Chapter 5

Case study: Warehouse
MS. Tăng Minh Hưởng

FRESH PRODUCE CROSS-DOCKING FACILITY
 Kevin Chong is the logistics manager of a fresh produce retailer in Singapore. As a fast-paced
society, Singapore demands a very quick turnaround in many logistics operations. Kevin is
undertaking a project to implement crossdocking at the retailer’s current distribution center at
Tanjong Pagar, to substantially reduce the throughput time.
 The distribution center replenishes all of the retailer’s outlets across the island country, 24 hours a
day, 7 days a week. On an average, reefer containers arrive from overseas randomly at the rate of
a twenty-foot equivalent unit (TEU) every two hours, with a deviation of plus or minus one. Due
to the uncertainty at customs clearance, Kevin does not have control over the inbound containers’
exact arrival time. Whenever a container arrives, the cross-docking operations will need to quickly
unload the goods, break bulk, sort, pick, and then load the goods onto outbound trucks. Kevin is
evaluating cross-docking equipment systems. His primary concerns are the operating costs and
the perishability loss of fresh produce. To simplify the decision making, it is estimated that a TEU
container of goods loses $500 per hour due to the perishable nature of fresh produce. The speed of
cross-docking operations does not affect the average waiting time for outbound delivery.
Kevin is evaluating the following four equipment systems proposed by
different vendors:
1. A manual system that costs $400 and 110 minutes to cross-dock a TEU
2. A system aided by pick-to-light technology (the orders to be picked are
identified by lights placed on shelves or racks) that costs $600 and 100
minutes to cross-dock a TEU
3. A system aided by pick-to-voice technology (the order pickers use a
headphone and a microphone to communicate with a computerized system
to pick orders) that costs $800 and 90 minutes to crossdock a TEU
4. A semi-automated system that costs $1,000 and 80 minutes to cross-dock a
TEU
 The times given above are average figures because the actual times taken could vary. The costs are all
inclusive, including equipment depreciation, equipment running, and supporting labor costs. There
are simplifications in the costs given above and the costs are assumed to be flat throughout the time.
Kevin needs to estimate how much time it will take for goods to flow through the cross-docking
operations in each equipment system. He can then calculate the perishability loss on the basis of the
throughput time. Kevin recalls from college that queueing theory might be applicable to such a
problem. Essentially, the theory of queueing deals with the trade-offs in a waiting line. Given a
processing capacity, there is often a waiting line in front of a server due to the randomness in order
arrivals and processing times. There is a cost, could be tangible or intangible, associated with keeping
customers/goods waiting. Investments in the processing capacity can speed up the process and reduce
the waiting times. However, an organization needs to find out the optimal capacity level to minimize
the total cost, which includes both the capacity cost and the cost of waiting Use a software package
that enables you to perform queueing analysis. Note that an M/M/1 queueing model assumes a single
server, exponential arrival and service times, first come first served queueing rule, unlimited queue
length, and infinite calling population. In the situation described above, the number of servers is
always 1, although different equipment systems vary in terms of operating costs and cross-docking
speed.
QUESTIONS
 1. For each of the four equipment systems, calculate the expected number of inbound TEUs waiting
in the queue for cross-docking.
 2. For each of the four equipment systems, calculate the expected time of an inbound TEU in the
queue, that is, the expected time a TEU must wait in line to be unloaded.
 3. For each of the four equipment systems, what is the probability that an inbound TEU can be
unloaded immediately upon arrival?
 4. Which of the four equipment systems incurs the lowest total cost to the retailer? It is assumed that
the retailer bears all the costs associated with perishability loss. The total cost involves operating
costs and perishability loss of fresh produce.
 5. What is the capacity utilization rate of each of the four equipment systems?
 6. Kevin is also considering a fully automated system proposed by another vendor. The vendor
believes that its fully automated system can set a record by taking only 70 minutes to cross-dock an
inbound TEU. However, this system’s operating costs will be much higher than those of the other
equipment systems, averaging $2,000 per TEU. Based on the total cost to the retailer, would you
recommend that Kevin go for this fully automated system?

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Case study: Warehouse

MS. Tăng Minh Hưởng

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