyviä ongelmia ja kehittää niitä 
kohdeyrityksessä Kiinassa. Kehitysprosessi perustuu varastoinnin suunnittelumalliin, 
jonka tarkoituksena on tehostaa varastoprosessin toimintaa. Tutkimuskysymykset on 
aseteltu yrityksen toiveiden mukaisesti. Tutkimus on toteutettu Shanghaissa, Kiinassa 
syksyllä 2011. 
 
Tutkimus perustuu normatiiviseen case-study menetelmään. Tutkimus koostuu 
teoreettisesta kirjallisuus- ja tutkimuskatsauksesta sekä empiirisestä osuudesta. 
Teoriaosuus esittelee varastoprosessin johtamiseen liittyviä asioita sekä varastoinnin 
suunnittelumalleja. Lisäksi tutkimus sisältää ongelman kannalta oleellista tietoa 
kiinalaisesta kulttuurista liittyen prosessin kehittämiseen. Empiirinen osa keskittyy 
prosessin kehittämisen vaiheisiin kohdeyrityksessä. Nykytila analyysi on toteutettu 
puolistrukturoitujen haastatteluiden avulla. Tämän lisäksi yrityksen tietojärjestelmässä 
olevaa tietoa hyödynnettiin. Prosessin uudistus on toteutettu benchmarking 
-menetelmän sekä varastoinnin suunnittelumallien avulla. Benchmarking -tutkimus 
koostui avoimista haastatteluista neljässä eri yrityksessä. 
 
Tutkimuksen tuloksena kohdeyritykselle suunniteltiin uusi varastoprosessi, joka koostui 
eri osa-alueista. Pääpaino oli vastaanottoprosessissa, varaston tilantarpeen 
määrittämisessä, layoutin suunnittelussa ja varastotyöntekijöiden osaamisprofiilin 
kartoituksessa. Tutkimustulosten taloudelliset vaikutukset kohdeyritykselle ovat laajat, 
vaikuttaen muihin yrityksen prosesseihin. Nopeimmat säästöt saavutetaan uuden varasto 
layout-suunnitelman avulla. Uudella mallilla varaston täyttöastetta saadaan tehostettua 
ja tutkimus todentaa, että nykyisiä varastotiloja ei ole tarvetta laajentaa. Tämän lisäksi 
tutkimustulokset sisältävät analyysiä Kiinan kulttuurin vaikutuksista varastoinnin 
prosessin kehittämisen eri vaiheissa. Tärkeimmät tulokset tältä osa-alueelta keskittyvät 
guanzi-käsitteeseen.  
 

 
AVAINSANAT: materiaalitalous, varastointi, prosessit, Kiina, layout  



6 
 

1. INTRODUCTION 

1.1. Thesis background 

Within the past decades China’s economy has been growing extremely fast, as 10 % 

development of GDP per year since 1978 presents. Today more than 70 % of China’s 

GDP is covering private and non-state sectors, when 30 years ago private business did 

not exist. After 2001 when China joined the World Trade Organization (WTO) Chinese 

firms became active doing international business and foreign firms were boomingly 

investigating on China (Fang, Zhao & Worm 2008). Today after the China phenomenon 

has been settled almost all the biggest Western companies are operating in China and 

some of them are returning back home already. 

 

There are many publications about Western firms operating in China and about the 

problems they are facing when trying to do business there. Most of the researches are 

involving problems related to culture and history. For example according to (Flynn, 

Zhao and Roth 2007) Western companies cannot gain success without understanding 

where Chinese manufacturing has come from, what it has been through and the culture 

in  which  it  lives.  However  there  have  been  also  statements  that  are  not  explaining  the  

problems relying on culture and history. Article from (Fang and Faure 2010) includes 

the contention that “it is difficult to say that there is anything that is specific to China, 

anything  that  you  don’t  see  everywhere  in  the  world.  The  only  thing  that  is  really  

different is speed of change.” 

 

Chinese infrastructure is dogmatic and maybe that is one of the reasons why 

development is not that fast. Logistics and warehousing are improving all the time, but 

according to international logistic performance index, China is on 27th place compared 

to Finland, which holds 12th place in ranking list (World Bank Institute 2012). 

Development of IT infrastructure is also slow, because 40 % of warehouse operations 

were handled manually and only 16 % of warehouses had some automation or IT used 

in their operations by 2006 (Chang 2006). 



7 
 

1.2. Research problem and objectives 

This thesis has been conducted for Metso Paper Technology Shanghai, China. The 

company is playing vital role in China and their operations are growing fast. Despite the 

fact that the company has been operating in Shanghai for six years, there is 

improvement work needed in operational level. Topic for the thesis, identifying 

problems in warehouse process, was formed according to company’s needs. Problems in 

a warehouse process are reflecting to other department’s processes in a way that daily 

work is becoming difficult.  

 

Purpose of the thesis is to identify problems in warehouse process and improve them 

within Chinese culture aspect. The main research questions are: 

 

1. Why warehouse process causes problems to other departments? 

2. What are the main problems at warehouse process? 

3. What is the root cause that will be further studied? 

4. How Chinese culture impacts on process development? 

 

Scope of the thesis 

Stages of process development include measuring the process. The thesis does not cover 

measuring in case company warehouse process, because the measurements have to be 

determined after process implementation. The scope of the research is to examine 

warehouse process from purchasing to pre-assembly, as figure 1 presents. Research will 

not include warehouse of work in progress and maintenance. In addition, foundry items 

are not within the scope. Research will neither include examination of warehouse of 

finished items. The purpose of the thesis is to identify the problems in warehouse 

process and improve the process. Implementation work is not included, but supportive 

tasks to daily operations are required. The thesis includes four months of working in 

Metso Paper’s Shanghai location. 
 



8 
 

 
Figure 1: Scope of the thesis 

 

PROCUREMENT

WAREHOUSE

PRODUCTION FinanceQuality

Standart
parts

Sub-
contract 

parts

Logistics and packing

PRE-ASSEMBLY

WAREHOUSE

Raw-
material

Finished
items

Packing

Shipping

ENGINEERING 
(PDM)

SALES
DEPARTMENT

RESOURCE
PLANNING

Maintenance

Imported
parts

Semi-finished
items

WAREHOUSE

WIP



9 
 

1.3. Thesis structure 

The thesis consists of five main chapters (figure 2). First chapter introduces the thesis. 

Second chapter consists of theoretical part of the thesis introducing process of 

warehouse management and design. Third chapter includes the empirical part of the 

thesis, which is accomplished according to stages of process development. First part 

consists of description and model about warehouse process starting from purchasing to 

pre-assembly. After that current status of the process is examined and problems are 

determined. Problem determination is accomplished by interviews including warehouse, 

procurement, production, quality, IT and finance departments. Actual process 

improvement is completed with help of benchmarking and warehouse design 

framework. Chapter three introduces designed processes and eventually the new 

warehouse process. Chapter four analyzes the results and new designed processes. This 

part also includes discussion about the Chinese aspect of the research. Finally chapter 

five summarizes the results and managerial implementations.  

 

 
Figure 2: Structure of the thesis  

1. INTRODUCTION

2. PROCESS OF WAREHOUSE MANAGEMENT

Warehouse design Warehouse operations

Warehouse automation Warehouse management

3. EMPIRICAL STUDY

Warehouse process identification
Investigation of current stage of the process
Problem determination
Process improvement

Process modeling

4. DISCUSSION AND RESULTS

5. CONCLUSION

INVESTIGATION
BENCHMARKING
INNOVATION
IMPLEMENTATION



10 
 

2. PROCESS OF WAREHOUSE MANAGEMENT 

 

Warehousing is a common term and many people have a picture of what it is, but the 

field is far more complicated than most observers would think (Jenkins 1990.) 

Nowadays warehousing has become more complex and costly, due to e-commerce, 

supply chain integration, globalization and just in time methodology. Main target is to 

increase productivity and accuracy, reduce cost and inventory whilst improving 

customer service (Richards 2011). This chapter introduces the concept of warehouse 

management in today's business environment. The aim is to discuss general concepts of 

warehousing and identify the different problems that may arise in the context of 

warehouse management. 

 

2.1. Warehouse design 

Warehouse design has achieved wide attention in literature and academic journals 

within past few decades. Especially planning and controlling has been widely studied 

within supply chain perspective (Rouwenhorst 2000). In spite of that, it is stated that 

there is still a gap between the published warehouse research and the practice of 

warehouse design and operations (Gu 2010). It is acknowledged among literature that 

warehouse design is highly complex and there is no optimum solution that can be 

applied (Baker 2009). 

 

Usually process of warehouse design consists of five different areas: determining the 

overall warehouse structure, sizing and dimensioning the warehouse and its 

departments, determining the layout, selecting warehouse equipment and selecting 

operational strategies (Gu 2010). Relatively little has been written about the total 

warehouse design process, but different stages can be identified. Used framework and 

tools varies among companies, because there is no optimum solution that can be always 

applied. According to Baker (2009) warehouse design includes the following steps and 

tools. 



