Improving the Overall Performance of the Warehouse Processes of Temperature-Sensitive Goods

Abstract

A significant part of the revenue generated by KLM Cargo comes from transporting temperature- sensitive goods. Currently, KLM Cargo faces quality issues in the handling processes of these goods which may lead to significant loss in revenue, and the risk of not generating new revenue. This research focuses on the improvement of the performance of the handling processes of temperature-sensitive goods at the warehouses of KLM Cargo. The main research question answered in this research is: ‘How can the overall performance of the handling processes of temperature-sensitive goods in the KLM Cargo warehouses be improved?’ The current state of the handling processes of temperature-sensitive pharmaceutical and perishable goods is analysed by using the Delft Systems Approach and the principles of lean manufacturing. The current state analysis shows that the temperature-sensitive goods are out of refrigerated storage for long periods of time or are stored in the wrong refrigerated storage area (perishables and pharmaceuticals are not to be stored together). This is mainly due to insufficient capacity of processes and facilities, the erratic arrival pattern of air cargo and the presence of non-value added process steps. It is concluded that KLM Cargo currently does not use adequate Key Performance Indica- tors (KPIs) that describe the performance of the handling processes of temperature-sensitive goods. Thus, new KPIs have been proposed. These are the Time Out of Refrigeration (TOR), the number of storage violations and the on-time performance on handling deadlines. The TOR is calculated as the amount of time a shipment is present at the Schiphol hub, but is not stored in a refrigerated area. The number of storage violations represents the number of times a cool storage area has insufficient capacity and the on-time performance shows the percentage of shipments that are delivered on-time according to the handling deadlines set up by KLM Cargo. The overall performance of the handling processes of temperature-sensitive goods can be improved by decreasing the TOR while the amount of storage violations and the on-time performance do not deteriorate. In order to reach the research objective, multiple design options are proposed. The different design options should meet the requirements for the handling of temperature-sensitive goods as well as the procedures laid out in the rules and regulations. Discrete Event Simulation (DES) is used to model the system and test the effects of the different design options. The system performance is measured by the TOR, the number of storage violations and the on-time performance. In the current state the average throughput time of a temperature-sensitive shipment is xxx minutes, of which the shipment spends xxx minutes out of a refrigerated area. The number of storage violations is approximately xxx shipments per day, or xxx shipments per year. There are three design options tested in the DES model, they consist out of the following: 1) the removal of non-value added processes, 2) levelled truck arrivals by optimal supply chain collaboration and 3) an input controller to control the arriving cargo at the Schiphol hub. Input data consisted of a truck and flight arrival schedule based on actual data along with a synthesised dataset which contains the amount of freight per shipment, the type of product, the type of cargo and the departure times. Each design option was run 25 times for a simulated duration of 365 days. The results were averaged and analysed in order to choose the best design option. The optimal way to improve the overall performance of the handling processes of temperature- sensitive goods is found to be the implementation of an input controller at KLM Cargo. In this design option, an input controller is designed that decides if arriving cargo is accepted for further handling in the KLM Cargo warehouses. If adequate handling can be ensured, the cargo is accepted for further handling within the warehouses of KLM Cargo. If adequate handling cannot be ensured, the cargo is ordered to wait outside of the KLM Cargo premises and is put into a queue with other cargo that cannot enter the warehouse yet. The moment adequate handling can be ensured again, the cargo with the shortest transit time is ’pulled’ from the queue and accepted into the warehouse for further handling. Implementing this design option resulted in a xx% decrease of the TOR, a xx% decrease in storage violations while the on-time performance did not deteriorate and compliance is adhered to. This design option does however increase the chance of cargo missing their flight, as waiting times are added for shipments that are not directly allowed to enter the warehouse. At the same time, this phenomenon creates an incentive for customers to deliver their cargo on-time. For future research it is recommended to look further into other potential control strategies that include demand forecasting. In order to address the cost aspect of the performance, it is suggested to investigate the devaluation of temperature-sensitive goods when they are not stored in a refrigerated area. Finally, it is recommended to extend this research on the entire supply chain from shipper to consignee in order to get insights in the performance per lane.