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A MODEL FOR WAREHOUSE PERFORMANCE MEASUREMENT
PREMPORN KHEMAVUK
SCHOOL OF MECHANICAL AND MANUFACTURING ENGINEERING THE UNIVERSITY OF NEW SOUTH WALES
A dissertation submitted to the University of New South Wales in fulfillment of the requirements for the degree of Doctor of Philosophy 2010
THE UNIVERSIWOF NEWSOUTHWAI.ES The3is/Dissertation Sheot Sumameor Familyname: Khemavuk Firsl name: PremDorn Abbreviation for degreeas givenin the Ljnive6itycalendar: PhO School: Mechanicaiand Manufacturing Engineering Title: A Modelfor Warehouse Performance Measurement worqg maxtmum: The traditionalmodels for measuring warehouse performancehave been used by single metrics and single productivity ratio such as fill rate per hour.Whilethesetraditional modelsare very easyto implement, they have been lacking performance in benchmarking over time. Therefore, this study aims to overcome such limitations ofthe traditional modelsby exploring the unknown relationshipsbelween performanceindicatorsin five measurementareas: labour, cost, time, utilisation,and administration, throughoutfive typical steps in warehousefunctions (receiving,handling, storing, order picking,and shipping). This study consistsof two parts:quantitativo study and qualitative study. In quantitative study, the proposedmodel was generatedusingthe structural equationmodeling(SEM)technique together with a datasetof 201 warehouses from hard disk drive, animalfeed, and foam packaging industries in Thailand.With the use ofthe AMOS softwareprogram,the results performance show that the SEM modelconsistsof ten indicators that are significant to warehouse at levelof significance of 0.05.These indicators labourhour,transportation are, for example, cost,degreeof spaceutilisation, and degreeof enor-free ordersshipped.lmportantly, the SEM modelwas testedwhetherit was acceptable basedon the goodness-of-fit measures. The resultsshow that the values obtainedfor the five measures:chi-square (p = 0.217),GFI = 0.972, NFI = 0.971, CFI = = 0.995, and RMSEA 0-032 indicatingthat the SEM model was acceptableto measure warehouse performance. Furthermore, the SEM modelwas extendedusing an analogybasedapproach. This approachallowsa companyto ret eve otherwarehouses' in orderto imgrovethek own oerformance. information In qualitativestudy, the methodological triangulation was used to triangulate three differentmethodsfor warehouse performance measuaement. These three methodsare the SEM model,the multiplecase study, and validationof the SEM model using data from 80 companiesin Thailandand a companyin Australia.The resultsshow that all ten indicators from the SEM modelare used by the Thai and Auskaliancompanies performance. to measuretheir warehouse performance Therefore, it can be concluded that the SEM modelis able to measure warehouse in real siluations. Faculty:Engineering Othername/s:
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ABSTRACT
The traditional models for measuring warehouse performance have been used by single metrics and single productivity ratio such as fill rate per hour. While these traditional models are very easy to implement, they have been lacking in benchmarking performance over time. Therefore, this study aims to overcome such limitations of the traditional models by exploring the unknown relationships between performance indicators in five measurement areas: labour, cost, time, utilisation, and administration, throughout five typical steps in warehouse functions (receiving, handling, storing, order picking, and shipping). This study consists of two parts: quantitative study and qualitative study. In quantitative study, the proposed model was generated using the structural equation modeling (SEM) technique together with a dataset of 201 warehouses from hard disk drive, animal feed, and foam packaging industries in Thailand. With the use of the AMOS software program, the results show that the SEM model consists of ten indicators that are significant to warehouse performance at a level of significance of 0.05. These indicators are labour hour, labour cost, transportation cost, downtime of storing equipment, downtime of order picking equipment, downtime of shipping equipment, degree of space utilisation, degree of equipment utilisation, degree of labour utilisation, and degree of error-free orders shipped. Importantly, the SEM model was tested whether it was acceptable based on the goodness-of-fit measures. The results show that the values obtained for the five measures: chi-square (p = 0.217), Goodness-of-fit Index (GFI =
0.972), Normed Fit Index (NFI = 0.971), Comparative Fit Index (CFI = 0.995), and Root Mean Square Error of Approximation (RMSEA = 0.032) indicating that the SEM model was acceptable to measure warehouse performance. Furthermore, the SEM model was extended using an analogy based approach. This approach allows a company to retrieve other warehouses information in order to improve their own performance. In qualitative study, the methodological triangulation was used to triangulate three different methods for warehouse performance measurement. These three methods are the SEM model, the multiple case study, and validation of the SEM model using data from 80 companies in Thailand and a company in Australia. The results show that all ten indicators from the SEM model are used by the Thai and Australian companies to measure their warehouse performance. Moreover, the SEM model is able to measure the warehouse performance with Mean Magnitude of Relative Error (MMRE) values of 2.99% (with 80 companies in Thailand) and 3.53% (with a company in Australia). Therefore, it can be concluded that the SEM model is able to measure warehouse performance in real situations.
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ACKNOWLEDGEMENTS
I truly appreciate a number of people who have been supporting and helping me in making this thesis possible. Firstly, I would like to gratefully acknowledge my supervisor, Dr Hasan, who has always been encouraging me throughout my study. It was a pleasure to work with you. I would like to extend my gratitude to the companies in Thailand and Australia for your valuable time and data used in this research. I also would like to express my warm thanks to Mrs Mary Rolfe, postgraduate research coordinator, for her assistance. Lastly and most importantly, I am immensely grateful to my family, especially my father and mother, my brother and my aunt for all your love and support.
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TABLE OF CONTENTS
Abstract Acknowledgement Table of Contents List of Tables List of Figures
I III IV VII VIII
Chapter 1
Introduction
1 1 3 7 8 8 8 8 9 9 9 10
1.1 Overview 1.2 Review of Relevant Literature 1.3 Research Issues 1.3.1 Issues Related to Labour Measures 1.3.2 Issues Related to Cost Measures 1.3.3 Issues Related to Time Measures 1.3.4 Issues Related to Utilisation Measures 1.3.5 Issues Related to Administration Measures 1.4 Research Objectives 1.5 Research Scopes 1.6 The Structure of the Thesis
Chapter 2
Warehouse Management
12 12 14 17 19 22 25
2.1 Introduction 2.2 Review of Relevant Literature 2.2.1 Warehouse Operations 2.2.2 Warehouse Performance Measurement Models 2.3 Research Questions 2.4 Hypotheses
IV
Chapter 3
Quantitative Study: Build up a Model for Warehouse Performance Measurement 27 27 28 31 31 31 32 32 32 33 36 37 38 38 39 39 41 41 42 46 47
3.1 Introduction 3.2 Research Methodology 3.2.1 Link the theoretical model to hypotheses Defining Hypotheses Defining the Unit of Analysis 3.2.2 Design Sample Size Selecting Data Collection Method Developing Measurement Instruments 3.2.3 Pilot Test 3.2.4 Collect Data for Theory Testing Outlier Standardisation Normalisation Reliability Test Validity Test KMO and Bartletts Values Descriptive Analysis Handle Non-respondents and Missing Data Input Data and Clean Data 3.2.5 Build up Two Models for Measuring Warehouse Performance A Model from Regression Analysis and Factor Analysis A Model from Structural Equation Modelling Technique 3.2.6 Test the Two Models 3.2.7 Analogy Based Approach Distance Measurements 3.2.8 Hypotheses Testing 3.2.9 The Findings from the Quantitative Study
47 47 56 64 67 68 70 73
Chapter 4
Qualitative Study: Triangulation
76 76 77 77 78 79 92 94 96 100 101 102
4.1 Introduction 4.2 Multiple Case Studies: Designing Case Research 4.2.1 Research Framework Defining Research Question Choosing Cases Developing Research Instruments Data Documentation and Coding 4.3 Validation of the SEM Model 4.4 Data Analysis: Triangulation 4.5 The Findings from the Qualitative Study 4.6 Discussions
Chapter 5
Conclusions
104 104 106 106 108 110
5.1 Conclusions 5.2 Research Limitations 5.3 Contributions to Knowledge 5.4 Future Work References Appendix A Appendix B Appendix C Appendix D Appendix E Appendix F The Details of Five Performance Measures The Details of the Questionnaire A Descriptive Analysis of Data Collected Interview Guide Data Collected from Company G List of Publications
124 127 137 165 168 170
VI
LIST OF TABLES
Table 3-1 Table 3-2 Table 3-3 Table 3-4 Table 3-5 Table 3-6 Table 3-7 Table 3-8 Table 3-9 Table 3-10 Table 3-11 Table 3-12 Table 3-13 Table 3-14 Table 3-15 Table 3-16 Table 3-17 Table 4-1 Table 4-2 Table 4-3 Industry Makeup of Respondents The Skewness Values of All Variables The Cronbachs Alpha KMO and Bartletts Values ANOVA Test for Different Types of Industry ANOVA Test for Different Annual Revenues ANOVA Test for Different Sizes of Warehouse VIF Values of 25 Independent Variables Factor Loading Values without Rotation Factor Loading Values with Varimax Rotation Method The Coefficients of Regression Analysis and Factor Analysis Model Fit Summary Model Fit Summary of a Proposed Model MMRE of Two Models An Example of Analogy Based Approach Correlations Regression Weights Summary the Findings across the Case Studies Scorecard System of Company G Warehouse Performance Measured from Company Gs Scorecard and the SEM model Table E-1 Data Collected from Company G for Nine Months 99 169 38 40 40 42 48 48 49 50 51 52 53 59 64 65 70 73 73 95 97
VII
LIST OF FIGURES
Figure 2-1 The Roles of a Warehouse in Logistics and Supply Chain Management Figure 2-2 Figure 2-3 Figure 2-4 Figure 2-5 Figure 3-1 Figure 3-2 Figure 3-3 Figure 3-4 Figure 3-5 Warehouse Layout Activities in Warehouse Operations Major Warehouse Performance Measurement Areas Benchmark Problem of Traditional Performance Measurement A Conceptual Model for Measuring Warehouse Performance The Theory Testing Survey Research Process Warehouse Automation (A3) versus Labour Cost (C4) Warehouse Performance versus Warehouse Size Deteriorating Cost of Equipment (C1) versus Maintenance Cost of Equipment (C2) Figure 3-6 Figure 3-7 Figure 3-8 Figure 3-9 Figure 3-10 45 13 16 18 23 24 28 30 43 44
Warehouse Complexity (A2) versus Warehouse Automation (A3) 46 Basic Approach to Performing a SEM Analysis Hypothesis Model A Proposed Model of Warehouse Performance Measurement Distance between a Sample Warehouse and a Dataset of 201 warehouses 69 77 78 93 94 138 139 140 58 61 62
Figure 4-1 Figure 4-2 Figure 4-3 Figure 4-4 Figure C-1 Figure C-2 Figure C-3 Figure C-4
Research Framework of Multiple Case Studies The Details of the SEM Model The Three Themes for Case Study Interviews Categories of Data Distribution of Warehouses by Size Distribution of Warehouses by Revenue Distribution of Warehouses by Labour Hour (L1) Distribution of Warehouses by Pallets per Labour Hour for Receiving Function (L2)
141
Figure C-5
Distribution of Warehouses by Pallets per Labour Hour for Handling Function (L3) 142
VIII
LIST OF FIGURES (Cont.)