11 
 

Table 1: Warehouse design 

 
 

 

Despite of what kind of designing method is used; warehouse design is always based on 

processes and its operations. Frazelle (2001) introduced warehouse master planning 

methodology, which specifies on world-class warehousing operations and is particularly 

used for reengineering warehouse operations. Methodology is used to guide warehouse 

process improvement projects. The main theme is flexibility which is carried through 

process design, system selection and layout configuration. Purpose of the warehouse 

master planning methodology is to examine warehouse operations with help of three 

stages: investigate, innovate and implement, as figure 3 presents.  

Step Tools References

1. Define system requirement
Literature, Scenario planning, 
Warehouse role framework,  Role 
checklist

Christopher (2005), Sodhi (2003),  
Baker (2007), Higginson and 
Bookbinder (2005)

2. Define and obtain data Checklists, spreadsheet, database
Rowley (2000), McGinnis and Mulaik 
(2000), Bodner et al. (2002), Frazelle 
(2002) and Rushton et al. (2006)

3. Analyze data
Database, spreadsheet models , 
activity profiling technique, warehouse 
flow charts

Frazelle (2002), Rushton et al. (2006).

4. Establish unit loads to be used Analytic and simulation approaches Roll et al. (1989)

5. Determine operating procedures and methods
Cluster of decisions, warehouse 
zoning, flexibility frameworks

Rouwenhorst et al. (2000), Rushton et 
al. (2006), Baker (2006 and 2007)

6. Consider possible equipment types and charasteristics
Spreadsheet models, decision trees, 
heuristic, analytic and simulation 
method

Ashayeri and Gelders (1985), Naish 
and Baker (2004), Rowley (2000), 
Rushton et al. (2006)

7. Calculate equipment capacities and quantities The analytic and simulation methods Ashayeri and Gelders (1985)

8. Define services and ancillary operations Checklists Several

9. Prepare possible layouts
CAD software, outline steps and 
methods, a warehouse relationship 
activity chart

Mulcahy (1994), Hudock (1998), 
Frazelle (2002)

10.Evaluate and assess Simulation software, analytic models Kosfeld (1998)

11.Identify the preferred design
Quantitative (e.g. financial business 
case) and qualitative (e.g. SWOT 
analysis) methods

Several



12 
 

 
Figure 3: Warehouse master planning 

 

 

First stage includes investigation of warehouse operations, which means determining 

the root cause of failed process and benchmarking other companies’ warehouse 

processes. Second stage concentrates on innovating, optimizing and simplifying 

warehouse operations. Warehouse operations are classified as receiving, putaway, 

storage, order picking and shipping. Automation and management of workforce is 

examined in this stage also. Third stage concludes process with actually implementing 

new warehouse designs (Frazelle 2001). 
 

2.2. Warehouse operations 

Even though there are many kinds of warehouses such as raw-materials warehouses, 

semi-finished items warehouses, finished goods warehouses or distribution warehouses, 

all of them include the same functions that can be classified as: receiving, putaway, 

storage, order picking and shipping. In order to examine warehouse process, all of these 

functions must be studied separately starting from receiving, which is interface to 

purchasing. 

 

 



13 
 

Receiving 

Receiving is the first part of the warehouse process, which links it to procurement 

operations. It is the point at which responsibility of the goods is given to the warehouse. 

Purpose is to control that 7p’s are accomplished by supplier (Mulcahy 1993). If 

receiving is not done properly, it will be difficult to accomplish other warehouse 

operations. The receiving process includes unloading of shipment, updating of inventory 

and receiving inspection.  

 

Putaway 

Putaway is the act of transferring coming products to storage locations. It includes 

material handling, location verification and product placement. Sometimes it may also 

include repacking. Putaway can be direct or indirect, depending on whether item needs 

quality inspection or not. 

 

Storage 

Storage is a physical place for items that are waiting for demand. Used storage methods 

depends on types of goods stored, the type of storage facilities needed, the throughput 

and the size of orders. Items can be stored in many ways, but the classical deviation is to 

either group functional related items together or group fast moving items together or 

group physically similar items together. 

 

There are two basic systems how to locate the items: fixed location and floating 

location. Advantage of fixed location is that it makes possible to store and retrieve items 

with a minimum of record keeping, thus it usually has poor cube utilization. 

Fixed-location systems are usually used in small warehouses, where throughput is low, 

space is limited and there are few SKUs. Instead floating location system is mainly used 

at modern warehouses, which are usually computer based systems. Advantage of the 

system is high utilization of space, because goods are stored wherever there is free 

space for them. In order to use floating system there must be accurate and updated 

information  of  the  item  location  and  availability  of  the  empty  storage  place  (Arnold  

2001). 

 



14 
 

Order Picking 

Order picking is a function where items are collected from warehouse in response to a 

specified customer request. Customer can be inner customer of the process for example 

production department or outer final customer. Order picking has been studied widely in 

a literature, because it is most labor-intensive and costly operation in a warehouse as 

figure 4 presents.  

 

 

 
Figure 4: Distribution of cost and working time according to operations 

VTT Research (Aminoff 2004). 

 

 

Picking operations has been changed over the past 20 years, because of automation. 

Previously, full case and pallet picks were the most used ones, while now automated 

picking systems, such as carousels and robots have become popular. 

 

2.3. Investigating warehouse operations 

In order to find the root cause of failed process it must be examined carefully. 

Warehouse activity profiling is a tool to find the root causes and pinpoint the major 



15 
 

opportunities for process improvements as well as help project-team decision making. 

Profiling ensures that biased decisions are not made, because there is data analyzed and 

figures given. There is no right and only way to do activity profiling; it should be rather 

formed according to company's needs. There are seven profiles introduced: customer 

order profile, purchase order profile, item activity profile, calendar-clock profile, 

activity relationship profile, inventory profile and automation profile as table 2 presents. 

Purchase order profile is introduced next in more details in order to give an example of 

the activity profiling (Frazelle 2001). 

 

 

Table 2: Warehouse design profiles 

 
 

 

Planning and Design 
Issue

Key Questions Required Profile Profile Components

1. Order picking and 
shipping process design

Order batch size, Pick wave planning, Picking 
tour construction, Shipping mode disposition Customer order profile

Order mix distributions, Lines per order 
distribution, Lines and cube per order 
distribution

2. Receiving and 
putaway process design

Receiving mode disposition, Putaway batch 
sizing, Putaway tour construction Purchase order profile

Order mix distributions, Lines per receipt 
distribution, Lines and cube per receipt 
distribution

3. Slotting Zone definition, Storage mode selection and 
sizing, Pick face sizing, Item location assignment Item activity profile

Popularity profile, Cube-movement/ volume 
profile, Order completion profile, Demand 
correlation profile, Demand variable profile

4. Material transport 
systems engineering

Material handling system selection and sizing
Calendar-clock profile Seasonality profile, Daily activity profile

5. Warehouse layout 
and material flow design

Overall warehouse flow design, Relative 
functional locations, Building configuration Activity relationship profile Activity relationship distribution 

6. Warehouse sizing Overall warehouse space requirements
Inventory profile Item family inventory distribution, Handling unit 

inventory distribution

7. Level of automation 
and staffing

Staffing requirements, Capital-labor substitution, 
Level of mechanization Automation profile Economic factors distribution



16 
 

Purchase order profiling 

Purpose of the purchase order profiling is to use it in receiving and putaway process 

design. With help of purchase order profile it is possible to plan receiving mode 

disposition, putaway batch sizing and putaway tour construction. The main areas of 

analysis are order mix distributions, lines per receipt distribution and lines and cube per 

receipt distribution. 
 

Order mix distribution is used for plotting warehouse operation strategy. There are three 

distributions used: family mix, the handling unit and order increment. For example with 

help of family mix distribution it is easy to figure out whether warehouse should be 

zoned according to item families based on receiving. Lines per receipt distribution 

instead is helpful when determining putaway batch sizing with help of categorizing 

received purchase orders according to lines per order. It will help to evaluate different 

operating strategies for example showing the percentage of orders that only includes one 

order line. Lines and cube per distribution is sort of similar, but it is also noticing space 

requirements and packing. With help of analyzing received lines and cubes per order it 

is easier to plan putaway operations. In addition it is useful when thinking about 

packing issues and batch sizes (Frazelle 2001). 
 

Benchmarking and measuring 

 

After completing the activity profiling, benchmarking is the next step of process design. 

Benchmarking can be internal or external, meaning that it can be done inside the 

company or among other companies. The purpose of benchmarking is to identify 

highest standards and excellence for products, services or processes and then making 

the improvements necessary to reach those standards called 'best practices' (De Koster 

2008). 

 

Warehouse benchmarking can be done in many ways. Researchers have developed 

different benchmarking tools for warehouses including qualitative and quantitative 

methods. Typically tools are measuring warehouse performance, such as financial, 

productivity, utilization, quality and warehouse cycle time as table 3 presents.  

 



17 
 

Table 3: Warehouse key performance indicators 

 
 

Financial tools are based on cost structure of the warehouse including cost of labor, 

space, equipment, overhead etc. It is useful to measure financial performance according 

to warehouse activity-based costing program. Meaning that financial cost should be 

measured according to each warehouse operation: receiving, putaway, storage, picking 

and shipping.  

