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What is Slotting Optimization?

What is slotting optimization?
  • Slotting optimization is the process of assigning each SKU within the distribution center to its most productive location. 
  • Slotting optimization is specially important for high-turn environments and fulfillment centers that experience increased proliferation of SKU variety and fluctuations in shipping volumes.
  • The practice of using a spreadsheet for slotting is highly adopted, mostly because it is free and relatively simple, but it is not true optimization.
  • Despite what method is used, slotting optimization is typically done in two ways: as part of a warehouse re-design or mass res-lot project or through consistent day-to-day maintenance.
  • While some slotting optimization systems miss the mark, others provide cutting edge technology that yields otherwise unattainable results – even by the most experienced operators.  The technology is proven, and it is very simple to adopt
  • While slotting optimization systems can provide many benefits, they are only one piece of the puzzle of achieving end-to-end fulfillment optimization.

What is Slotting Optimization?

Slotting optimization is the process of assigning each SKU within the distribution center to its most productive location. 

In the distribution center, slotting optimization is critical because where an SKU is located impacts virtually every direct labor function – it is especially important for high-turn environments and fulfillment centers that experience increased proliferation of SKU variety and fluctuations in shipping volumes.

The concept of slotting optimization has been around for many years but has not yet been fully adopted everywhere, despite item slotting being a task that all case and each-pick operations perform daily.

Slotting optimization can be an ambiguous term.  To some, slotting optimization could mean the simple act of slotting items using an excel spreadsheet and experience.  To others, it might mean utilizing a specialized optimization system driven by operational data.  The practice of using a spreadsheet for slotting is highly adopted, mostly because it is free and relatively simple, but it is not true optimization.  Spreadsheets are great for many things, but slotting items in a warehouse is not one of them.  To optimize item slotting, many variables need to be considered.  For even the most experienced operator, to analyze the data and evaluate the different trade-offs for each item, it would be an insurmountable task – which is why most default to experience and gut-feeling.

Alternatively, slotting optimization systems are not as highly adopted, despite the clear benefits. Sometimes, the low adoption rate is due to the mentioned ambiguity in terms of what optimization means.  In other cases, however, some systems do not fit the needs of the operation and end up not being used daily.

Mass Slotting vs. Daily Slotting

Despite what method is used, slotting optimization is typically done in two ways: as part of a warehouse re-design or mass res-lot project or through consistent day-to-day maintenance.   As mass facility re-slots are very time-intensive and costly, most operators will want to make sure this process yields optimal results to maximize efficiency right away. Naturally, with higher risk often comes higher rewards.

The problem, however, is most fulfillment centers in a constant state of change.  Whether it is fluctuating SKU variety or the peaks and lulls of consumer demand, item slotting can become sub-optimal quickly if not managed consistently, and this is where on-going day-to-day maintenance comes in. If done correctly, on-going slotting optimization can eliminate – or significantly prolong – the need for periodic mass re-slots.

The bottom line is item slotting happens every time a new SKU is brought into the warehouse – with or without an optimization system.  Manually using a spreadsheet or assisted by an optimization system.  Usually, the difference is whether the incoming item will be assigned to the best location – sometimes before it hits the dock – or just the first one available. The implications of this difference can lead to a significant snowball effect over time.

The simplest example of slotting optimization can be exemplified with the center of gravity concept.   In this concept, the most popular – or most frequently ordered – items are slotted closest to the shipping dock or pallet wrappers.

Suppose your operation ships single-item orders in large quantities (i.e., pallets, half-pallets, or layers) or simply have items that are large and bulky. In that case, this may be a good solution for you as it will minimize selection travel, a highly underestimated source of waste in the warehouse which is rarely measured on a daily basis but accounts for up to half the time spent picking orders.

Related: Experiencing a warehouse labor shortage? Here’s how to fix it.

If this describes your operation, or if you run a smaller facility with a relatively low number of SKUs and a single slot type throughout, you can create a spreadsheet that includes all your items along with their movement and frequency and assign each item to the areas closest to the center of gravity.  There are also software packages on the market to help you in this process while allowing you to create a basic heatmap visualization of your facility.

If your operation requires you to pick multiple items per order, have varying order sizes, have different crushability and item storage requirements, and utilize a variety of material handling equipment, the previous solutions just won’t cut it.

Here, you can probably get more value out of more robust tools.

Different types of equipment and order picking processes must be evaluated to minimize pick paths and, subsequently, order selection travel.  Zones can be created based on velocity and frequency, customer commonality, temperature, and humidity or from planograms for store-friendly pallets.

Mobile equipment should be selected based on evaluating operational analytics and may include a mixture of conventional and automated equipment.  

To make these decisions correctly, each alternative must be quantified in terms of suitability for the operation, expected productivity, capacity, lifetime, ease of implementation, and, ultimately, the cost-benefit needed for an ROI.

This may sound complex and overwhelming to some, but the right tools will help make this process easy – and sometimes even automate parts of it.

While some slotting optimization systems miss the mark, others provide cutting edge technology that yields otherwise unattainable results – even by the most experienced operators.  The technology is proven, and it is very simple to adopt.

The proper slotting optimization tool can provide significant savings over time, a better working environment – through more ergonomic slotting and higher worker productivity – and reduced order turnaround time.  

There are, however, some points that must be considered when implementing a slotting optimization system.  The best-in-class systems on the market are highly customizable and flexible, but even they require basics to be in place.  These are important considerations before you embark on this journey:

Scalability

Scaling the system’s implementation through your distribution network in a connected way requires high visibility to all sites, both for process standardization and success tracking. As a logistics executive, this will allow you to see things more clearly and better control the operation.

Existing systems

While a WMS/LMS combination is not critical to implementing a slotting optimization system, they help produce consistent and accurate data.

Usability

Slotting optimization systems can only positively affect an operation if they are being used consistently.  A slotting optimization system should be integrated with your systems and its users’ daily responsibilities.  As the continuous improvement maxim says, “everyday, everywhere, and by everyone”.

Analytics

To make the best decisions, you need to remove many assumptions—all if possible—from the decision-making process. That means avoiding reliance on high-level user inputs – a strong system should instead calculate those data points automatically using your data. The wrong assumption can end up crashing your expectations.  Slotting optimization should be a data-driven process.

Simplicity

Even though you will be dealing with a lot of data and the complex relationship between variables, you need to make sure your slotting system has the intelligence to process it – and even allow you to automate workflows as much as you want. That means not having to upload files manually or having to enter a ton of parameters every time. Instead, you simply log in, and seeing the information is already there for you to confirm, just count your dollars saved.

The basic rule of thumb is if your operation has high complexity, your distribution center manages thousands of SKUs and/or is experiencing signs of inefficiency, a more robust solution is likely the best fit for you.

While slotting optimization systems can provide many benefits, they are only one piece of the puzzle of achieving end-to-end fulfillment optimization.

If you are interested in optimizing your fulfillment center, do not stop at slotting.  Consider an end-to-end fulfillment optimization system. 

Related: What is a fulfillment optimization system?

Read about how our end-to-end fulfillment optimization solutions helped a leading west-coast grocer to optimize slotting of its 18,000 SKUs, synchronize their automated and conventional areas, and reduce travel time, fingerprinting and replenishments.

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