Figure C-6 Distribution of Warehouses by Pallets per Labour Hour for Storing Function (L4) Figure C-7 Distribution of Warehouses by Pallets per Labour Hour for Order Picking Function (L5) Figure C-8 Distribution of Warehouses by Pallets per Labour Hour for Shipping Function (L6) Figure C-9 Distribution of Warehouses by Deteriorating Cost of Equipment (C1) Figure C-10 Distribution of Warehouses by Maintenance Cost of Equipment (C2) Figure C-11 Figure C-12 Figure C-13 Figure C-14 Distribution of Warehouses by Infrastructure Cost (C3) Distribution of Warehouses by Labour Cost (C4) Distribution of Warehouses by Transportation Cost (C5) Distribution of Warehouses by Downtime of Receiving Equipment (T1) Figure C-15 Distribution of Warehouses by Downtime of Handling Equipment (T2) Figure C-16 Distribution of Warehouses by Downtime of Storing Equipment (T3) Figure C-17 Distribution of Warehouses by Downtime of Order Picking Equipment (T4) Figure C-18 Distribution of Warehouses by Downtime of Shipping Equipment (T5) Figure C-19 Figure C-20 Distribution of Warehouses by Degree of Space Utilisation (U1) Distribution of Warehouses by Degree of Equipment Utilisation (U2) Figure C-21 Figure C-22 157 155 156 154 153 152 151 147 148 149 150 146 145 144 143
Distribution of Warehouses by Degree of Labour Utilisation (U3) 158 Distribution of Warehouses by Degree of Warehouse Flexibility (A1) 159
IX
LIST OF FIGURES (Cont.)