 

The most popular measurement of warehouse performance is productivity. The formal 

definition of productivity is the ratio of the output of a resource to the inputs required to 

achieve that output (Frazelle 2001). Productivity is usually measured among labor, 

space, material handling systems and warehouse management systems. According to a 

survey in 2009 the most commonly used measurements of productivity in warehouses 

were (Richards 2011): 

 

 order picking accuracy 

 on-time shipments 

 average warehouse capacity used 

 order fill rate 

Financial Productivity Utilization Quality Cycle Time

Receiving Receiving cost per 
receiving line

Receipts per man-
hour

% Dock door 
utilization

% Receipts 
processed 
accurately

Receipt processing 
time per receipt

Putaway Putaway cost per 
putaway line

Putaways per man-
hour

% Utilization of 
putaway labor and 
equipment

% Perfect 
putaways

Putaway cycle 
time

Storage Storage space cost 
per item

Inventory per square 
foot

% Locations and 
cube occupied

% Locations 
without inventory 
discrepancies

Inventory days on 
hand

Order 
Picking

Picking cost per 
order line

Order lines picked 
per man-hour

% Utilization of 
picking labor and 
equipment

% Perfect picking 
lines

Order picking 
cycle time

Shipping Shipping cost per 
customer order

Orders prepared for 
shipment per man-
hour

% Utilization of 
shipping docks

% Perfect 
shipments

Warehouse order 
cycle time

TOTAL Total cost per 
order, line and item

Total lines shipped 
per total man-hour

% Utilization of 
total throughput 
and storage 
capacity

% Perfect 
warehouse orders

Total warehouse 
cycle time = DTS 
+ WOCT



18 
 

 annual workforce turnover  

 fill rate by line 

 on-time ready to ship 

 peak warehouse capacity used 

 dock-to-stock cycle time in hours 

 percentage of supplier orders received with correct documents. 

 

However there is a problem with these measurements when trying to benchmark these 

numbers within other companies. The problem with these measurements is that they are 

not mutually independent and that each of them depends on multiple input indicators. 

The  results  may vary  according  to  size  of  the  warehouse,  level  of  the  automation  and  

size of assortment. DEA, Data envelopment analysis, is a tool that concentrates on 

measuring  operations  efficiency.  Efficiency  of  an  operation  is  defined  as  a  weighted  

sum of output indicators divided by a weighted sum of input indicators. With the help of 

DEA it is possible to measure the relative efficiency of a set of comparable 

decision-making units (De Koster 2008). Even though DEA is a good tool for 

measuring efficiency it is argued that warehouses should be comparable. This tool is 

especially used in global benchmarking, but it does not consider cultural differences or 

local working hours. Based on DEA there was another tool formed which is based on 

single facility tour and can be carried out within two hours including some questions 

and answers (Q&A). The tool is used more in quantitative analysis and it includes 11 

study areas at the warehouse. For each of the areas there is a questionnaire available 

(Lahmar 2008). 
 

When measuring the quality performance of a warehouse there is usually four indicators 

used. Two of them are measuring input performance: putaway accuracy, inventory 

accuracy and two of them output performance: picking accuracy, shipping accuracy. 

Instead for cycle time measurement there are two indicators presented: dock-to-stock 

time (DTS) and warehouse order cycle time (WOCT). DTS means the time between 

item arriving until the picking operations. WOCT instead counts the time from order 

release to shipping including picking and packing operations (Frazelle 2011).  

 



19 
 

2.4. Innovating, optimizing and simplifying warehouse operations 

 

Warehouse layout design 

 

There are many researches, consultants, material-handling companies and universities 

that have studied warehouse layout design. There are few real methodologies described 

in the literature, because usually planning depends on the designer and it is formalized 

according to checklist of requirements. However content of the layout design is usually 

the same, but different approaches to planning problem are taken. For example some 

researches approach the problem by listing objectives that need to be maximized, while 

some start planning according to warehouse operations (Baker 2009). 

 

The quality of layout alternatives will usually depend of the skill and ingenuity of the 

layout planner. Unfortunately, layout planners often lack creativity and they approach 

the problem with a preconceived idea about what the solution should be. According to 

Smith layout planning includes five stages:  

 

 

1. Define the location of fixed obstacles- Obstacle should be identified and placed 

in the layout first, before objects with more flexibility are located. 

 

2. Define the location of the receiving and shipping functions - Receiving and 

shipping are high-activity areas and should be located to maximize productivity, 

improve material flow and properly utilize the warehouse size. 

 

3. Locate the storage areas and equipment, including required aisles - All storage 

areas must be clearly identified and materials have to be stored accordingly. The 

types of storage area and used equipment determine the configuration of the 

storage layout and aisle requirements. 

 



20 
 

4. Assign  the  material  to  be  stored  to  the  storage  location  -  Ensures  that  storage  

allowances have been made for all the items to be stored. 

 

5. Repeat the process to generate other alternatives - When the first layout plan is 

accomplished, the process must be repeated many times to generate additional 

layout alternatives (Smith 1988). 

 

 

Before starting to accomplish these five stages, data must be gathered first. Planning 

should be based on calculations about required space for each warehouse operations 

including receiving area, picking areas, packing area, dispatch area, offices and 

restrooms. According to study (Baker&Perotti 2008) deviation of these areas on a 

warehouse are: 52 % of storage, 17 % of picking, 16 % of receiving and dispatch, 7 % 

of value-adding services and 7 % of others, such as empty pallet storage area. Receiving 

and dispatch area can be calculated with the help of the following pattern (Richards 

2011). : 

 

 

Space = ( number of loads x hours to unload ) x ( number of pallets x space per pallet ) 
Time of shift 

 

 

Calculation of storage area instead is more complicated. First of all there should be 

decision made about the portion of peak storage. If the duration of the peak is 

determined as short-lived and the ratio of the peak to average ratio is high, then 

temporary storage area should be planned to accomplish the temporary need for 

example with the help of outside storage area. In contrary if the duration of peak is for 

an extended period and the ratio of the peak to average ratio is low, then warehouse 

should be sized near to peak requirements, as figure 5 presents (Frazelle 2001). 

 

 



21 
 

 
 

 

 
Figure 5: Storage capacity requirements 

 
 
Required storage needs can be calculated in many ways. Some designers use simulation 

programs while some measure the exact dimensions of warehouse facility and do 

calculations on paper. One way to determine the required warehouse space is to 

calculate the number of pallets that can be stored within a given cubic area when using 

standard adjustable pallet racking. The calculation formula is based on width, length and 

height of the modules and pallets. It takes into account the aisle between the racking, 



22 
 

but do not consider aisles and gangways at the front of the racking. Required space can 

be calculated as (Richards 2011). :  

 

 

(Number of width x pallets in a module width) x (number of length modules x pallets in module 

length) x number of height modules 

 

 

There are also some other factors that should be taken into account when calculating 

space requirements. First of all it is studied that utilization of the space should be 85 %. 

If the rate is exceeding, then it will effect on productivity and safety. Another thing is 

pallet orientation, meaning that it should be considered whether to store pallets on short 

facing or long facing. Storing the pallets with short facing increases flexibility since 

more  pallets  can  be  stored  in  a  length  of  racking.  Instead  storing  the  pallets  with  long  

facing helps picking operations (Richards 2011). 

 

Storage and handling equipment in warehouse layout design 

 

The design of storage and handling equipment should be included in the design of 

warehouse layout, because it impacts on design of aisles, space requirements, utilization 

of the cube, storage assignment, movement and flow of the warehouse. There should be 

decisions made about storage method, depth of storage, the type and dimensions of unit 

loads and the type, number, and capacity of handling equipment. In addition the 

dimensions of racks, the number of bins and their numbering system should be 

determined.  Furthermore  the  design  of  conveyor  paths,  the  selection  of  a  sortation  

system, determining its location, designing its flow system and specifying the level of 

mechanization of all equipment should be included in designing (Hassan 2002). 

 

Palletized systems 

Usually the wooden pallet is the most common unit load that is used in warehouses, 

because it enables standard storage and handling equipment utilization. There is a huge 

range of equipment available for moving pallets, from simple manual aids to 

sophisticated computer-controlled equipment (Baker 2006).The choice of the equipment 



23 
 

depends on many factors such as type of pallet, type of storage, type of operation, 

warehouse dimensions, overhead obstructions, surface and gradients, working area and 

environment (Richards 2011.) Table 4 presents the comparison of four models based on 

traveling distance, traveling speed and cost (Lahmar 2008).  

 

 

Table 4: Different material handling equipment 

 
 

 

There are also many storage systems available for palletized goods, from simple block 

stacking to advanced computer-controlled systems. Some of the systems include a range 

of technology, but might actually require a large amount of warehouse space. 

Comparison between different storage systems is usually done according to space 

utilization with help of calculations based on handling equipment characteristics, 

available warehouse height and pallet dimensions. Table 5 presents the most common 

used storage types and their space utilization range (Baker 2006). 

