Slotting: A Winning Strategy
Connect, Autumn 2007

Optimizing your warehouse is not a gamble when you properly use slotting

With travel time accounting for 60-65% of direct labor activities, and those activities translating into 40-50% of a facility’s total operating budget, slotting SKUs to determine optimal product storage and inventory is one of the most effective ways to reduce warehousing costs and improve productivity.

While many facilities are properly slotted at the beginning of their operations, demand and SKUs often change over time. This makes regular re-slotting crucial to ongoing efficiency. According to the Aberdeen Group’s High Octane Warehousing report, published in August 2007, this explains why best-in-class companies are 57% more likely to undertake slotting and regular re-slotting than their peers.

In any given operation, successful product slotting considers multiple criteria—including product profiles, velocity and storage types—to achieve specific results. Here, we examine the benefits of slotting, the methodology behind it and points to consider before undertaking a slotting program yourself.

Slotting Outcomes

Depending on the goals of a facility for its slotting program, the parameters established will yield at least one or more of the following results.

• Picking Efficiency: Slotting, particularly in forward pick locations, cuts travel time by placing the highest velocity SKUs closest to conveyors or to shipping.

• Replenishment Efficiency: Sizing pick face locations relative to a specific product reduces the frequency and amount of labor needed to replenish that space.

• Balanced Work: Evenly dispersing SKUs across multiple pick zones reduces congestion. By placing a mix of slow, medium and fast movers in several areas throughout a facility, both material flow and fill rates improve.

• Load Building: Locating heavy product at the head of the pick path and lighter product at the end reduces product damage in load building. Alternately, slotting can structure pallet locations to permit building pallet loads to unique customer specifications.

• Accuracy: Slotting separates similar products to minimize picking errors.

• Improved Ergonomics/Reduced Accidents: For products that are picked manually, heavier objects should be slotted at a waist height level to reduce bending and lifting.

• Space Utilization: Slotting determines what quantity of which items should be in forward pick areas, and what should be kept in reserve to optimize floor space.

• Reduced Short Picks: Determining the amount of inventory required by a forward pick location and specifying the relative frequency of replenishment reduces the chance of not having the quantity ordered available, thereby avoiding short picks.

Slotting Approaches

It’s not necessary for an especially small operation to have a specific software program or module for slotting; spreadsheet calculations of velocity, dimensions and demand can be effective. Many warehouses are in a perpetual state of flux, with seasonality, product life cycle and promotional activities causing optimal SKU placement to shift constantly.  Such operations, including most larger ones, find a customized slotting package makes the job easier and decidedly faster.

Many Warehouse Management Systems (WMS) include a slotting module. Key players include HighJump, Red Prairie, Manhattan Associates, Catalyst and Infor. Even some Enterprise Resource Planning (ERP) solutions—like those from SAP and Oracle—contain data that can be used for slotting activities. Finally, a few companies offer stand-alone slotting packages, including BoxWorks Technologies’ SlotWorks, Optricity’s OptiSlot and IDS Engineering’s Slot3D.

“One of the benefits of using slotting software is it permits multiple iterations for comparison of scenarios resulting from conflicting rules,” says Jerry Vink, vice president of engineering with FORTE. For example, if picking efficiencies are prioritized versus replenishment efficiencies, the slotting software will generate one result. Change the criteria to emphasize ergonomics, run the program again and a different slotting configuration will be recommended. “The software provides efficiency in terms of comparing scenarios—and then you select the optimal solution for your need,” Vink notes.

According to the Aberdeen Group, three key capabilities contribute to the effectiveness of a slotting program: Blended Demand Forecasting, Multi-Tier Placement Rules and Integration with Labor Management.

To determine optimal product locations, it’s crucial to mix historic demand and cubic dimensions with a forecast for upcoming promotional activity and seasonality. This Blended Demand Forecasting technique requires some creative thinking when new products—for which no prior demand data exists—come into play. Projecting future demand for a new product based on past demand for a similar item is one way to achieve these numbers.

When establishing the criteria for your ultimate slotting goals, SKU popularity should not be the only factor under consideration. Establish Multi-Tier Placement Rules within the slotting software to achieve the most effective slotting profile. These include:

• Pick velocity
• Cubic velocity
• Pack size
• Family groupings/Product affinity
• Physical attributes of the product
• Stacking ability
• Ergonomics
• Items commonly ordered together
• Eventual location at the store level
• Hazardous materials
• Current storage media (pallet rack, flow rack, carousels)

While it’s true that slotting software will generate a variety of optimized solutions, each of those solutions may not be entirely practical from a time perspective.

“You want to limit the number of moves or tasks required by the optimized slotting recommendations to something you can actually accomplish,” advises Vink. “If you’re running a re-slot program monthly—and your slotting software is so finely tuned it churns out three weeks-worth of moves—once you get that done it’s almost time to re-slot again!”

Integration of Labor Management software with the slotting software will yield calculations of both the amount of labor required to move the items and the amount of labor savings that can be gleaned from the move. If the return on investment is worth the moves, then make them. Otherwise, “moving stuff around doesn’t tie into pick, pack or ship activities,” Vink observes. “If a series of moves are projected to save 80 hours of picking labor over the next few months, but requires three people to be dedicated to moving that inventory, then you’ve lost money.”

Additional Slotting Considerations

Most re-slotting activities should be well within the capacity of a warehouse manager to determine and direct, especially when aided by slotting software. For a variety of reasons, including establishing the initial layout of the warehouse or installing new slotting software, it might be worthwhile to reach out to external help such as a slotting software company representative or a third-party consultant. Any major strategic initiative or internal change might also call for the expertise of an outside expert, such as outgrowing existing space, the consolidation of multiple facilities, a dramatic upswing in volume or a change in product line.

Whether conducted internally or with the assistance of a third-party, a slotting exercise following best practices includes a clear definition of the project’s scope and the required outcomes. Also, understand the availability of your internal labor required to undertake the recommended layout shifts. If working with a consultant, clearly define internal and external responsibilities, action items and timeframes. Finally, make sure the data you’re using within your system is as complete as possible, advises Vink. “Bad data will not give you good results—garbage in, garbage out.”

As to how frequently full warehouse re-slotting should be undertaken, a generally-accepted recommendation is quarterly. However, according to Aberdeen Group research, top companies undertake incremental re-slotting on a monthly, weekly or even daily basis—particularly for the fastest moving SKUs.

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