Figure C-23 Distribution of Warehouses by Degree of Warehouse Complexity (A2) Figure C-24 Distribution of Warehouses by Degree of Warehouse Automation (A3) Figure C-25 Distribution of Warehouses by Degree of Warehouse Safety (A4) Figure C-26 Distribution of Warehouses by Degree of Error-Free Orders Shipped (A5) Figure C-27 Distribution of Warehouses by Degree of Transactions Processed on Time (A6) 164 163 162 161 160
CHAPTER 1
INTRODUCTION
1.1 Overview The term warehouse management refers to the current implementation of advanced techniques and technology to optimize all functions throughout the warehouse. Whilst the warehouse was once considered to be very large and complex, gaining control of the warehouse can actually transform what was once an ongoing problem into a profit centre by reducing costs and improving customer service (Warrender, 1994). Some companies have only one warehouse, some have two warehouses, and some have more. Obviously, every warehouse is different, but the key to success is to effectively use resources to deliver required services. Moreover, global and international markets pay attention to warehouse performance as an important tool for manufacturing firms in managing their different products which may have a shorter life cycle, low volumes or also shorter delivery times. Therefore, the evaluation of warehouse performance plays an important role in managerial function. In managing the warehouse, Gunasekaran et al. (1999) suggest that it is very important to have strong control over the inventory. They add that manufacturers should ensure that all necessary data, such as the correct stock levels and warehouse capacity, are available. In addition, they say that warehousing methodology can be viewed as an information-oriented process
Chapter 1 Introduction
which requires the use of efficient media to store and handle data related to products. Normally, general warehousing activities concern receiving, handling, storing, order picking and shipping. Dilger (1998) claims that storage is the main activity of warehousing in that the products are stored until they are retrieved for shipping to customers. The warehouse management system has been improved by using software and automatic data collection, especially barcodes technology. Researchers, including Nixon (1994) and Trunk (1994), recommend that manufacturers can improve their warehouse operations by implementing an automated warehouse system. Such a system can be used to collect accurate data linked to space utilisation; order picking; and the use of material-handling equipment. An example of such a system is seen in the account given by Ang and Andren (1995) in which a retailer of childrens apparel and furniture replaces the old warehouse management system with an automated warehouse system, whereby saving 25 percent on warehouse overheads. Obviously, software is an important tool for improving warehouse operations, particularly in regard to order picking activity. Daniels et al. (1998) point out that order picking involves finding products at locations where they are stored. So with computer tracking, products can be stored in multiple locations and manufacturers do not need to reserve space for each product. In terms of warehouse performance, Tompkins (1996) suggests that warehouse performance measures should be accorded to manufacturers strategies, objectives and competitive demands. He adds that the system of
warehouse performance measurement must consider both internal and external perspectives. Typically, the use of the term performance is not uniform. While Mentzer and Konrad (1991) point out that some researchers use performance and productivity interchangeably, Kearney (1985) adds that productivity is the ratio of real output to real input, whereas performance is the ratio of actual output to standard output. In addition, performance measurement is an analysis of both the effectiveness and efficiency in accomplishing a given task. Traditionally, warehouse performance has been measured by single metrics and single productivity ratio. While this traditional performance measurement is very easy to implement, it has been lacking in benchmarking performance over time (McGinnis et al., 2002). Having built up a proposed model for measuring warehouse performance, this chapter is then organised as follows: firstly, an overview of the relevant literature is presented; secondly, the primary research issues are outlined; and, lastly, brief summaries of the contents of subsequent chapters are given.
1.2 Review of Relevant Literature Manufacturers have currently been establishing their sales branches at remote locations to serve their customers and to quickly respond to their target market. When manufacturers establish their warehouses they need them to be more effective and more efficient in delivering the products to their customers on time.
Although assessing warehouse performance is very important, little research has been carried out in this area. Deuermeyer and Schwarz (1981) present a model to determine where system inventory should be held; and Schwarz (1989) examines the value of warehouse risk pooling in high servicelevel systems. He concludes that the inventory cost is significant to the overall value of using the warehouse. Keifer and Novack (1999) carried out an empirical study on how firms measure the performance of their warehouse operations. In their findings they conclude that there seems to be a significant difference between the nature of warehouse measures and perceived measure effectiveness for firms regarding supply chain implementation. Gunasekaran et al. (1999) develop a conceptual framework to improve the effectiveness of warehousing operations under Just in Time (JIT) and Total Quality Management (TQM) perspectives. Ezziane (2000) develops a mathematical model to evaluate customer service performance in warehousing environments. In this study the researcher considers early and late delivery and finds that a fair amount of penalty should be considered when evaluating customer service performance. Hackman et al. (2001) develop an input-output model of a warehouse system to evaluate operational performance, extending the method of data envelopment analysis (DEA) originated by Charnes et al. (1978) and Banker et al. (1984). They find that larger warehouses tend to be less efficient than smaller ones. Later McGinnis et al. (2002) extend the Hackman et al. DEA model by proposing an internet-based tool referred to as iDEAs-w. They address the issue of iDEAs-w needing two types of data: firstly, the data describing the warehouse
inputs and outputs, and secondly, the data related to the warehouse scenario, methods, and technologies. In the findings they conclude that labour hours were not found to be a significant factor in predicting warehouse efficiency. However, the interaction of labour with investment was found to be significant, since they claim that low investment warehouses seem to produce a higher performance than that of high investment warehouses. De Koster and Warffemius (2005) study warehouse performance by comparing rented and owned warehouses, as well as Asian and American companies linked to European distribution centres (EDCs) in The Netherlands. They find that self-owned warehouse operations have a lower percentage of errorfree deliveries and are less flexible than outsourced warehouse operations; moreover, American EDCs put less effort into quality methods. However, significant differences in productivity and quality levels were not found, so they conclude that the differences in operations do not have a substantial effect on warehouse performance. Huq et al. (2006) compare a one-warehouse N-retailer replenishment system to a two-warehouse N-retailer replenishment system, with cost per unit of distribution and delivery lead-times as the performance measures. They used a mathematical model and a simulation technique to test the performance of the proposed two-warehouse system. According to their findings, the distribution costs do not vary significantly between the one-warehouse and the two-warehouse systems, but the two-warehouse system significantly reduces delivery lead-times, resulting in increased customer satisfaction.
In multi-level distribution systems, Bergmann (1990) argues that the customer service aspects of inventory are difficult to handle, so he studies the interactions of a manufacturer with the customers by using a simulation technique. The study shows that the manufacturer tries to avoid the loss of customers due to stockout while at the same time increasing low costs. Greis (1994) focuses on the service levels to warehouse customers by using the service reliability curves as a tool for estimating the unit costs needed to provide the customers a designated service level. Rau et al. (2003) develop a model to deal with the movement of inventory from warehouse to customers, based on the inventory stock policy. However, there is still a gap in warehouse performance measurement. According to existing literature reviews (Gunasekaran et al., 1999; Hackman et al., 2001; McGinnis et al., 2002; De Koster and Warffemius, 2005; and Huq et al., 2006), the procedure for assessing warehouse performance still involves considering each measurement area separately. This traditional measurement is easy to calculate and easy to understand, however it is still difficult to compare over time for a single facility or across multiple facilities in changing conditions. Therefore, this research proposes a new model using a structural equation modelling (SEM) technique and an analogy based approach to measure warehouse performance. This proposed model will overcome the limitations of the traditional performance measurement by exploring the unknown relationships among five measurement areas, these being labour, cost, time, utilisation, and administration, throughout five typical steps in warehouse operations: receiving, handling,
storing, order picking, and shipping (Burton, 1973; Tompkins and Smith, 1988; Mentzer and Konrad, 1991; and Stock and Lambert, 2001).
1.3 Research Issues Warehouse performance measures have been studied by several researchers. These performance measures are labour measures (Hackman et al., 2001; and McGinnis et al., 2002), cost measures (Copacino and Rosenfeld, 1985; Schwarz, 1989; Greis, 1994; and Huq et al., 2006), time measures (Mentzer and Konrad, 1991; and Huq et al., 2006), utilisation measures (Mentzer and Konrad, 1991; and McGinnis et al., 2002), and administration measures (De Koster and Warffemius, 2005). In order to build up a proposed model for warehouse performance measurement, this research addresses issues related to five such main measures occurring throughout five typical steps in warehouse operations. The following discussion covers typical measures used and includes some pertinent issues concerning the warehousing area. Some of these measurement areas are subdivided as necessary, for example, labour may be broken down into several tasks involved in receiving, handling, storing, order picking, and shipping. The issues linked to these five measures are discussed as follows, with further details being presented in Appendix A.
1.3.1 Issues Related to Labour Measures In this first measurement area labour hours are the main concern, in particular the details of labour hours in five warehouse operations, these operations being: the receiving operations; the handling operations; the storing operations; the order picking operations; and the shipping operations.
1.3.2 Issues Related to Cost Measures In this measurement area several costs in warehouse management are considered, including the cost of deteriorating equipment; the cost of maintaining equipment; infrastructure costs; labour costs; and transportation costs.
1.3.3 Issues Related to Time Measures Downtime related to equipment is the main concern, encompassing the details of equipment downtime in five warehouse operations, these being receiving equipment; handling equipment; storing equipment; order picking equipment; and shipping equipment.
1.3.4 Issues Related to Utilisation Measures In this measurement area the utilisation of space, equipment, and labour are considered using the range of 0 to 100 percent.
1.3.5 Issues related to Administration Measures Degrees of efficiency in administration measures are examined here, using a range of 0 to 100 percent. The administration measures considered here are warehouse flexibility; warehouse complexity; warehouse automation; warehouse safety; the number of error-free orders shipped; and the number of transactions processed on time.
1.4 Research Objectives 1.4.1 To explore the unknown relationships among labour, cost, time, utilisation, and administration measures with warehouse performance. 1.4.2 To build up a model for warehouse performance measurement.
1.5 Research Scopes According to existing research and literature on warehousing operations (Burton, 1973; Tompkins and Smith, 1988; and Stock and Lambert, 2001) typical warehouse operations can be classified into 6 steps, as follows: 1. Receiving 2. Handling 3. Storing 4. Order picking 5. Packing (optional) 6. Shipping
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Therefore, based on these 6 steps in warehouse operations, the scopes of this research are as follows: 1.5.1 This research focuses on 5 steps in warehouse operations which are receiving, handling, storing, order picking, and shipping. 1.5.2 This research focuses on warehouses dealing with finished goods only. 1.5.3 This research collects data from purposive sample groups, these being animal feed, hard disk drive, and foam packaging industries in Thailand. The details of these purposive samples are described in Chapter 3.
1.6 The Structure of the Thesis The relationships between those research issues identified above are explored in three interrelated chapters these being Chapters 2, 3, and 4 of this thesis. Chapter 5 summarizes the results of this research and also addresses future research possibilities. The brief details of each chapter are presented below. The first study, in Chapter 2, investigates the warehouse management system, warehouse operations, and warehouse performance measurement. This chapter focuses on two main issues, firstly the models for measuring warehouse performance and, secondly, the measurement areas, including labour, cost, time, utilisation, and administration measures. The chapter reviews several models and measurement areas used in the literature to explore the significance between warehouse measures and warehouse performance. Chapter 3 presents a quantitative study. A proposed model is illustrated with a step-by-step procedure including questionnaire design, data collection, and
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data analysis. The details of building up two proposed models using a comparison of regression analysis with structural equation modelling (SEM) are described. Next, the two models are tested using 80 warehouses in Thailand. Later, an analogy based approach is applied with the SEM model to retrieve the data from a dataset of 201 warehouses. Lastly, the analyses of warehouse performance are addressed, using five measures. Chapter 4 presents a qualitative study. After building up the SEM model, validation of such a model is needed through interviews related to multiple case studies in Thailand and Australia and also through the model testing in Australia for triangulation approach. The pattern matching technique is employed to group similar data from the interviews, as well as point out the dissimilar data. Later, the proposed model is tested with an Australian company in comparison with the companys model for measuring warehouse performance. Chapter 5 summarizes the overall findings from this research and also addresses the contributions of this research to knowledge. This chapter also suggests the future direction of this research.
CHAPTER 2
WAREHOUSE MANAGEMENT
2.1 Introduction This chapter reviews the literature related to the study of warehouse management, including warehouse operations, warehouse layout, warehouse design, and warehouse performance measurement models. Obviously, the warehouse plays a vital role in logistics and supply chain management (see Figure 2-1). However, the key to success in warehouse management is to decrease warehouse costs while at the same time increasing the customer service level. This fact is quite a challenge for the warehouse manager because warehouse costs are between two and five percent of the cost of sales of a company (Frazelle, 2002). Figure 2-1 presents the roles of a warehouse in logistics and supply chain management. A manufacturer stores raw materials in the warehouse for production process. While in production process, the manufacturer may need to keep some work-in-process items in the warehouse and retrieve such items later for further production. After that, the manufacturer normally stores finished goods in the warehouse for distributing to customers later.
Chapter 2 Warehouse Management
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FIGURE 2-1 THE ROLES OF A WAREHOUSE IN LOGISTICS AND SUPPLY CHAIN MANAGEMENT
Raw Materials Warehouse
Manufacturer
Finished Goods Warehouse
Work-inProcess Warehouse
Distribution Centre
Fulfillment Centre
Local Warehouse
Home Delivery
Home Delivery
Local Delivery
Local Delivery
(Adapted from Frazelle, 2002)
The implementation of a warehouse management system using advanced warehousing techniques can be advantageous for a company. For example, a company adopting a paperless system by using computer software and barcode hardware instead of the traditional paper work system can save time and storage space in the warehouse. These savings come from a reduction in the paper work that a company needs to ensure the accuracy of goods in and out of the
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warehouse. The paperless system will help a company during the receiving, storing, order picking and shipping processes. At the receiving dock, barcode hardware is used to read the data of all the received goods, which is then immediately stored in the computer system. Then the received goods are allocated to available storage space for order picking later on. When goods are needed for shipping to customers, an order picker can save time finding the goods by retrieving the relevant data from the computer system and then delivering the goods to the shipping points. At the shipping dock, barcode hardware is used to read the data of the shipped goods for stock purposes. The implementation of paperless system can also improve customer service levels (Warrender, 1994). The company can promise accurate delivery dates to customers based on the data in the computer system.
2.2 Review of Relevant Literature The warehouse has been viewed in many different ways and has many definitions. Cavinato (1990) views the warehouse as the place to hold, move, sort, transfer and change the form of inventories. Whereas, Spencer (1993) argues that the warehouse is a production system. He states that the warehouse is a combination of single operations, culminating at the end as a whole process. Gunasekaran et al. (1999) believe that the warehouse is a combination of both physical processes of material handling and methodologies such as inventory control and production control.
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Warehouse design is addressed in the literature of Rouwenhorst et al. (2000) who states that the design of the warehouse system usually involves many decisions such as warehouse layout and warehouse processes. The authors state that the process of warehouse design starts with the concept process and then moves through the processes of data acquisition and functional specification, and then onto the technical specification process, selection of means and equipment processes, layout processes and ends with the selection of planning and control policies process. In addition, such decisions can be divided into three levels: strategic, tactical and operational levels. At the strategic level, long-term decisions are made such as the design of process flow and the selection of types of warehousing systems. At the tactical level, medium-term decisions are made such as the dimensions of storage sizes, number of employees, number of material handling equipment and dimensions of dock areas. At the operational level, short-term decisions are made such as the assignment of replenishment tasks to personnel, allocation of products to storage areas, and assignment of picking tasks to order pickers. In addition, Rouwenhorst et al. (2000) concluded that short-term decisions can be made independently. Another aspect of warehouse is warehouse layout. The layout of warehouse is discussed in the literature of Bassan et al. (1980), Sims (1991) and Petersen II (1999) as shown in Figure 2-2.
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FIGURE 2-2 WAREHOUSE LAYOUT
Back Aisle
Front Aisle (Adapted from Petersen II, 1999)
Figure 2-2 shows the layout of a warehouse where the front and the back aisles, along with vertical aisles, allow the order picker access through the warehouse to retrieve products for the customers. Normally, the picking aisles are wide enough for two-way travel; however, order pickers can retrieve products from both sides of the aisle. The products can be allocated in various ways, for example, the first-in, first-out technique. Jarvis and McDowell (1991) suggest that the best way to store the products is to keep the most frequently picked products in the aisle nearest to shipping dock. However, Gibson and Sharp (1992) and Gray et al. (1992) argue that high volume products should be stored in the aisle nearest to shipping dock. Coyle et al. (1996) also agree that the warehouse manager should place high
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volume products nearest to the shipping dock so that the order picker has less distance to travel.
2.2.1 Warehouse Operations Normally, warehouse operations consist of six typical activities (Burton, 1973; Tompkins and Smith, 1988; Gunasekaran et al., 1999; and Stock and Lambert, 2001): 1. Receiving 2. Handling 3. Storing 4. Order picking 5. Packing (optional) 6. Shipping Figure 2-3 illustrates the flow of items through the warehouse starting from the receiving process to the shipping process. The receiving process is the first process of item flow. During this process, when the products arrive at the receiving docks, the products are checked for accuracy and then transported to the next process. However, some products may be needed to re-pack into different packages before being put away in the storage area. During the storage process, products are stored in storage areas that are known as the reserve area and forward area (Rouwenhorst et al., 2000). The reserve area is the area for bulk storage whereas the forward area is for storing products that are easily retrieved by the order picker.
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During the order picking process, the order picker is required to retrieve products from different locations. These products are grouped together for the same customer. The last process is the shipping process. During this process, products are checked for accuracy and are then ready to transport to customers.
FIGURE 2-3 ACTIVITIES IN WAREHOUSE OPERATIONS
Receiving
Packing (Optional)
Handling
Storing
Shipping
Packing (Optional)
Order picking
(Adapted from Gunasekaran et al., 1999)
Different aspects of the warehouse operations, including receiving, storing, picking, packing and shipping operations, have been studied by many researchers. For example, Goetschalckx and Ratliff (1990) study picking operations to identify the optimal picking policy. Bozer and White (1990) also focus on picking operations by proposing a mathematical equation to find the optimum picking route. Gunasekaran et al. (1999) analyse the activities involved in warehouse operations; they found that the processing of information plays an
19
important role because every product has its own data such as its origin, its supplier and its destination.
2.2.2 Warehouse Performance Measurement Models Performance measures are used to benchmark the performance of some aspects of warehouse management and the assessment may result in a plan of action for optimising warehouse performance. Many researchers have developed various models for measuring warehouse performance in different measurement areas, including labour measures, cost measures, time measures, utilisation measures and administration measures. A number of researchers have considered labour as a performance measure. For example, Tompkins (1989) focuses on labour for successful warehouse management. Freiday and Tanel (1990) consider workforce when measuring warehouse performance. Jenkins (1990) also mentions the management of employees for successful warehouse management while Spencer (1993) focuses on labour in order to improve warehouse performance. In cost measures area, models for measuring warehouse performance have been developed by many researchers. Copacino and Rosenfeld (1985) consider logistics costs while Schuster (1987) evaluates distribution costs. Cohen et al. (1997) use operating cost measures to assess the performance of service parts distribution. Gunasekaran et al. (1999) study labour costs. Van Laarhoven et al.
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(2000) focus on reducing operational costs. Huq et al. (2006) use cost per unit of distribution as a performance measure. In the area of time measures, researchers have built models for measuring warehouse performance. Berry (1968) and Bassan et al. (1980) focus on minimising handling time in order to increase performance. Van Donselaar and Sharman (1997) aim to reduce delivery time to improve warehouse performance. While Huq et al. (2006) consider delivery lead-times as a performance measure. Researchers have also proposed models for measuring warehouse performance using utilisation measures. Berry (1968), Bassan et al. (1980), and Gunasekaran et al. (1999) propose models to maximise space utilisation. Other researchers including Hausman et al. (1976), Marsh (1979), Rosenblatt and Eynan (1989), Bozer and White (1990), Goetschalckx and Ratliff (1990), Goetschalckx and Ratliff (1991), Van Oudheusden and Zhu (1992), Eynan and Rosenblatt (1994), Kouvelis and Papanicolaou (1995), Malmborg (1996), Van den Berg and Sharp (1996), and Petersen II (1999) study storage capacity in order to maximise performance. Graves et al. (1977) study warehouse performance with respect to sequencing and storage policies. Other warehouse measurement areas including warehouse complexity, warehouse automation and warehouse flexibility have also been studied. These indicators can be grouped into the same measurement area termed administration measures (Mentzer and Konrad, 1991). In the area of administration measures, Berry (1968) and Bassan et al. (1980) focus on minimising handling distance in order to improve performance.
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Keserla and Peters (1994) and Oser (1996) study automated storage and retrieval systems to measure system performance. Ashayeri and Gelders (1985), Adler and Cole (1993), Faber et al. (2002), and De Koster and Warffemius (2005) focus on warehouse flexibility and warehouse complexity. Van Donselaar and Sharman (1997) increase the reliability of delivery in order to improve warehouse performance. De Koster and Warffemius (2005) study warehouse automation and quality of outbound shipments to assess warehouse performance. They also use the proportion of error-free orders shipped to measure warehouse performance. Another indicator in administration measures is the level of customer service. Muckstadt and Thomas (1980), Bergmann (1990), Greis (1994), Nixon (1994), Trunk (1994) and Ezziane (2000) use customer service level to measure warehouse performance. Deuermeyer and Schwarz (1981) propose an inventory model to predict the performance of a warehouse system. Later, Schwarz et al. (1985) and Badinelli and Schwarz (1988) extend the work of Deuermeyer and Schwarz (1981) by developing an inventory model to optimise such a warehouse system. Later on Benton (1991) and Pakkala and Achary (1992) also consider inventory as a performance measure. Ahire and Schmidt (1996) present an inventory model to predict warehouse performance. Recently, Kannan and Tan (2005) examine how just in time, supply chain management, and quality management are linked and how they affect business performance. Swink et al. (2005) study how strategy integration and enhanced
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manufacturing capabilities such as cost efficiency and product flexibility serve as means by which practices affect performance. Brown et al. (2007) use quality-related performance indicators, leanrelated performance indicators and innovation-related performance indicators to explore the linkages between the process of strategy formulation and performance within firms. Tiacci and Saetta (2008) evaluate warehouse performance based on stock control policy. Therefore, it can be concluded that warehouse measurement areas typically consist of five measures that are labour, cost, time, utilisation, and administration measures.
2.3 Research Questions This thesis has two objectives. One is to explore the unknown relationships among labour, cost, time, utilisation, and administration measures with warehouse performance (see Figure 2-4). The other is to build up a model for warehouse performance measurement.
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FIGURE 2-4 MAJOR WAREHOUSE PERFORMANCE MEASUREMENT AREAS
Labour
Cost
Warehouse performance
Time
Utilisation
Administration
Figure 2-4 illustrates five main warehouse performance measurement areas that are labour, cost, time, utilisation and administration measures. This thesis investigated the relationships among these five measures and integrated these measures to build up a proposed model for measuring warehouse performance. Many researchers study five areas for measuring warehouse performance that are labour, cost, time, utilisation, and administration measures. For example, Tompkins (1989); Freiday and Tanel (1990); Mentzer and Konrad (1991); and Spencer (1993) consider on labour measurement area. Copacino and Rosenfeld (1985); Schuster (1987); Cohen et al. (1997); Gunasekaran et al. (1999); Van Laarhoven et al. (2000); and Huq et al. (2006) study cost measures for warehouse performance. Berry (1968); Bassan et al. (1980); Van Donselaar and Sharman
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(1997); and Huq et al. (2006) use time measures for warehouse performance. Berry (1968); Bassan et al. (1980); Gunasekaran et al. (1999); and Mentzer and Konrad (1991) consider on utilisation measures while Mentzer and Konrad (1991); Swink et al. (2005); and Brown et al. (2007) study administration measures for warehouse performance. However, these researchers still study warehouse performance on each indicator separately. To determine the unknown relationships among these five warehouse performance measures, the first objective of this research generated Research Question 1:
RQ1: Are there relationships among labour, cost, time, utilisation, and administration measures on warehouse performance? As stated earlier in chapter 1, the traditional models for measuring warehouse performance still consider each indicator separately (see Figure 2-5). This traditional performance measurement is very easy to measure; however, it is difficult to benchmark the performance over time.
FIGURE 2-5 BENCHMARK PROBLEM OF TRADITIONAL PERFORMANCE MEASUREMENT Lines/hour Jan. 40/hour Feb. 30/hour No relative values Fill rate/hour Jan. 35/hour Feb. 45/hour
(Adapted from McGinnis et al., 2002)
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From figure 2-5, suppose the value for lines per hour in January was 40 and had gone down to 30 in February while the value for fill rate per hour in January was 35 and had gone up to 45 in February. If a manufacturing firm wants to compare their warehouse performance between these two different months, they cannot conclude which month was better without assigning relative values to the two metrics. Therefore, to overcome the limitations of traditional models, this thesis investigated the unknown relationships among these performance measures in order to answer Research Question 1. To fulfill the second objective of this research, Research Question 2 was proposed:
RQ2: Are labour, cost, time, utilisation, and administration measures significant to warehouse performance? To answer this question, a model for measuring warehouse performance was built and every measurement area that developed from literature reviews including Mentzer and Konrad (1991); Hackman et al. (2001); and McGinnis etal. (2002) was statistically analysed to find out which indicators are significant to warehouse performance at a level of significance of 0.05
2.4 Hypotheses All the hypotheses generated for this study were analysed statistically at a significance level of 0.05.
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To determine the relationships among warehouse performance measures, the first objective of this research generated Hypothesis 1:
H1: There are relationships among labour, cost, time, utilisation and administration measures. The aim of this research was to determine whether there are relationships among labour, cost, time, utilisation, and administration measures. In an attempt to establish the relationships among these measures, a proposed model was generated and statistically analysed. To analyse the performance measures that are significant to warehouse performance, the second objective of this research generated Hypotheses 2, 3, 4, 5 and 6. H2: Labour measures are significant to warehouse performance. H3: Cost measures are significant to warehouse performance. H4: Time measures are significant to warehouse performance. H5: Utilisation measures are significant to warehouse performance. H6: Administration measures are significant to warehouse performance.
CHAPTER 3
QUANTITATIVE STUDY: BUILD UP A MODEL FOR WAREHOUSE PERFORMANCE MEASUREMENT
3.1 Introduction This quantitative study is based on empirical data and attempts to establish how each of variables related to warehouse performance measurement. In this chapter the procedures used in this study are clearly presented step by step. The details of each procedure for building up a proposed model are described, including questionnaire design and data collection. The data analysis procedure is also illustrated with the details provided for outlier techniques, standardisation, normalisation, reliability test and validity test. The methodology shows two proposed models using a comparison of regression analysis with structural equation modelling (SEM). The Mean Magnitude of Relative Error (MMRE) technique was then used to check the accuracy of these two models. The results indicate that the model generated using SEM was more accurate than the model derived using regression analysis. After testing the two models with MMRE values, the SEM model was chosen based on its lower MMRE value for measuring warehouse performance. This model can overcome the limitations of the traditional measurement techniques by allowing manufacturing firms to compare their performance between any periods. However, this model still has limitations as it does not allow manufacturing firms to observe other warehouses from a dataset. Therefore, an
Chapter 3 Quantitative Study: Build up a Model for Warehouse Performance Measurement
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analogy based approach was applied with the SEM model in order to overcome such limitations.
3.2 Research Methodology In this quantitative study, a conceptual model for measuring warehouse performance was established in order to build up an empirical model. This conceptual model is illustrated in Figure 3-1.
FIGURE 3-1 A CONCEPTUAL MODEL FOR MEASURING WAREHOUSE PERFORMANCE
Labour
L1, L2, L3, L4, L5, L6
Cost
Warehouse performance
Time
C1, C2, C3, C4, C5
T1, T2, T3, T4, T5
Utilisation
Administration
U1, U2, U3
A1, A2, A3, A4, A5, A6
From Figure 3-1, five performance measures are adopted from literature reviews: labour measures (Hackman et al., 2001; McGinnis et al., 2002), cost
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measures (Copacino and Rosenfeld, 1985; Schwarz, 1989; Greis, 1994; Huq et al., 2006), time measures (Mentzer and Konrad, 1991; Huq et al., 2006), utilisation measures (Mentzer and Konrad, 1991; McGinnis et al., 2002) and administration measures (De Koster and Warffemius, 2005). However, each measure has sub-measures that have already been identified in Chapter 1. Labour measures have six sub-measures that are L1, L2, L3, L4, L5 and L6. Cost and time measures have their own five sub-measures that are C1, C2, C3, C4, C5 and T1, T2, T3, T4, T5 respectively. Utilisation measures have only three sub-measures (U1, U2, and U3) whereas administration measures have six sub-measures (A1, A2, A3, A4, A5 and A6). Therefore, this conceptual model has a total of 25 performance indicators. Therefore, a theory testing survey research was conducted to test whether these five measurement areas are significant to warehouse performance at a level of significance of 0.05. For testing the conceptual model, Forza (2002) suggests nine steps for theory testing survey research as shown in Figure 3-2.
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FIGURE 3-2 THE THEORY TESTING SURVEY RESEARCH PROCESS
1. Link to the theoretical level - Define hypothesis - Define unit of analysis
2. Design - Sample size - Select data collection method - Develop measurement instruments
3. Pilot test
4. Collect data for theory testing - Handle non-respondents and missing data - Input and clean data
5. Build up 2 models for measuring warehouse performance - A model from regression analysis and factor analysis - A model from SEM 8. Model analysis - Test hypothesis
6. Test the models Testing the accuracy of 2 models
7. Extend the proposed model with Analogybased Approach
9. The findings - Draw the findings from a proposed model
Source: Adapted from Forza (2002).
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According to Figure 3-2, there are nine processes for testing the conceptual model. The details of each process are described as follows.
3.2.1 Link the theoretical model to hypotheses From the conceptual model in Figure 3-1, the relationships among the five measures towards warehouse performance have to be translated into hypotheses.
Defining hypotheses. As stated earlier in chapter 2, this study has generated six hypotheses: H1: There are relationships among labour, cost, time, utilisation and administration measures. H2: Labour measures are significant to warehouse performance. H3: Cost measures are significant to warehouse performance. H4: Time measures are significant to warehouse performance. H5: Utilisation measures are significant to warehouse performance. H6: Administration measures are significant to warehouse performance.
Defining the unit of analysis. After generating the hypotheses, the next step was to define the unit of analysis. Flynn et al. (1990) define the unit of analysis as individuals, groups, companies, etc. Therefore, samples with purposive sampling method were selected. In this method, sampling was carried on the basis that one or more specific predefined groups were being sought. Thus, a purposive sample that represented the agricultural sector and industrial sector was obtained.
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Therefore, samples from three groups in Thailand were selected: animal feed (from agricultural sector), hard disk drive (from industrial sector) and foam packaging industries (from industrial sector).
3.2.2 Design At this step, the design of the survey was considered. A survey design includes all activities before starting the collection of data.
Sample size. The SEM technique was used to build up a proposed model for measuring warehouse performance. According to the assumptions of SEM, Tanaka (1987) suggests that a reasonable sample size should be greater than 200 for an acceptable model. Therefore, a minimum requirement of sample size in this study is more than 200 warehouses.
Selecting data collection method. During this stage, data can be collected in various ways, including interviews and questionnaires. In this study, data was collected by mail and telephone calls. The questionnaires were printed and sent by mail to the respondents. Some advantages of mail surveys are that the respondents can complete the questionnaires at their own convenience and they can remain anonymous (Forza, 2002). However, mail surveys tend to have a lower response rate than other methods. Thus, in order to improve the response rate of the mail survey used in this study, telephone calls were made to some respondents as reminder calls.
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Developing measurement instruments. An important aspect of mail surveys is the instruments to collect data. The questionnaire was developed in this quantitative study as the key instrument for building up a proposed model. The questionnaire was designed to examine the unknown relationships among these five measurement areas (labour, cost, time, utilisation, and administration) throughout five typical steps in warehouse operations (receiving, handling, storing, order picking and shipping). Anderson and Chambers (1985) suggest that it is hard to cover all aspects of the performance measures when variables are selected for measuring performance. However, Forza (2002) suggests some tips for designing questionnaires including clear wording, scaling and respondent identification. In addition, Euske (1984) outlines the criteria for establishing a measurement system that consists of five steps as follows: 1. Find out what the researcher needs to evaluate and its context. 2. Indentify attributes that the researcher needs to evaluate. 3. Consider how the researcher obtains the measures regarding validity and reliability. 4. After using the measures, if necessary, the researcher has to replace useless measures with new measures that also meet these same criteria. 5. If applicable, the researcher should analyse whether or not it is worth using the measures in terms of cost. Therefore, the questionnaire was established using these suggestions and criteria and also from the literature reviews of researchers including Copacino and Rosenfeld (1985), Schwarz (1989), Mentzer and Konrad (1991), Greis (1994),
34
Hackman et al. (2001), McGinnis et al. (2002), De Koster and Warffemius (2005), and Huq et al. (2006). The questionnaire determined how well the companies performed on their warehouse operations. For example, what were the labour costs for the 12-month period. The full details of the questionnaire are presented in Appendix B. However, some details of the questionnaire are addressed in this section. Some details of the questionnaire: 1. Labour measures (6 variables) The scales used in L1L6 range from 1 to 7. 1.1 Labour hours for the 12-month period (L1) 1.2 Pallets/labour hour for receiving function (L2) 1.3 Pallets/labour hour for handling function (L3) 1.4 Pallets/labour hour for storing function (L4) 1.5 Pallets/labour hour for order picking function (L5) 1.6 Pallets/labour hour for shipping function (L6) (Adapted from Tompkins (1989); Freiday and Tanel (1990); Mentzer and Konrad (1991); and Spencer (1993))
2. Cost measures (5 variables) The scales used in C1C5 range from 1 to 7. 2.1 Deteriorating cost of equipment for the 12-month period (C1) 2.2 Maintenance cost of equipment for the 12-month period (C2) 2.3 Infrastructure cost for the 12-month period (C3)
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2.4 Labour cost for the 12-month period (C4) 2.5 Transportation cost for the 12-month period (C5) (Adapted from Copacino and Rosenfeld (1985); Schuster (1987); Cohen et al. (1997); Gunasekaran et al. (1999); Van Laarhoven et al. (2000); and Huq et al. (2006))
3. Time measures (5 variables) The scales used in T1T5 range from 1 to 7. 3.1 Downtime of receiving equipment for the 12-month period (T1) 3.2 Downtime of handling equipment for the 12-month period (T2) 3.3 Downtime of storing equipment for the 12-month period (T3) 3.4 Downtime of order picking equipment for the 12-month period (T4) 3.5 Downtime of shipping equipment for the 12-month period (T5) (Adapted from Berry (1968); Bassan et al. (1980); Van Donselaar and Sharman (1997); and Huq et al. (2006))
4. Utilisation measures (3 variables) The scales used in U1U3 range from 1 to 5. 4.1 Degree of space utilisation (U1) 4.2 Degree of equipment utilisation (U2) 4.3 Degree of labour utilisation (U3) (Adapted from Berry (1968); Bassan et al. (1980); Gunasekaran et al. (1999); and Mentzer and Konrad (1991))
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5. Administration measures (6 variables) The scales used in A1A6 range from 1 to 5. 5.1 Degree of warehouse flexibility (A1) 5.2 Degree of warehouse complexity (A2) 5.3 Degree of warehouse automation (A3) 5.4 Degree of warehouse safety (A4) 5.5 Degree of error-free orders shipped (A5) 5.6 Degree of transactions processed on time (A6) (Adapted from Mentzer and Konrad (1991); Swink et al. (2005); Brown et al. (2007))
The questionnaire was designed using the English language, but it was used to collect data from companies in Thailand. Therefore, the questionnaire was translated into Thai language for data collection purposes. Then it was translated back to English language again for research purposes. After establishing the questionnaire, it was tested for reliability and validity as described later.
3.2.3 Pilot Test At this stage, it is necessary to test the questionnaire to determine whether it was clearly and correctly designed to answer the study objectives. The questionnaire was pre-tested by sending it out to 10 industrial experts (university lecturers at Department of Industrial Engineering in Thailand). Their role was to give feedback on everything that could affect the questionnaire answers. The
37
results showed that the questions and instructions were clear. The respondents clearly understood what kinds of answers were expected. Thus the questionnaire could be used to collect data.
3.2.4 Collect Data for Theory Testing After the pre-test, the questionnaire was used to collect data. Data were collected using a mail survey sent out to 227 companies in three different industries in Thailand, namely hard disk drive, animal feed and foam packaging industries. This study attempted to include all major manufacturers in these industries. However it is possible that some companies were not included that should have been, so this sample represents a large random sample relative to the target population. The initial survey mailed yielded responses from 206 warehouses. Only five of them were not completed. Follow-up phone calls resulted in additional 80 suitable warehouses. Of the 227 companies surveys mailed, 110 companies with 281 suitable warehouses responded. According to Malhotra and Grover (1998) a response rate greater than 20 percent is acceptable, so in this study the response rate of 48.46% (110/227) was quite acceptable. The 281 warehouses were divided into two groups. Firstly, a dataset of 201 warehouses was used to build up a proposed model. The second dataset of 80 warehouses was used to test the proposed model. The composition of the group of respondents is shown in Table 3-1.
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TABLE 3-1 INDUSTRY MAKEUP OF RESPONDENTS
Industry Hard Disk Drive Animal Feed Foam Packaging Total
Number of Respondents 37 companies (67 warehouses) 34 companies (133 warehouses) 39 companies (81 warehouses) 110 companies (281 warehouses)
% of Total 33.64 30.91 35.45 100.00
After collecting data, a SPSS software version 14.0 and statistical techniques including outlier, standardisation, normalisation, reliability test, and validity test were used to examine the data as described below.
1. Outlier Technique The first step in the data analysis procedure was to delete unusual data by using outlier techniques. The results showed that there was no unusual data for any of the indicators.
2. Standardisation Standardisation was used to convert all data into the same unit. A z-score is a standard score obtained by subtracting the mean from a score and dividing by the standard deviation. For example, indicator L1 will be standardised to ZL1.
39
3. Normalisation In this step, all indicators were tested whether they are normally distributed. From Table 3-2, the skewness values show that all variables were normally distributed according to Tabachnick and Fidell (1989) who state that extreme values for skewness are values greater than +3 or less than -3.
4. Reliability Test This step was to test the reliability of the questionnaire; whether or not it was suitable for using as a tool for data collection. One of the most commonly used is Cronbachs alpha, which is based on the average correlation of items within a test if the items are standardised (Coakes et al., 2008). Cronbachs alpha ranges in value from 0 to 1. The values of 0.60 to 0.70 are deemed the lower limit of acceptability (Hair et al., 2010). Cronbachs alpha can be calculated from equation 3-1 (Cronbach, 1951) or by using SPSS as shown in Table 3-3.
k 2 S i k 1 i =1 2 (3-1) k 1 Sp
Cronbachs Alpha () =
where, k = the number of components Si2 = the variance of component i for the current sample of persons Sp2 = the variance of the observed total test scores for the current sample of persons
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From Table 3-3, the result shows that the value of Cronbachs Alpha is 0.850 meaning that the questionnaire was highly reliable for collecting the data.
TABLE 3-2 THE SKEWNESS VALUES OF ALL VARIABLES