 

Table 5: Space and location utilization examples 

 

 

Truck model Traveling 
Distance (d in ft)

Travelling 
Speed (fpm)

Capital Cost Per 
Unit Equipment 
($)

Hand-pallet truck d  100 150 1000
Electric-pallet truck 100  d  250 220 12000
Stand-up rider truck 250  d  500 616 20000
Cushion tire lift truck d  500 959, 2 35000

Storage Type

Pallet  Spaces 
per m2

Location 
utilization 
factor

Pallets per 
m2

Block stack (four deep) 1, 5 70 % 1, 1
APR (reach truck) 1, 5 95 % 1, 4
Double deep 2 85 % 1, 7
Narrow-aisle 2, 6 95 % 2, 5
AS/RS - single deep 4 95 % 3, 8



24 
 

Non-palletized systems 

 

Although pallets are very widely used in warehouse operations, there are many types of 

products that are not suitable for pallets, for example nuts, bolts, electronic items and 

steel bars. These items must be stored in another way for example using carousels, mini 

loads, conveyors, cranes and AVGs. The storage method is chosen by product 

characteristics and picking methods. They are varying according to used automation 

level, utilization of the space, security, cost, flexibility and picking rate (Bozer 1996). 

Table 6 presents the comparison of small parts storage options.  

 

 

Table 6: Comparison of small items storage systems 

 
 

 

2.5. Warehouse automation 

 

Warehouse automation has been described as “The direct control of handling equipment 

producing movement and storage of loads without the need for operators or drives” 

(Rowley, 2000.) In spite of this definition warehouse automation includes also 

computerized warehouse systems, such as bar code scanning, RFID and WMS 

(Warehouse management system). Computerized warehouse systems are developing all 

the time, because there is a trend towards paperless warehouses. It is argued whether 

automation is the solution for the problems, because paper-based and spreadsheet 

Storage type
Net Unit Cost/ 
available ft3 ($)

Floorspace 
Requirements            
(ft3 of inventory 
housed per ft2 of 
floorspace)

Pick rate 
(Order line/ 
person-hour)

Item 
security Flexibility

Bin Shelving 10-30 1-1.2 25-125 Average High
Gravity Flow Racks 9-15 0.7-0.85 25-125 Average High
Storage Drawers 31-38 1.8-2.5 25-125 Excellent High
Horizontal Carousel 40-70 0.8-1.25 50-250 Good Medium
Vertical Carousel 65-100 5.0-6.0 50-300 Excellent Low
Miniload ASRS 38-50 4.0-5.0 25-125 Excellent Low



25 
 

warehouse systems can fulfill the need and manage stocks as efficiently as automated 

ones. “Automation should not be the first, but rather the last resort” (Frazelle 2001.) 

 

A warehouse can be managed in many ways and nowadays there are automated systems 

available for this, called WMS. WMS is similar to many other software solutions such as 

ERP and it is also based on database. WMS can be integrated to other software solutions 

in a company also. With help of WMS it is possible to follow items that are stored, their 

quantity and place information. The purpose of the warehouse management system is to 

cover all the handling operations in the warehouse, while improving stock control, 

traceability, productivity levels and better management reporting (Emmet 2005.) There 

are plenty of WMS vendors and different kind of solutions available, so it is essential to 

specify required functions, before selecting the system. In addition, before 

implementing the system it is vital to make sure that the vendor understands the 

company’s warehouse process.  

 

Thus not every warehouse needs a WMS. A warehouse could benefit from some of the 

functionality, but implementing cost and ongoing cost of the system might not cover the 

benefits in a long run. WMS is a big, complex and data intensive application. It tends to 

require a lot of setup work, system resources to run and ongoing data management to 

continue to run. In reality a company needs to manage the warehouse management 

system itself (Piasecki 2012). 

 

 

Barcodes 

Warehouse management systems often utilize some other computerized systems such as 

barcode scanners.  The  purpose  of  the  barcode  scanners  is  to  scan  a  symbol  (bars  and  

spaces) with a laser light. With the help of a scanner the light is converted to an analog 

signal and to a digital signal. Signals are processed into an ASCII language or binary 

digits and simulated as a keyboard input and finally read by computer (McCampbell 

1994). 
 



26 
 

Bar code technology is quite an old invention and it is widely used in warehouse 

operations. Nowadays, it is argued whether usage of barcodes in supply chain 

operations is needed, because other solutions such as RFID- technology are getting 

more popular. However, changing the most common used system in a supply chain will 

require time and some researchers are confident that barcode technology will not be 

substituted by new ones (McCathie 2005). 

 

The main advantage comparing to other systems is price. Barcode labels and scanning 

equipment are rather cheap. In addition bar code equipment is easy to use and it speeds 

up the operations. The main advantages in a warehouse are gained with inventory 

control, reduction of errors, better utilization of time, improving location inaccuracies, 

item identification and flexibility. 

 

In warehouses the barcode system is used to identify items and stock locations. With its 

help, items are sorted and routed through a handling system and tracked as they move 

through the system. It also simplifies stock checking and many other data input and 

capture functions (Baker 2006). 

 

Implementing a barcode system in a warehouse consists of five steps, as table 7 

presents. Before implementing a barcode system in a warehouse, it requires careful 

planning and investigation. First of all, there should be detailed analysis made about the 

operations and their timing in order to prevent operational bottlenecks. It is essential to 

understand where to utilize barcode and how; in receiving, inventory control, order 

picking, shipping or all of them. Secondly, the interface to other departments must be 

studied and they need to be involved to the project team also, such as purchasing. In 

addition possible boundaries, such as other IT systems in a company, must be 

investigated.  Thirdly systems design involves hardware and software selection, which 

should be carried out according to company's environmental factors. Fourth stage 

instead is about development, where system is actually constructed and detailed 

documentation is required. After accomplishing the fourth stage the system is ready for 

testing and training (Manthou 2001). Usually used training methods consist of manual 



27 
 

training and video tapes. Average barcode system training time per user is 8-20 hours, 

while some 4% might require over two weeks of formal training (McCampbell 1994). 

 

Table 7: Stages for the development and implementation of a bar code system 

 

Data / information input Actions
Stage 1
Preliminary investigation

Vendors of barcode technologies. Problem definition

Technical characteristics of the system. Goals establishment

Surveys of similar installations.
Constraints determination of 
the proposed system.

Initial feasibility study of the interested 
company.

Statement of expected benefits.

Requirements, expected benefits and costs. Cost estimation.

Time needed. Time estimation.

Preliminary investigation report.

Stage 2
System analysis Host system summary reports, end users 

knowledge.
System boundaries definition.

External primary and secondary data. 
Performed tasks (what, when, who, how, 
where, why).

Calculation of throughput.

Existing hardware technical characteristics.
Examination of efficiency of 
working procedures.

Existing software characteristics.
Reorganization of working 
procedures.
Documentation of information 
flows.
Hardware and software 
interface specification.

Requirement's documentation.

Stage 3
Design Hardware and software configurations of the 

proposed system.
System design specifications.

Interface configuration. Request for Proposals (RFP).

Response time of barcode system.

Data structure.

Duration time of transmission to the host 
computer.

Stage 4
Development System Design specification Program documentation.

System documentation.

Operations documentation.

End-user documentation.
Stage 5
Implementation and 
evaluation

Performed tasks Integration.

New or modified business operations Testing.

Training.



28 
 

2.6. Management of workforce 

 

In order for a warehouse to operate efficiently it requires an experienced, 

knowledgeable and well-trained manager, a motivated team of supervisors and 

operators. Technical systems in the warehouse might be the best ones, but without 

motivated  and  committed  workforce  there  are  no  results  gained.  According  to  a  study  

the  reflection  of  having  unmotivated  people  is  3-4  %  per  annum  what  comes  to  staff  

turnover rates and absenteeism (Emmett 2005). 

 

Warehouse workforce should be trained with the help of an ongoing program in order to 

prevent low rate of productivity with high operating cost. First of all a training program 

for new warehouse workers should be identified according to tasks. Usually it includes 

training of equipment, company, safety, order picking methods, warehouse layout, labor 

regulations, math skills and reading skills. Length of the training is also essential, while 

shorter programs are less costly than longer ones; the shorter programs are more likely 

to result in inadequate preparation (Murphy 1992). 

 

Secondly all the staff should receive an induction, meaning that the new employee 

understands what his task in organization is and how it is related to other processes 

within the company. A simple process flow map should be provided showing the end to 

end supply chain and how each step impacts the final customer (Richards 2011). Thirdly 

training should be an ongoing process, which should encourage the development of 

workforce. There are many strategies how to maintain continuous training, for example 

utilizing cross-training or soko circles. Cross-training means that workers are trained to 

work in multiple areas and tasks within the warehouse. Soko circles instead are quality 

circles working in warehouse operations. Purpose is that warehouse workers will gather 

together in teams and try to solve some problem related to warehouse operations 

(Frazelle 2001). 

 

There is no real methodology about the skills that warehouse workers should have. For 

the warehouse operations manager instead there is standard job description given by 



29 
 

Canadian Supply Chain Sector Council. Even though methodology is missing, there are 

some job roles in a warehouse that can be identified, as table 8 presents (Emmett 2005).  