Descriptive Statistics N Statistic 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 Minimum Statistic -1.94438 -2.38090 -1.58554 -1.83601 -1.93474 -2.40209 -2.91757 -2.47036 -2.14102 -1.88660 -1.40581 -2.22192 -1.34208 -1.74003 -1.78459 -1.76145 -1.88043 -2.69378 -2.50251 -2.58238 -1.89163 -2.41052 -1.90122 -2.97359 -3.30124 -2.70393 Maximum Statistic 1.95143 1.35202 1.37905 1.05840 1.04520 .83831 1.32170 1.24906 1.36723 2.30353 2.10435 1.22677 3.13535 1.83651 1.97858 2.11236 2.38951 1.97389 1.87144 1.41038 1.72089 2.42254 2.20786 1.42120 1.35525 1.33689 Mean Statistic .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 .0000000 Std. Deviation Statistic 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000 Skewness Statistic Std. Error -.162 .172 -.515 .172 -.084 .172 -.411 .172 -.435 .172 -.771 .172 -.434 .172 -.449 .172 -.394 .172 .300 .172 .179 .172 -.614 .172 .782 .172 .100 .172 -.025 .172 .221 .172 .252 .172 -.303 .172 -.130 .172 -.423 .172 -.099 .172 -.365 .172 .107 .172 -.308 .172 -.537 .172 -.406 .172
Zscore(performance) Zscore(L1) Zscore(L2) Zscore(L3) Zscore(L4) Zscore(L5) Zscore(L6) Zscore(C1) Zscore(C2) Zscore(C3) Zscore(C4) Zscore(C5) Zscore(T1) Zscore(T2) Zscore(T3) Zscore(T4) Zscore(T5) Zscore(U1) Zscore(U2) Zscore(U3) Zscore(A1) Zscore(A2) Zscore(A3) Zscore(A4) Zscore(A5) Zscore(A6) Valid N (listwise)
TABLE 3-3 THE CRONBACHS ALPHA

Case Processing Summary N Cases Valid Excludeda Total 201 0 201 % 100.0 .0 100.0
a. Listwise deletion based on all variables in the procedure.
Reliability Statistics Cronbach's Alpha .850 N of Items 25
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5. Validity Test The content validity and construct validity were tested. Hair et al. (2010) define content validity as the assessment of the correspondence of the measured variables and their conceptual definitions. Content validity was examined by university lecturers at the Department of Industrial Engineering in Thailand. They determined if the questionnaire had items covering the areas of warehouse performance measurement. They concluded that the questionnaire had items covering these areas and that it was appropriate for collecting data. Construct validity is the extent to which a set of measured variables actually represents the theorised construct that it purports to measure (Hair et al., 2010). Construct validity was tested using factor analysis. The factor loadings of each variable using the varimax rotation method were considered. Each variable has the highest factor loading greater than 0.3 (see Table 3-10), for examples, ZL1, ZL2, ZL3, ZL4, ZL5, ZL6 have the highest factor loadings of 0.806, 0.896, 0.870, 0.842, 0.830 and 0.863 respectively, indicating that questionnaire has construct validity in good level.
6. KMO and Bartletts values When performing factor analysis, The Kaiser-Meyer-Olkin (KMO) measure and Bartletts values were examined. Bartletts test of sphericity and the KMO measure of sampling adequacy are both tests that can be used to determine
42
the factorability of the matrix as a whole. If Bartletts test of sphericity is large and significant, and the KMO measure is greater than 0.6, then factorability is assumed (Coakes et al., 2008). As shown in Table 3-4, the KMO measure is 0.846 and the Bartletts test of sphericity is large and significant (sig. = 0.000) indicating that a dataset is appropriate for factor analysis technique.
TABLE 3-4 KMO AND BARTLETTS VALUES

KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy. Bartlett's Test of Sphericity Approx. Chi-Square df Sig. .846 4538.551 300 .000
Descriptive analysis. In this step, a descriptive analysis was performed on the collected data as shown in Appendix C. A number of observations from this analysis can be made as follows: 1. According to McGinnis et al. (2002) it is often assumed that a high degree of warehouse automation relates to a lower labour cost. To prove if that assumption is true, a scatter plot was constructed showing degree of warehouse automation and labour costs for 201 warehouses in a dataset as shown in Figure 3-3. Figure 3-3 shows the degree of warehouse automation (A3) versus labour cost (C4). It indicates that, within the warehouse database of this study, warehouses with a high degree of warehouse automation could have a large labour cost or a small labour cost. Therefore, it does not support the assumption that a
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high degree of warehouse automation and labour cost trade off against each other. Interestingly, this finding is similar to the findings of McGinnis et al. (2002). From their study, they found that warehouses in their database which had a large equipment investment (that implies a high degree of automation) also tended to have a large labour cost.
FIGURE 3-3 WAREHOUSE AUTOMATION (A3) VERSUS LABOUR COST (C4)
A3
2
C4
2. Another observation is about warehouse performance versus warehouse size. McGinnis et al. (2002) point out from their study that the bigger warehouse is not always a better warehouse. However, Figure 3-4 shows that there is a trend; that
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most of bigger warehouses tend to have higher performance. Conversely, most of the smaller warehouses tend to have lower performance levels.
FIGURE 3-4 WAREHOUSE PERFORMANCE VERSUS WAREHOUSE SIZE

95
90
performance
85
80
75
70
1.5
2.5
3.5
warehouse_size
3. The correlation between deteriorating cost of equipment (C1) and maintenance cost of equipment (C2) is positive as shown in Figure 3-5. This indicates that when most warehouses spend large amounts of money on maintenance costs of equipment they also tend to spend large amounts of money on deteriorating costs of equipment. On the other hand, when they spend less on maintenance cost of equipment they tend to spend less on deteriorating cost of equipment as well.
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FIGURE 3-5 DETERIORATING COST OF EQUIPMENT (C1) VERSUS MAINTENANCE COST OF EQUIPMENT (C2)
7
C1
C2
4. The correlation between warehouse complexity (A2) and warehouse automation (A3) is positive as shown in Figure 3-6. This indicates that warehouses with a high degree of complexity tend to have a high degree of automation. On the other hand, warehouses with a low degree of complexity tend to have a low degree of automation. This finding is similar to that of De Koster and Warffemius (2005), where the low degree of complexity in public warehouses is positively correlated with the low degree of automation. The high warehouse complexity in dedicated warehouses goes together with the high degree of automation.
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FIGURE 3-6 WAREHOUSE COMPLEXITY (A2) VERSUS WAREHOUSE AUTOMATION (A3)
A2
2
A3
Handle non-respondents and missing data. Non-response bias was evaluated using the extrapolation method. This method assumes that persons who answer later are similar to non-respondents (Meier, 2006). The early respondents are the 201 warehouses used for generating the model. The late respondents are the other 80 warehouses used in the testing of the proposed model. Therefore, non-response bias can be identified if the answers of early and late respondents are significantly different. To test this hypothesis, a t-test was used with the revenue data of early and late respondents. The results show that there is no bias in revenue between early and late respondents with t = 1.177 and p-value = 0.243 (which is greater
47
than 0.05). It indicates that the sample is quite representative of the target population.
Input data and clean data. In this step, data from the survey was transcribed into a computer database using SPSS software program. Swab and Sitter (1974) suggest that about 24% of the original data can be incorrectly transcribed. However, the transcription was checked twice and there were no mistakes at all.
3.2.5 Build up Two Models for Measuring Warehouse Performance

In this step, two models were generated to measure warehouse performance, comparing regression analysis and factor analysis with the SEM technique. The reason for choosing those two methods is to determine which method is more appropriate for measuring warehouse performance. In addition, factor analysis is also used for developing models with the SEM technique.
1. A Model from Regression Analysis and Factor Analysis In order to build up a model for measuring warehouse performance with these techniques, warehouse performance was defined as a dependent variable and ZL1, ZL2, ZL3, ZL4, ZL5, ZL6, ZC1, ZC2, ZC3, ZC4, ZC5, ZT1, ZT2, ZT3, ZT4, ZT5, ZU1, ZU2, ZU3, ZA1, ZA2, ZA3, ZA4, ZA5, ZA6 as independent variables. Then a SPSS software program was used to build up a model by selecting Analyse Regression Linear Statistics.
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ANOVA was used to test whether or not there was significant different among respondents who have different profiles in type of industry; annual revenue; and size of warehouse towards warehouse performance at a level of significance of 0.05. The results in Table 3-5, Table 3-6, and Table 3-7 show that there is no significant difference among respondents. Table 3-5 shows that different types of industry are not significant to warehouse performance with F = 11.211 and Sig. = 0.000.
TABLE 3-5 ANOVA TEST FOR DIFFERENT TYPES OF INDUSTRY

ANOVA performance Sum of Squares 648.762 5729.158 6377.920 df 2 198 200 Mean Square 324.381 28.935 F 11.211 Sig. .000
Between Groups Within Groups Total
Table 3-6 also indicates that there is no significant difference in annual revenue on warehouse performance with F = 6.066 and Sig. = 0.001.
TABLE 3-6 ANOVA TEST FOR DIFFERENT ANNUAL REVENUES

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As shown in Table 3-7, different sizes of warehouse are also found not to be significant to warehouse performance with F = 17.427 and Sig. = 0.000.
TABLE 3-7 ANOVA TEST FOR DIFFERENT SIZES OF WAREHOUSE

However, in order to apply the regression analysis to build up a model, it was needed to test whether there was a correlation between the 25 independent variables. According to Ho (2006), if the variance inflation factor (VIF) value is less than 15, there is no problem with a correlation between independent variables. As shown in Table 3-8, the VIF values of the 25 independent variables range from 1.667 to 6.028, which are less than 15. Therefore, the model from regression analysis has no problem of correlation between 25 independent variables.
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TABLE 3-8 VIF VALUES OF 25 INDEPENDENT VARIABLES

a Coefficients
Unstandardized Standardized Coefficients Coefficients Model B Std. Error Beta 1 (Constant) 5.24E-015 .054 Zscore(L1) -.012 .117 -.012 Zscore(L2) .112 .106 .112 Zscore(L3) .018 .109 .018 Zscore(L4) .050 .100 .050 Zscore(L5) -.031 .091 -.031 Zscore(L6) -.049 .099 -.049 Zscore(C1) .031 .070 .031 Zscore(C2) -.002 .094 -.002 Zscore(C3) -.171 .106 -.171 Zscore(C4) -.300 .134 -.300 Zscore(C5) .153 .101 .153 Zscore(T1) -.021 .086 -.021 Zscore(T2) -.159 .090 -.159 Zscore(T3) -.085 .100 -.085 Zscore(T4) .048 .081 .048 Zscore(T5) -.263 .089 -.263 Zscore(U1) -.082 .083 -.082 Zscore(U2) -.089 .096 -.089 Zscore(U3) .258 .091 .258 Zscore(A1) -.234 .093 -.234 Zscore(A2) .029 .082 .029 Zscore(A3) .123 .091 .123 Zscore(A4) .153 .085 .153 Zscore(A5) -.069 .085 -.069 Zscore(A6) .151 .115 .151 a. Dependent Variable: Zscore(performance)
t .000 -.099 1.052 .165 .495 -.343 -.491 .443 -.022 -1.614 -2.243 1.524 -.248 -1.771 -.850 .595 -2.962 -.996 -.924 2.844 -2.503 .355 1.353 1.788 -.802 1.313
95% Confidence Interval for B Collinearity Statistics Sig. Lower Bound Upper Bound Tolerance VIF 1.000 -.107 .107 .921 -.243 .219 .216 4.623 .294 -.098 .322 .262 3.823 .869 -.197 .233 .250 3.995 .621 -.148 .248 .295 3.393 .732 -.211 .149 .356 2.806 .624 -.244 .147 .303 3.299 .659 -.108 .170 .600 1.667 .983 -.187 .183 .337 2.965 .108 -.379 .038 .265 3.776 .026 -.564 -.036 .166 6.028 .129 -.045 .352 .293 3.412 .805 -.190 .148 .405 2.467 .078 -.337 .018 .367 2.725 .396 -.282 .112 .298 3.359 .553 -.112 .209 .449 2.229 .003 -.438 -.088 .377 2.651 .320 -.245 .081 .434 2.303 .357 -.278 .101 .321 3.114 .005 .079 .438 .359 2.784 .013 -.418 -.049 .341 2.936 .723 -.133 .191 .439 2.276 .178 -.056 .302 .360 2.778 .075 -.016 .321 .406 2.463 .424 -.237 .100 .406 2.464 .191 -.076 .377 .226 4.430
After testing the correlation between the 25 independent variables, a regression analysis and factor analysis was used to build up a model. The principle component analysis (PCA) extraction method, without rotation was used to group independent variables into factors. This step was done in order to categorise all variables from a conceptual model that have the highest factor loading values to be in the same factor rather than having lower and higher factor loading values together. To group the 25 independent variables into factors, each variable should have the factor loading values of 0.3 or greater (Coakes et al., 2008; Julnes and Holzer, 2001; and Johansson and Yip, 1994).
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The results in Table 3-9 show that ZL1 has the highest factor loading value of 0.625, so it should be grouped into factor 3. Similarly, ZL2 and ZL3 have the highest factor loading values of 0.569 and 0.628 respectively. Therefore, ZL2 and ZL3 should be grouped into factor 3 and factor 1 respectively. However, grouping variables without rotation may lead to almost every variable loading significantly to the first factor (Hair et al., 2010). Therefore, varimax rotation method was chosen to group those 25 variables into factors as is shown in Table 3-10.
TABLE 3-9 FACTOR LOADING VALUES WITHOUT ROTATION