 

 

Table 8: Warehouse job roles 

 
 

 

In addition there are many skills that are usually required when working in a warehouse, 

such as computer skills, reading skills, writing skills, forklift-truck skills etc. It is 

essential to analyze skills of each worker in order to monitor, motivate and schedule 

each task. There is an official skill matrix available, which is used to develop focused 

training plans to maximize flexibility and to enhance the development of every 

Job titles Tasks Accountability Outcomes

Level 1. Operative or labourer

Basic skills in using tools, plant, 
equipment . Applies knowledge of 
procedures. Performs physical job 
requirements. Training . May require a 
licence to drive/operate equipment.

Under immediate supervision. Works 
from verbal and written instructions. 
Follows operational procedures. 
Follows health and safety procedures. 
Is able to resolve basic questions and 
problems.

Safe, successful 
and timely 
completion of all 
the assigned tasks.

Level 2. Storekeeper or senior 
operative

Knowledge of all regulations that apply 
in the specific operation. Undertakes 
varied duties such as unloading, picking, 
loading. Has skills in operating 
equipment and may need a licence.

Works under direct supervision. 
Selects from a variety of procedures 
to accomplish assigned tasks. 
Resolves routine questions and 
problems but refers complex issues to 
the next level. May be responsible for 
leading other people.

Accurate work 
completion in 
accordance with 
procedures.

Level 3. Senior store keeper or 
supervisor or first line 
manager

Applies knowledge of specific 
warehouse operations. May plan, but 
will coordinate single or several 
activities. Resolves competing demands 
from customers and users. Applies 
supervisory management practices and 
principles.

Has strong technical and supervisory 
skills. Organises, directs and controls 
staff. Measures employees' outcomes 
and takes any appropriate action. Is 
able to independently resolve daily 
operational problems.

Efficient and 
safe/secure 
handling of goods 
while giving good 
customer service.

Level 4. Manager

Plans, organises, directs, prioritises and 
assigns work to staff. Controls and 
evaluates the effectiveness of 
operations. Plans and implements 
operational and procedural 
improvements. Manages using extensive 
warehouse and management 
experience.

Has strong technical and managerial 
skills. Independently resolves any 
management issues that involve 
people, customers, resources, 
procedures and practices.

All warehouse 
operations to be 
efficient, 
safe/secure and 
within company 
budget and 
company goals.



30 
 

individual. Skill matrix is a simple visual tool that helps managing, controlling, resource 

planning  and  monitoring  of  skill  levels.  It  displays  all  the  tasks  and  skills  that  are  

required for each work and the current level of ability of each worker to do that task 

(Beyondlean 2012).  



31 
 

3. EMPIRICAL STUDY OF WAREHOUSE PROCESSES 

 

The following chapter includes the empirical part of the thesis. Chapter 3 starts with an 

explanation of the methodological framework of the study. After that it describes the 

case company. It then continues investigating the current stage of the warehouse process 

and determining problems within this continuum. Next stage consists of innovating, 

optimizing and simplifying warehouse operations with help of designing methods. 

Finally description of the new process is conducted and it is ready for implementation. 

Chapter 4 sums the study with results and discussion. 

 

3.1. Methodological framework 

 
Research methodology was based on a normative case-study. There are many 

descriptions about case studies, but usually it is a study that focuses on a contemporary 

phenomenon with some real-life context including investigator, that has little control 

over the events (Yin 2003). Case study can be either qualitative or quantitative. 

Research work usually involves fieldwork, archival records, verbal repots, observations 

or some combination of those (Yin 1981). Case study is often used, when trying to 

investigate answer for “how” and “why” questions.  

 

This research was based on qualitative and quantitative study. Quantitative material 

consists of spread sheet model, because processing and analysis of research data was 

primarily conducted in Microsoft Excel and AutoCAD. Qualitative material instead was 

gathered with interviews. Interviews within case company included IT-, finance-, 

warehouse-, production-, procurement- and quality departments. The purpose of the 

interviews was to analyze the current stage of the process and try to find all the 

functions that were influencing the performance of the warehouse department. With the 

help of interviews current process was modeled and root causes were further 



32 
 

investigated. In addition research included benchmarking study, which was concluded 

also  with  interviews  and  discussion.  Benchmarking  companies  were  Valtra  Oy  Ab,  

Moventas Wind Oy, Metso Paper Jyväskylä and Metso Paper Shanghai, Waigaoqiao. 

Results  of  the  benchmarking  were  such  that  there  was  only  a  small  amount  of  

information that could be applied to the thesis. Main reason was that processes in Metso 

Paper Technology Shanghai were not developed enough in order to actually accomplish 

something. Though many ideas were gained from the benchmarking companies and 

some ideas were further modified to case study company.  

 

3.2. Investigation of warehouse operations 

 

3.2.1. Background of case company 

Metso Paper Technology Shanghai was established in 2006, when Metso bought all 

shares from Shanghai Chenming Paper Machinery Co., Ltd. Metso Paper Technology 

Shanghai is part of the Metso PFT’s (Paper and Fiber Technology) global production 

network, which mainly serves the Chinese market and extends to other markets in Asia 

Pacific area. Business scope of the Shanghai unit is to manufacture paper and board 

machine  sections  and  components  as  well  as  components  and  equipment  for  stock  

preparation, tissue and fiber production. 

 

Role of the warehouse in organization 

The warehouse plays essential role in logistics chain, because it functions with many 

departments. Smooth production flow requires inventory at each stage of the process. 

Inventory is held at four phases of the chain including WIP as figure 6 presents. The 

first warehouse inventory spot is between supply and manufacturing. This spot includes 

mainly inventory of raw-materials and components, which are named as standard parts. 

The second warehouse inventory spot is between production and pre-assembly, where 

subcontracting parts, imported parts and parts from own production are stored. The third 

inventory spot is after pre-assembly, where machine is dismantled back to parts before 



33 
 

shipping. The final inventory spot is between packing and shipping, where finished 

items are waiting for supply.  

 

 
Figure 6: Value stream map of warehouse process 

 

 

Location of the warehouses 

Metso Paper Technology Shanghai plant consists of 140.000 square meters, which 

includes 1080 m² of inside warehouse area and approximately 4990 m2 of outside area. 

Figure 7 presents the locations of warehouse areas. The outside warehouse at area 1 is 

located under crane with 50 tons lifting capacity. Storage consists of raw-materials, 

semi-finished items and finished items. Some of the raw-materials are placed at the 

same spot, but for other parts there are no fixed areas. 



34 
 

 
Figure 7: Warehouses at factory area 

 

 

The inside warehouse area 2 is divided into two sections. First part consists of standard 

parts for example screws and bearings. Another part is placed with sawing machine and 

some raw-materials. Used storage systems are based on crane with five tons capacity 

and pallet shelves. The third named warehouse area is located outside, right site of the 

factory. The area is divided to 13 locations and it is covered with tarpaulins. Storage is 

mainly used for warehousing sub-contract parts and parts that comes from other units 

within Metso Corporation. In addition this warehouse includes miscellaneous parts and 

some storage equipment.  

 

Additional space for warehousing the parts is also needed, because of the poor forecast 

and planning of the operations. Factory sideways are occupied constantly with castings, 

semi-finished items and finished items. There is neither separated area for finished 

items, so they are also placed on sideways, storage area 1 or storage area 3. However, 



35 
 

factory area involves separated storage that is owned by Metso Paper China. Storage 

includes mainly spare parts and tools, which are used in site operations. Metso Paper 

Technology Shanghai uses also the same parts, but they are rarely utilized from this 

storage, because units are handled separately.  

3.2.2. Warehouse process 

Organizationally warehouse is part of the production department processes. Actual 

warehouse process is controlled by warehouse manager, who is the supervisor for 24 

employees. Every worker has their own responsible area at warehouse, which is divided 

according to item group. Worth noticing is that only three persons are working with the 

ERP system in the warehouse.  

 

There is no description of the warehouse process or any process flow chart in a paper. It 

is rather formed from old practice and work habits. Guidelines for the workers are 

made, but they are not actually implemented. In its current form the warehouse process 

from purchasing to production can be divided to four stages: receiving, putaway, storing 

and order picking, all thought process itself is not clear. Figure 8 is simply clarification 

of the current process flow. 

 

Receiving, putaway and storing 

In a practice process starts when vehicle arrives from the gate 2. Average arriving rate 

per day is 10 vehicles. There is no specific place for unloading, but usually vehicle 

drives near to actual warehousing place. Raw-materials are unloaded in area 1 in spot 

10, because of the crane. For the standard parts there is defined unloading area, but it is 

not actually used. Unloading will be done randomly to area that is currently available. 

After unloading the shipment by responsible person he fills out the receiving form 

manually. The form is then transferred to another person who is responsible of receiving 

in Baan system. After receiving in Baan documents are stored. 

 

 



36 
 

 
Figure 8: Warehousing process in the case company 

 

 

Order Picking 

Internal customer for the warehouse is pre-assembly. When department is requiring 

parts from the warehouse a production worker will come to the warehouse and give 

project number to person who is responsible of Baan actions. That person prints out the 

picking list and gives it to production worker or some cases to warehouse worker, who 

will then pick-up the item from the warehouse. After that the actual responsible person 

for the item prints out the list of picked items and hands it to the responsible person of 

Baan, who will then issue the material in Baan. 