Component Matrix
a
1 Zscore(L1) Zscore(L2) Zscore(L3) Zscore(L4) Zscore(L5) Zscore(L6) Zscore(C1) Zscore(C2) Zscore(C3) Zscore(C4) Zscore(C5) Zscore(T1) Zscore(T2) Zscore(T3) Zscore(T4) Zscore(T5) Zscore(U1) Zscore(U2) Zscore(U3) Zscore(A1) Zscore(A2) Zscore(A3) Zscore(A4) Zscore(A5) Zscore(A6) .445 .521 .628 .633 .586 .560 .227 -.217 -.011 .607 .495 -.641 -.714 -.750 -.723 -.704 .295 .344 .309 .238 .489 -.178 -.064 .185 .326
2 -.249 -.293 -.304 -.332 -.335 -.248 -.021 -.314 -.338 -.426 -.238 .045 -.002 -.030 -.005 .014 .696 .690 .713 .709 .545 .673 .764 .708 .792
Component 3 .625 -.569 -.529 -.466 -.377 -.540 .327 .503 .674 .495 .587 .098 -.137 -.279 -.209 -.108 -.012 .180 -.130 -.051 .180 -.085 -.023 .157 .028
4 .263 .359 .220 .223 .363 .303 .053 .487 .471 .109 .154 .443 .449 .273 .142 .304 -.005 .216 .224 -.029 .026 .375 .257 .079 .110
5 -.202 -.027 .010 -.041 .053 .059 .852 .137 -.178 -.087 .143 .040 -.010 -.018 .030 -.026 -.082 -.185 .148 .284 -.209 -.011 .099 -.130 -.031
Extraction Method: Principal Component Analysis. a. 5 components extracted.
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From Table 3-10, for example, ZL1 has the highest factor loading value of 0.806, so it should be grouped into factor 4. Similarly, ZL2 has the highest factor loading value of 0.896, thus it should be grouped into factor 3. Therefore, the 25 independent variables can be grouped into the following five factors using the PCA extraction method and varimax rotation method: Factor 1 (F1): ZU1, ZU2, ZU3, ZA1, ZA2, ZA3, ZA4, ZA5, ZA6 Factor 2 (F2): ZT1, ZT2, ZT3, ZT4, ZT5 Factor 3 (F3): ZL2, ZL3, ZL4, ZL5, ZL6 Factor 4 (F4): ZL1, ZC2, ZC3, ZC4, ZC5 Factor 5 (F5): ZC1
TABLE 3-10 FACTOR LOADING VALUES WITH VARIMAX ROTATION METHOD

Rotated Component Matrix Component 3 .054 .896 .870 .842 .830 .863 -.022 -.107 -.106 .207 .060 -.222 -.103 -.109 -.206 -.188 -.035 -.023 .155 -.048 .010 -.066 -.120 -.166 -.015
a
1 Zscore(L1) Zscore(L2) Zscore(L3) Zscore(L4) Zscore(L5) Zscore(L6) Zscore(C1) Zscore(C2) Zscore(C3) Zscore(C4) Zscore(C5) Zscore(T1) Zscore(T2) Zscore(T3) Zscore(T4) Zscore(T5) Zscore(U1) Zscore(U2) Zscore(U3) Zscore(A1) Zscore(A2) Zscore(A3) Zscore(A4) Zscore(A5) Zscore(A6) .014 -.040 -.061 -.079 -.055 -.008 .031 -.187 -.133 -.160 -.013 -.005 -.075 -.168 -.176 -.098 .719 .806 .789 .688 .660 .671 .748 .734 .848
2 -.325 -.055 -.229 -.248 -.140 -.119 -.166 .350 .132 -.515 -.405 .737 .843 .790 .676 .740 -.197 -.143 -.027 -.142 -.377 .413 .250 -.101 -.151
4 .806 -.024 -.051 .015 .133 -.052 .180 .658 .880 .692 .667 .158 -.006 -.205 -.234 -.063 -.135 .157 -.139 -.255 .130 -.088 -.127 .016 -.073
5 -.051 -.054 -.012 -.052 .059 .034 .908 .229 -.040 .043 .279 .037 -.055 -.100 -.048 -.075 -.059 -.112 .165 .288 -.138 -.011 .108 -.082 .007
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a. Rotation converged in 6 iterations.
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After forming the five factors, a regression analysis using these factors was performed to build up a model as shown in Table 3-11. Table 3-11 shows that four factors (F1, F2, F3, and F4) are significant to warehouse performance at a level of significance of 0.05.
TABLE 3-11 THE COEFFICIENTS OF REGRESSION ANALYSIS AND FACTOR ANALYSIS

Coefficientsa Unstandardized Coefficients B Std. Error 5.13E-015 .062 .312 -.206 .163 -.262 .094 .062 .062 .062 .062 .062 Standardized Coefficients Beta .312 -.206 .163 -.262 .094
Model 1
t .000 5.003 -3.303 2.617 -4.211 1.516
(Constant) REGR factor score 1 for analysis 1 REGR factor score 2 for analysis 1 REGR factor score 3 for analysis 1 REGR factor score 4 for analysis 1 REGR factor score 5 for analysis 1
Sig. 1.000 .000 .001 .010 .000 .131
a. Dependent Variable: Zscore(performance)
From Table 3-11, we derived the following equations of performance. Performance = (0.312*F1) (0.206*F2) + (0.163*F3) (0.262*F4), then all four factors are renamed as shown in Equation 3-2. Performance = (0.312*UTI and ADMIN) (0.206*TIME) + (0.163*LABOUR) (0.262*COST) ....................... (3-2) Where (from Table 3-10); UTI and ADMIN = (0.719*ZU1) + (0.806*ZU2) + (0.789*ZU3) + (0.688*ZA1) + (0.660*ZA2) + (0.671*ZA3) + (0.748*ZA4) + (0.734*ZA5) + (0.848*ZA6) TIME = (0.737*ZT1) + (0.843*ZT2) + (0.790*ZT3) + (0.676*ZT4) + (0.740*ZT5)
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LABOR = (0.896*ZL2) + (0.870*ZL3) + (0.842*ZL4) + (0.830*ZL5) + (0.863*ZL6) COST = (0.806*ZL1) + (0.658*ZC2) + (0.880*ZC3) + (0.692*ZC4) + (0.667*ZC5) For example, we want to measure the performance of warehouse A. From Equation 3-2, we first have to calculate the values of UTI and ADMIN, TIME, LABOR, and COST. Warehouse A has values of U1 = 3, U2 = 3, U3 = 3, A1 = 3, A2 = 3, A3 = 2, A4 = 2, A5 = 4, A6 = 4, T1 = 275, T2 = 125, T3 = 100, T4 = 200, T5 = 125, L1 = 6, L2 = 4, L3 = 4, L4 = 4, L5 = 4, L6 = 3, C2 = 3, C3 = 5, C4 = 7, and C5 = 7. Then Zscore of all variables are calculated with SPSS, ZU1 = -0.35994, ZU2 = -0.31553, ZU3 = -0.58600, ZA1 = -0.08537, ZA2 = 0.00601, ZA3 = -0.87395, ZA4 = -1.87489, ZA5 = 0.19112, ZA6 = 0.32668, ZT1 = -0.63934, ZT2 = -1.45826, ZT3 = -1.58569, ZT4 = -1.14915, ZT5 = -1.54191, ZL1 = 1.35202, ZL2 = 1.37905, ZL3 = 1.05840, ZL4 = 1.04520, ZL5 = 0.83831, ZL6 = -0.09139, ZC2 = 0.19781, ZC3 = 0.90682, ZC4 = 2.10435, and ZC5 = 1.22677. Therefore, UTI and ADMIN = (0.719*-0.35994) + (0.806*-0.31553) + (0.789*-0.58600) + (0.688*-0.08537) + (0.660*0.00601) + (0.671*-0.87395) + (0.748*-1.87489) + (0.734*0.19112) + (0.848*0.32668). TIME = (0.737*-0.63934) + (0.843*-1.45826) + (0.790*-1.58569) + (0.676*-1.14915) + (0.740*-1.54191). LABOR = (0.896*1.37905) + (0.870*1.05840) + (0.842*1.04520) + (0.830*0.83831) + (0.863*-0.09139).
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COST = (0.806*1.35202) + (0.658*0.19781) + (0.880*0.90682) + (0.692*2.10435) + (0.667*1.22677). Therefore, performance of warehouse A = [0.312*(0.719*-0.35994) + (0.806*-0.31553) + (0.789*-0.58600) + (0.688*-0.08537) + (0.660*0.00601) + (0.671*-0.87395) + (0.748*-1.87489) + (0.734*0.19112) + (0.848*0.32668)] [0.206*(0.737*-0.63934) + (0.843*-1.45826) + (0.790*-1.58569) + (0.676* -1.14915) + (0.740*-1.54191)] + [0.163*(0.896*1.37905) + (0.870*1.05840) + (0.842*1.04520)+(0.830*0.83831) + (0.863*-0.09139)] [0.262*(0.806*1.35202) + (0.658*0.19781) + (0.880*0.90682) + (0.692*2.10435) + (0.667*1.22677)].
From equation 3-2, there are 24 indicators that are significant to warehouse performance at a level of significance of 0.05. These indicators are labour measures, cost measures, time measures, utilisation measures, and administration measures. The details of such indicators are described as follows. Firstly, the six indicators in labour measures are labour hour (ZL1); pallets/labour hour for receiving function (ZL2), pallets/labour hour for handling function (ZL3); pallets/labour hour for storing function (ZL4); pallets/labour hour for order picking function (ZL5); and pallets/labour hour for shipping function (ZL6) and these are significant to warehouse performance. Secondly, maintenance cost of equipment (ZC2), infrastructure cost (ZC3) labour cost (ZC4) and transportation cost (ZC5) are significant to warehouse performance.
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Thirdly, five indicators in time measures are significant to warehouse performance. These are downtime of receiving equipment (ZT1), downtime of handling equipment (ZT2), downtime of storing equipment (ZT3), downtime of order picking equipment (ZT4) and downtime of shipping equipment (ZT5). Fourthly, there are three indicators in utilisation measures that are significant to warehouse performance. These indicators are degree of space utilisation (ZU1), degree of equipment utilisation (ZU2) and degree of labour utilisation (ZU3). Lastly, degree of warehouse flexibility (ZA1), degree of warehouse complexity (ZA2), degree of warehouse automation (ZA3), degree of warehouse safety (ZA4), degree of error-free orders shipped (ZA5) and degree of transactions processed on time (ZA6) are significant to warehouse performance. However, only deteriorating cost of equipment (ZC1) is not significant to warehouse performance.
2. A Model from Structural Equation Modelling (SEM) Technique The SEM technique was used to build up a proposed model for measuring warehouse performance. SEM was developed in 1970s. It is an extension of general linear models that can handle a large number of variables. This technique has been used in many areas including psychology, sociology, the biological sciences, educational research, political science, travel behaviour and market research (Golob, 2003).
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2.1 SEM Assumptions Like any statistical model, SEM has a number of assumptions (Arbuckle, 2005): 1. Sample size According to Tanaka (1987), a reasonable sample size should be greater than 200 for an acceptable model. 2. Normally Distributed Variables SEM programs assume that dependent and endogenous variables are normally distributed (Arbuckle, 2005). In addition, most SEM programs cannot run nominal dependent variables such as male or female and live or die. 3. Model Identification SEM programs require a number of known correlations as inputs in order to provide results. Therefore, each equation should be properly identified. Identification means that in a SEM model, each parameter should have at least one unique solution. 4. Complete Data In order to run data in a SEM program, the dataset should be complete. In the case of missing data, Roth (1994) explains that if the proportion of cases with missing data is small (less than 5%), listwise deletion may be acceptable.
2.2 SEM Approach The basic approach to performing a SEM analysis is shown in Figure 3-7. It shows the steps in performing a SEM analysis. The first step is to study relevant
58
theories and then construct the model based on those theories. The next step is to determine how to measure constructs, collect data and then input data into SEM software. After that, the SEM software runs the data to the specified model and generates the results. These results consist of overall model fit statistics and parameter estimates.
FIGURE 3-7 BASIC APPROACH TO PERFORMING A SEM ANALYSIS
Theory
Model Construction
Instrument Construction Interpretation Data Collection
Model Testing
Results (Adapted from Arbuckle, 2005)
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2.3 Goodness-of-Fit To test whether or not the specified model is acceptable, the goodness-offit is assessed according to the recommended values shown in Table 3-12.
TABLE 3-12 MODEL FIT SUMMARY
Goodness-of-fit measures Chi-square Goodness-of-fit Index (GFI) Normed Fit Index (NFI) Comparative Fit Index (CFI) Root Mean Square Error of Approximation (RMSEA)
Recommended values p 0.05
0.90 0.90 0.90