 

3.2.3. Problems in the warehouse process 

Current warehouse process consists of many problems covering information flow, 

material flow and cash flow. Based on discussions with warehouse department there 

were five main problems determined: 

 

1. All the items are not added to the ERP system. 

2. There is not enough space at the warehouse. 

3. There are not enough skilled workers in warehouse. 

RECEIVING

PUTAWAY

STORING

ORDER PICKING

Shipment
arrives

Unload
vehicle

Fill out 
receiving 
form

Input
inventory 
to system

Travel to 
storage

Place item 
to storage

Inventory
control

Request
from 
production

Print out 
picking list 
from system

Travel to 
storage 
location

Collect item Fill out 
actual 
picking list

Order 
picking to 
system

Travel to 
production

I



37 
 

4. Items are difficult to find from the warehouse. 

5. There is no information about the shipping schedules. 

 

In order to find the scope of problems in a warehouse other departments were 

interviewed also. Based on interviews problems were categorized. Figure 9 illustrates 

the range of problems, which influences on the performance of other departments such 

as purchasing, production, IT, finance and quality. Distribution of problems reveals that 

problems reflect to the whole process at the moment. Next part includes description of 

problems related to warehouse operations in warehouse process. 

 

 
Figure 9: Distribution of warehouse problems 

 
 
Receiving and putaway 

Receiving is the first stage of the warehousing process and interface to purchasing in 

logistics chain.  From process point of view problems start  when vehicle arrives.  There 

is no specified unloading area or receiving area used, so items are getting lost already at 

this stage. In addition delivery of some items is carried out after official working hours 

and accepted by occasional person, so no registration of receiving will be executed to 

ERP.  Instead  shipments  that  arrive  within  official  working  time will  be  added  to  ERP,  

but  registration  is  delayed.  Accordingly  no  updated  information  from  the  ERP  can  be  

found and purchasers must inquire the parts from the warehouse all the time. After 

receiving is added to ERP another issue occurs. Usually shipments arrive with no labels 

on the pieces which normally would include information about the supplier, item code 



38 
 

or project number. No labels are stamped either on the pieces at warehouse, which 

makes identification particularly hard at next stage of the process. 

 

Another problem is that receiving inspection for all the items is not successfully 

implemented. Especially receiving inspection for standard parts is hardly ever done. 

Small boxes are opened randomly in order to check quality and quantity of the 

components. One reason for this is that some of the warehouse workers are not able to 

identify parts, because they do not have enough technical knowledge about the 

components. In practice it means that there is wrong component, with wrong quantity 

and quality at the warehouse. Eventually consequence of this problem is production 

delays which have a bull-whip effect to whole supply chain.  

 

Storage 

Main problem with storage is that there is no warehouse design used including material 

flow, sizing and dimensioning, layout, storage equipment selection, material handling 

equipment selection and order picking method selection. In practice this means that 

there is no fixed location for items, items are not found from warehouse, broken boxes 

and pallets are used, items are stored the same way and material flow is not controlled. 

Obviously result is that performance of operations is slow and inefficient, process is full 

of waste and there is lack of safety. 

 

Order Picking 

The  main  problem  is  that  process  flow  and  responsibilities  are  not  understood  among  

the warehouse workers and production. Access to the warehouse is free, so production 

workers usually pick up necessary items from the warehouse by themselves. Reason for 

this is that they have technical knowledge of the items, which is needed, when 

identifying. Even though process is currently functioning that way, items are recorded to 

ERP by warehouse person.  

 

 



39 
 

3.3. Innovating, optimizing and simplifying warehouse operations 

 

The following parts analyze data further and accomplish the actual warehouse designing 

process. Design is based on five problems that warehouse determined to be the most 

urgent ones. It does not include the investigation of fifth problem, because shipping 

operations were out of the research scope. Table 9 shows the designing process. 

 
 
Table 9: Warehouse design framework 

 

 

3.3.1. Receiving process design 

One of the most important parts of receiving is to add items to Enterprise Resource 

Planning (ERP) system, because of inventory and process flow. After discussion with 

case company’s representatives this issue turned out to be the most critical problem in 

current warehouse process. In addition some other issues related to ERP were discussed: 

 

1. How to handle items that are coming from other units in ERP. 

2. Items are not recorded to ERP system fast enough. 

3. No detailed warehouse location in ERP. 

4. Usage of bar codes in warehouse and related ERP functions. 

 

In order to investigate why items are not added to ERP system questionnaire was 

created. Receiving person filled out the data of receiving for three weeks. Gathered 

Problem Warehouse design
1. All the items are not added to the ERP system. 1. Receiving process design
2. There is not enough space at the warehouse. 2. Warehouse sizing design
3. Items are difficult to find from the warehouse. 3. Warehouse layout design
4. There are not enough skilled workers in warehouse. 4. Staffing process design
5. There is no information about the shipping schedules. Not included.



40 
 

information included item group, quantity and input error as exhibit 1 illustrates. Input 

error occurred when it was impossible to do receiving in ERP. There were totally seven 

situations within three weeks that error occurred covering 8 % of the received shipments. 

In three cases error occurred, because of quality problem of the item. Another three 

cases instead included quantity problem, meaning that received amount was different 

from information in ERP. One case instead consists of missing item code.  

 

Gathered data and results were surprising. Within this continuum it seems that there is 

no  actual  problem  with  receiving  or  data  is  not  valid.  In  order  to  disqualify  the  latter  

option further research was done. Information for the research was gathered from the 

ERP system and it consists of the receiving data including the same time period as 

questionnaire study. Data from the ERP revealed that actually there were 1264 receiving 

lines done instead of 84 lines within the same time period. Accordingly it can be stated 

that gathered questionnaire data was not valid, because apparently all the receiving 

information was not added. Within this continuum next issue concerning coming parts 

from other units was studied, because of failed result of previous one. 

 

1. How to handle items that are coming from other units. 

Problem with  the  parts  that  are  shipped  from other  units  within  the  corporation  is  that  

they are not added to ERP. In order to find out the reason and solution for the problem 

IT department from Finland, local IT and warehouse arranged meeting together. Result 

was that there was no solution to add these parts to ERP, because they were only 

transferred via local factory forward to the end customer. Solution was to continue using 

excel sheet, but not only for warehouse purposes. Main problem was that there was 

information lacking about these parts, so in the future modified excel sheet was shared 

also with other departments in company’s database.  

 

2. Items are not recorded to ERP system fast enough. 

Next issue to study was that items were not recorded to ERP fast enough, meaning 

within 24 hours after shipment. At this stage there was no data gathered with the help of 



41 
 

questionnaire, because of previous results. Analyzed data was taken from the ERP and it 

included receiving information from August 2011. Investigation of data revealed that 

only 16 % of receiving was accomplished after the day that shipment arrived. Further 

study showed that 80 % of delayed receiving was not done in warehouse; it was related 

to issuing materials in workshop. Due to findings another project started concerning 

issuing materials from the warehouse to workshop. Some investigation about the issuing 

in ERP was done and figuration was made. IT department did not finish the project, 

before end of the thesis, so it is still under work in case company. 

 

3. No detailed warehouse location in ERP. 

One of the problems was that location information in ERP system was not accurate 

enough. There was only some warehouse locations named, but no information about the 

exact storage positions. Due to this problem it was impossible to try to find item from 

stock  based  on  location  information  in  ERP.  First  thing  to  do  was  to  assign  storage  

locations inside warehouse and add the locations into ERP. Storage locations were 

assigned according to numbers and alphabetical letters (figure 10), for example 1-B-05- 

location means first storage line, b-row, fifth storage position.  

 

 

Figure 10: Storage location markings 

 
 
After adding the location information to ERP one warehouse worker made a list of all 

the inside storage items and their detailed locations. Information from the excel list was 

then  transferred  to  ERP.  In  addition  IT  opened  some  new  screens  for  the  location  



42 
 

management in this stage. After that almost all the inside warehouse items had a 

detailed location in ERP, but outside warehouse areas were still not named. Process with 

outside warehouse areas was removed to next year after completing the total improving 

process in inside warehouse. 

 

4. Usage of bar codes in warehouse and related ERP functions. 

Based on discussions and lean six sigma -project, case company wanted to also 

investigate whether they could start using bar code system in warehouse operations. 

Investigation of implementation were planned to be accomplished according to five 

stages, introduced in chapter 2. First two stages were executed within the time period of 

thesis in a case company. Other stages were planned to be implemented during year 

2012. 

 

Stage 1, Preliminary investigation 

First thing to do was to determine goals and investigate in which operations to utilize 

bar code scanning. After discussion it seemed that with receiving operation bar code 

scanning would require lots of effort and co-operation from suppliers. In order to fully 

utilize the system suppliers should print stamp including barcode and put it into the item 

before shipping. Planning group was not that convinced whether this would be possible, 

but some further investigation with suppliers were planned to be made. Instead the 

highest utilization rate of the barcode system was analyzed to be in picking operations 

and inventory. Based on this, planning group agreed to continue implementing process 

of barcode system in a warehouse. 

 

Stage 2, System analysis study 

Before continuing the process, there were many improvements that were required to be 

done, before actual implementing. First of all Finnish IT and local IT had meeting 

together, where system was analyzed from IT point of view. Meeting included also 

integration investigation with ERP system and some changes that had to be done. Based 

on meeting the label printer Zebra ZDesigner 105SL 203DPI was decided to be ordered, 



43 
 

because there were no labels used in receiving. After the printer came there were some 

problems with it, which IT department modified. Work with the thesis in a case 

company ended right after receiving the printer, but project continued.  

 

In the future in order to continue the project labels should be first used in a warehouse 

in every receiving operation. After that storage locations should be stamped with labels 

that include barcodes. At this point wireless networks should be also installed in 

warehouse. There was also discussion about ordering one portable bar code scanner for 

test purposes at first, in order to pinpoint the possible flaws in a system. In addition with 

help of test device it would be easier to slowly start training warehouse workers. Project 

will continue with three other stages within year 2012. 

 

Other issues related to receiving designing process 

Designing of receiving process included also other things, even though the focus was on 

issues related to ERP. Receiving process was modeled and in this paper it is introduced 

in chapter 3.4 with the total warehouse process flow chart. In addition, in order to 

understand the structure of the receiving, a receiving profile was created, as figure 11 

presents.  

 

Data for the receiving profile was gathered from the receiving information during 

September 2011. Information included a number of the receiving lines in each category. 

According to data it seems that over 50 % of the receiving lines consist of small items. 

Usually these items, such as fasteners, are relatively cheap and categorized as C-items. 

Data revealed the current receiving problem. By utilizing the results, creating new 

layout solutions for warehouse, as introduced in section 3.3.3, was easier.  

 



44 
 

 

Figure 11: Receiving profile based on number of receiving order lines 

 

3.3.2. Warehouse sizing design 

Based on the results of the interviews every department pointed out same issue: size of 

the warehouse was too small. In pursuit of investigating whether the statement was 

valid, more detailed research was carried out and calculation model was invented, 

exhibit  2.  Data for the model was gathered from the packing unit  and it  was modified 

with help of excel. Main idea was to compare previous project to coming ones and 

estimate the required space by utilizing the data that was currently available. Schedule 

for the coming projects was formed by the information of pre-assembly space 

reservation. Actual required warehouse area was then calculated with five weeks 

purchasing frame and pre-assembly schedule.  



45 
 

Weakness of the model is that it does not include warehouse of finished items. Another 

issue is that at present it can only give rough estimations about future, because there is 

no data gathered before about required warehouse area per project. In addition model 

should be updated according to real situation in pre-assembly, not from the 

pre-assembly reservation schedule. However this model is useful for the company and it 

is definitely needed in order to forecast requirements for the actual space. In order to 

actually implement the usage of model there should be one person with enough 

technical knowledge of product structure and spread sheet models named to update it. 

 

Results of the current sizing problem 

Warehouse area forecast profile starts from week 47 and it ends on week 11. According 

to the current schedule it seems that there is fluctuation among required warehouse area. 

Average storage requirement within this time period is 2639 m2, when current capacity 

of the warehouse is 3047 m2. According to results most of the time current space is 

enough, but in February, from week 6 to 9, capacity is exceed with 25 % as figure 12 

presents. This statistic reveals that 1000 m2 of more space is required permanently, 

because of the peak. 

 

 

Figure 12: Warehouse area forecast profile 



46 
 

According to research, which is presented on theoretical part, size of the warehouse 

should be calculated near the average storage requirements, when the ratio of the peak 

to average is more than 1.5. As calculated in this case ratio of the peak is 1.54 and it 

consist of four weeks within 24 weeks. Based on this it can be stated that capacity of the 

current storage is enough, when there is separated storage for finished items also. For 

those four weeks, when additional capacity is required there are some areas that can be 

used. For example additional tarpaulin area can be added to the right side of the factory. 

Red places in the exhibit 3 illustrate the spots. However with help of this solution only 

450 m2 of more capacity is increased and spot for the 550m2 must be still investigated. 

There are also some areas available near to canteen, where items can be placed for a 

while. Thus model is estimation from the current situation, which will change every 

week, so it might be that these spots are not even needed eventually. 

 

3.3.3. Warehouse layout and material flow design 

After investigation of the required warehouse area, storage layouts were further 

examined. Layout designing included the design of inside and outside warehouse areas, 

though the focus was on inside warehouse. The following parts include detailed 

description of the current problems and suggestions for the new layouts. 

 

Outside warehouse area 

Currently main problem in the outside warehouse is not actually lack of space as figure 

12 presents; it is rather disorder of the items. Semi-finished parts, imported parts and 

finished parts are mixed together and there are no fixed storage areas for them. Some of 

the parts are also placed in factory sideways and covered with tarpaulins. Naturally 

tarpaulin warehouse area and sideways are not marked in ERP as a storage location, 

which cause problems to find the parts. Moreover parts cannot be identified, because 

there are no labels used. Another problem is also that there is no inventory policy used, 

so  old  useless  parts  are  stored  and  they  are  utilizing  the  actual  capacity  from  the  

warehouse. Safety of the outside factory area is obviously also poor, because parts can 

be placed anywhere. In addition there is no driving route for vehicles, which means 



47 
 

traffic from the two directions and blocked walkways. Accordingly there is neither 

separated unloading and loading area, so that forklift trucks operate among the traffic.   

 

Improvement actions 

Firstly in order to clarify the traffic within factory area, it must be organized with only 

one driving direction. New entrance for the coming vehicles should be opened at the 

west side of the Baofeng road, because of the receiving location. Vehicles should drive 

directly to receiving, where they would give instructions where to do actual unloading 

or loading. After the loading vehicles would then exit from the gate 2. Exhibit 3 presents 

the driving direction and receiving spot. 

 

Secondly, in order to shift the items from the sideways to actual named warehouse 

areas, reorganizing must be done with help of kaizen event and 5S. Event would require 

one weekend of working with full capacity of employees and some preparation during 

the week. Kaizen event would include the following stages: 

 

1. Identifying current parts at tarpaulin warehouse area 

2. Sorting of the parts with help of different colored stamps (5S) 

a) Parts that are related to current projects –stamp including name of the 

project and item description 

b) Parts that have been stored more than 24 months without no usage  

c) Parts that include quality problems 

d) Warehouse equipment, - tarpaulins etc. 

e) Other 

3. Organizing the tarpaulin warehouse area according to projects, a) parts, and 

removing all the other parts away 

4. Marking the tarpaulins with information paper including project number and 

item numbers 

5. Scrap the b) parts with help of quality department and finance department 



48 
 

6. Contact purchasers regarding c) parts and decide whether parts will be 

returned to supplier or scraped with help of quality department 

7. Arrange separated area for storing warehouse equipment d) 

8. Sorting and clarifying of other parts e)- find out the responsible person for 

the parts and restore them to their right place 

 

 

Thirdly, the warehouse under the crane should be also re-organized. Plates should be 

stored  at  bundle  racks.  Currently  they  are  covering  a  lot  of  space  under  the  crane,  but  

with help of better organization, space would be utilized efficiently. In order to 

accomplish the task the purchaser should be involved, because order points should be 

reorganized as well. In addition warehouse areas for the casts should be separated and 

marked accordingly. Small casts should be also stored on pallets, because of the 

material handling issues. 

 

Inside warehouse 

As mentioned in previous chapter there is no actual warehouse design completed in 

inside warehouse, though lean six sigma project is currently running. Many 

improvements have been done and layout changed once, but actual completed design is 

still missing. Next parts include description of the current problems with layout and 

introduction of new layout proposal. 

 

Current storage layout consists of five different areas: block area, longer parts area, 

inspection area, small items storage and pallet shelves area, as exhibit 4 shows. Block 

area is named in a layout, but it is not actually used. Instead longer parts are stored on 

their place, but location creates problems for unloading. First of all access to the 

warehouse with vehicle is difficult, because of too narrow aisle between the shelves. 

Secondly the storage area is another side of the entrance, so truck blocks the whole 

aisle, as figure 13 presents. Thirdly inspection area is placed in front of the longer parts 

storage, which hinders the unloading.  

 



49 
 

 

Figure 13: Main problem areas in storage 

 

 

Small items storage area is located left corner of the layout in three smaller shelves row 

next to office. Actually the area consists of four rows and two separated shelves, 

covering 64,5 m2. Currently small items are stored in different kind of boxes as previous 

figure 13 presents. Stored items are divided into two groups: project items and standard 

items. Project items are purchased related to specified project, but standard items can be 

used to several projects. Items are mainly physically small and cheap, such as screws, 

bolts and nuts. Warehouse profile, figure 14, represents the situation more clearly. First 

four shelves consist of small items storage area.  

 

 



50 
 

 

Figure 14: Warehouse item profile by pieces 

 

 

Pallet storage consists of two different areas with 792 pallet places. Six shelf rows next 

to inspection were installed during the writing process for storing the bearings. Another 

area consists of 12 pallet shelf lines with 576 pallet places for EUR-pallets. Currently 

there are no standard pallets used and packing units are varying. In addition shelves are 

not installed according to instructions, because there is fluctuation between the spaces 

of the shelves. For example some shelves include 10 cm space while others 30 cm. Due 

to this pallets must be always stored on long facing, because turning them to short 

facing would hit the pallets on other site of the shelf. That is why maximum capacity of 

one storage location is two standard pallets. Instead if shelves would be installed 

according to instructions capacity would rise to three standard pallets per location. 

Based on this, when calculating the current fill rate it will only reach 65 % as figure 15 

presents. 

 

 



51 
 

 

Figure 15: Warehouse fill rate chart 

 

 

New layout proposal 

As described before, current layout is not efficient and performance rate is low. Due to 

this, new layout design was accomplished with help of eight steps. Stage of defining 

and obtaining data was challenging, because there was no reliable data from purchasing 

available. Procurement was not able to give any estimation about the delivery times and 

ERP did not include enough valid information about shipments. Due to this the planning 

was based on physical sizing, simplifying and reorganizing the different warehouse 

areas. 

 

Warehouse design started with determination of fixed obstacles, which are two offices, 

work-wear storage, stairs and doors. Currently the door near to offices is used and there 

is no actual designed material flow. In addition warehouse includes the crane with five 

tons capacity, which can be now utilized mainly only for the longer parts.  

 

According to new layout design material flow was determined to be as through-flow 

starting from the door, which is near to longer parts area (exhibit 5). That spot was the 

only choice as unloading area, because of the traffic in another door. Currently there are 

some unloading, loading, packing and manufacturing functions performing at the same 

40

60

80

100

0 1 2 3 4 5 6 7 8 9 10 11 12 13

V
al

ue
 %

Shelf

Current fill rate



52 
 

time on that door and there is no place for coming vehicles. Second step was to define 

the location of receiving and shipping functions and locate storage areas. Most suitable 

location for the receiving area was near to unloading area, because of short travelling 

distance. In addition current work-wear storage was determined as new receiving office.  

 

Old layout did not include the separated receiving, which caused many problems. 

Purpose of the design of separated receiving area was to control that every item will be 

added  to  ERP.  Idea  is  that  item  cannot  be  moved  from  the  area,  before  it  is  in  Baan.  

After receiving in Baan it will be moved either to actual storage location or to 

inspection area. Inspection area is only used for quality inspection and it should be 

noted that actual receiving inspection will be done in earlier stages.  

 

In  new layout  proposal  actual  storage  area  consists  mainly  of  the  pallet  shelves.  Thus  

there is separated shelf area for the longer parts and two shelves for the small items. 

Number of the pallet places will remain the same with 792 pieces, but the difference is 

that storage locations will be utilized more effectively. Utilization is relying on 

re-assembly of shelves and using only EUR-pallets 800 mm*1200 mm for storing. New 

dimensioning of the shelves is introduced at exhibit 5. The main idea is that in the future 

three pallets can be used in one storage location instead of two, because of the 

EUR-pallets and 350 mm space between the shelves adding 35 % more capacity to the 

warehouse. Aisles between the shelves instead will be 3000 mm, because of the used 

forklift truck.  

 

Within this continuum safety aspect of the warehouse was considered in the new layout. 

New plan includes the safety walk ways for the people and separated working areas for 

the forklift trucks. Area will be separated with safety handrails, which are market as 

thicker black line in exhibit 5.   

 

New layout includes only two shelves for the small items. Reason for this is that all the 

project items will be replaced to production, because they are mainly used there. 



53 
 

Production department is in charge of the project, so there was no calculation attached 

to the thesis concerning small parts storage. Current plan is that three vertical carousels 

will be bought by production department. However standard parts still require space 

from the warehouse, because they can be used for different projects. According to 

current situation they would need 5 m2 of  space,  which  means  only  20%  of  the  shelf  

area. Another part of the shelves could be used within this plan for the parts that are 

now in Metso Paper China’s storage. That storage area would be then free for the other 

purposes such as sub-assembly place for production.  

 

New layout includes also separated picking area, because of the pre-assembly 

operations. Purpose of the picking area is to combine some component groups together 

before sending them to pre-assembly. In addition it is possible to do some sub-assembly 

for  the  smaller  parts  in  this  area.  Area  is  dimensioned  for  eight  standard  EUR-pallets,  

which will be recycled from pre-assembly back to the warehouse. System will be based 

on Kanban method, so that empty pallet in pre-assembly is impulse to warehouse that 

there is demand for new parts in pre-assembly.  

 

Accordingly one layout proposal was introduced, but totally three proposals were made. 

This layout was chosen to be introduced, because of many benefits it includes. First 

advantage of this layout proposal is that there is no need for new investments. Only new 

EUR-pallets,  safety  rails  and  some stamps  must  be  bought.  Secondly  with  the  help  of  

this layout utilization of fill rate is more efficient. Currently cost of one pallet place is 

averagely 214 RMB (25 euro) per pallet per month, but with the help of new layout it 

will be 139 RMB (16 euro). Figure 16 presents the situation in monthly level. Cost of 

one pallet place is calculated according to cost structure of the warehouse including 

in-direct labor-, overhead-, machine-, and allocation costs. 



54 
 

 

Figure 16: Cost of pallet place 

 

3.3.4. Staffing process design 

 

According to the results of the interviews many departments were complaining that 

there are not enough skilled workers at warehouse. Some people were complaining 

about the technical knowledge of the items and some about the skills related to Baan. In 

addition warehouse manager pointed this issue also based on discussion. In order to 

clarify skills of warehouse workers, skill matrix was created. Matrix included basic 

information about the workers and skills related to their work, as exhibit 6 presents. 

Purpose of the matrix was to investigate what areas should be trained and how training 

should be divided among workers. Evaluation was based on scale from 0 to 4, meaning 

that with 0 score there was no knowledge /  person need to be trained and with 4 score 

there was excellent knowledge / can teach others.  

 

Based on the matrix it seems that the most urgent training needs are on computer skills 

and skills related to ERP (Baan skills). These two areas gained only 10 points, while the 

highest,  ability  to  follow instruction,  reached  good level  with  50  points.  All  in  all,  the  

warehouse matrix skills profile reveals that there should be accomplished training in 



55 
 

many  areas,  because  78  %  of  the  skills  are  not  reaching  the  satisfactory  level.  In  

addition it is worth of noticing that there is even one worker with no skills at all.  

 

When analyzing the reasons behind the figures, warehouse age structure and distribution 

of working years reveals something. First of all average age of warehouse worker is 42 

years and standard deviation is 12, as figure 17 presents. This means that 53 % of 

workers are more than 46 years old. When comparing age to computer and ERP skills it 

can be stated that mainly young people have those skills. Somehow the results are 

surprising, since 63 % of the warehouse workers have been working in a company more 

than seven years without computer skills at all.  

 

 

 

Figure 17: Age distribution, staffing profile 

 

 

Training program 

In order to motivate workers, develop individuals, maximize flexibly and increase 

effectiveness warehouse workers need to be trained. Based on this, training program for 

the warehouse workers was created in rough level including the following: 

 



56 
 

Day 1: 
- Introduction of new warehouse process, exhibit 7 

- Introduction of new instruction related to process 
 

Day 2: 
- Workshop regarding new warehouse process 

- Group  assignments:  how  to  ensure  that  new  process  will  be  implemented  in  a  
daily work 

- Preparation of assignment : daily situations from work- how to solve them 
 

Day 3: 
- Training of basic computer skills – Office 

 

Day 4: 
- Training of Baan operations 

 

Day 5: 
- Training of Baan operations 

- Customized training programs in small groups 
 

Day 6: 
- Quiz between groups about the training topics, best group will be rewarded 

 
 

First of all the new process should be introduced and instructions presented. After that 

there should be a day for discussion where workers would give their solutions and 

opinions about the new process in form of group assignment. It is essential to create the 

assignments in a way that would actually bring some answers and involve people to 

discuss. After that training would continue with the most important training area at the 

moment: computer skills and ERP.  

 

Training of those areas is significant, because in order to implement barcode system in 

warehouse, workers should have at least basic computer skills. Otherwise it will be 



57 
 

difficult  for  them  to  understand  the  structure  of  the  system  if  they  do  not  know  how  

system interacts with computer and ERP. Even though not all workers will use computer 

in their daily job, but in order to prepare for the coming changes and fluctuation of 

workers it is essential that everybody will attend the training concerning computer 

skills.  

 

Fourth and fifth day consist of training program of ERP. Training should be 

accomplished in different stages: first stage would include all the warehouse workers. In 

this stage IT- department would introduce total warehouse process and its functions in 

ERP. During the second stage warehouse workers would be divided into different 

groups according to organization: standard parts, shipping, subcontractor, raw materials 

for foundry, steel and office stationary. Every group would then have a customized 

training day according to profiles that they need to use in ERP. In addition training 

group would include people from other department related to those operations, such as 

operating purchasing person. This is vital in order to understand how warehouse 

operations  in  ERP are  related  to  other  department  functions  and  where  is  the  interface  

between them. Finally the training program would be finished with help of quiz, where 

skills of the workers would be evaluated again in a group.  

 

3.4. New warehouse process  

 
After concluding the process designing the total process of warehouse was modeled, as 

presented  in  exhibit  7.  There  was  no  flowchart  drawn  before  about  the  warehouse  

functions, so this was also requirement from the quality department. Warehouse process 

starts from