< 0.06
(Adapted from Segars and Grover (1993), Hartwick and Barki (1994), Chau (1997), Hu and Bentler (1999), and Arbuckle (2005))
Table 3-12 presents the recommended values of goodness-of-fit measures. These values show how well a model fits the data. According to Arbuckle (2005), the chi-square test is an absolute test of model fit, thus the probability value (P) should be higher than 0.05 meaning that the model is acceptable. Hu and Bentler (1999) suggest that RMSEA value should be lower than 0.06. Segars and Grover (1993), Hartwick and Barki (1994), and Chau (1997) recommend GFI, NFI, and CFI values should be higher than 0.90.
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2.4 Build up a Model At this step, a model for measuring warehouse performance was generated with the SEM technique and the AMOS software program. The five factors (F1, F2, F3, F4, and F5) were used to define the hypothesis model as shown in Figure 3-8. However, F5 consists of only one variable, which is ZC1. In order to run the hypothesis model with AMOS software, ZC1 was needed to group into another factor. From Table 3-9, the factor loading value of ZC1 is 0.327, thus ZC1, ZC2, ZC3, ZC4, ZC5, and ZL1 can be grouped together into the same factor. Therefore, ZC1 are now grouped into factor 4 (F4). After that, all factors are renamed based on their variables. Thus, F1 is renamed to Utilisation and admin. F2 is renamed to Time. F3 is renamed to Labour, and F4 is renamed to Cost. The details of each factor are as follows: Utilisation and admin: ZU1, ZU2, ZU3, ZA1, ZA2, ZA3, ZA4, ZA5, ZA6 Time: ZT1, ZT2, ZT3, ZT4, ZT5 Labour: ZL2, ZL3, ZL4, ZL5, ZL6 Cost: ZC1, ZC2, ZC3, ZC4, ZC5, ZL1
The hypothesis model in Figure 3-8 assumes that cost, time, labour, utilisation and administration measures are significant to warehouse performance at a level of significance of 0.05.
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FIGURE 3-8 HYPOTHESIS MODEL
eT3 eT1 eT2
eT4
eT5
1
ZT1
1
ZT2
1
ZT3
1
ZT4
1
ZT5
1
ZU1 ZU2 ZU3 ZA1 Utilization and admin. ZA2 ZA3
1
eU1
1
eU2
Time
eL6
1
eU3
1
eA1
eL5
eL4
eL3
eL2
1
eA2
ZL6
ZL5
ZL4
ZL3
ZL2
1
eA3
1
eA4
Labor
Measurement
ZA4 ZA5
1
eA5
1 1
Performance
eP
1
eA6
ZA6
Cost
1
ZC2
ZC3
ZC4
ZC5
ZL1
ZC1
1
eC3
1
eC5
1
eL1
1
eC1
eC2
eC4
With the use of the AMOS software program together with the hypothesis model, the proposed model is now presented in Figure 3-9. From Figure 3-9: Performance = 0.54*Measurement (3-3) Where; Measurement = (-1.03*COST and LABOUR) (1.11*TIME) + (0.13*UTI and ADMIN)
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COST and LABOR = (0.84*ZL1) + (0.96*ZC4) + (0.59*ZC5) TIME = (0.90*ZT3) + (0.74*ZT4) + (0.69*ZT5) UTI and ADMIN = (0.71*ZU1) + (0.84*ZU2) + (0.73*ZU3) + (0.65*ZA5)
FIGURE 3-9 A PROPOSED MODEL OF WAREHOUSE PERFORMANCE MEASUREMENT
.25
eL1
eC4
eC5
.32
ZL1 ZC4 ZC5
-.29
.84
.96 COST and LABOR -1.03 -.28
.59
-.32
-.39
ZT5 eT5
-.57
.54
eP performance
measurement
-.62 -1.11 .69
-.70 .34
.62
.74 .43 .13 -.38 .40 .71 .84 .73 UTI. and ADMIN .65
ZA5 eA5 ZU3 eU3 ZU2 eU2 ZU1 eU1 ZT3 eT3
TIME
.90
ZT4
eT4
-.21
From Figure 3-9, there are 10 indicators that are significant to warehouse performance at a level of significance of 0.05. These indicators are labour hour (ZL1), labour cost (ZC4), transportation cost (ZC5), downtime of storing equipment (ZT3), downtime of order picking equipment (ZT4), downtime of
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shipping equipment (ZT5), degree of space utilisation (ZU1), degree of equipment utilisation (ZU2), degree of labour utilisation (ZU3) and degree of error-free orders shipped (ZA5). However, there are 15 indicators that are not significant to warehouse performance. These indicators are pallets/labour hour for receiving function (ZL2), pallets/labour hour for handling function (ZL3), pallets/labour hour for storing function (ZL4), pallets/labour hour for order picking function (ZL5), pallets/labour hour for shipping function (ZL6), deteriorating cost of equipment (ZC1), maintenance cost of equipment (ZC2), infrastructure cost (ZC3); downtime of receiving equipment (ZT1), downtime of handling equipment (ZT2), degree of warehouse flexibility (ZA1), degree of warehouse complexity (ZA2), degree of warehouse automation (ZA3), degree of warehouse safety (ZA4) and degree of transactions processed on time (ZA6). Next step, the proposed model was tested whether it is acceptable or not. According to the goodness-of-fit measures in Table 3-13, the proposed model was acceptable based on the values obtained for the five measures: chi-square (p = 0.217), goodness-of-fit index (GFI = 0.972), normed fit index (NFI = 0.971), comparative fit index (CFI = 0.995), and root mean square error of approximation (RMSEA = 0.032).
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TABLE 3-13 MODEL FIT SUMMARY OF A PROPOSED MODEL
Goodness-of-fit measures Chi-square Goodness-of-fit Index (GFI) Normed Fit Index (NFI) Comparative Fit Index (CFI) Root Mean Square Error of Approximation (RMSEA)
Recommended values p 0.05
A proposed model p = 0.217 = 0.972 = 0.971 = 0.995 = 0.032
0.90 0.90 0.90

< 0.06
3.2.6 Test the Two Models

This step was to test the accuracy of the two derived models for measuring warehouse performance. Another dataset of 80 warehouses was used to test the accuracy using the Mean Magnitude Relative Error (MMRE) technique.
Magnitude of Relative Error (MRE)
MRE =
actual _ performance(i ) predicted _ performance(i ) . (3-4) actual _ performance(i )
Mean Magnitude of Relative Error (MMRE)
MMRE =
1 m actual _ performance(i ) predicted _ performance(i ) 100 n i =1 actual _ performance(i ) . (3-5)
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As shown in Table 3-14, the MMRE values of the two models were calculated and the results show that both equations predicted performance values that were both higher and lower than the actual values assessed by the manufacturing firms. Equation 3-2 derived from regression analysis and factor analysis resulted a MMRE of (8.129/80) x 100% = 10.16%. Equation 3-3 derived using the SEM technique resulted in a MMRE of (2.393/80) x 100% = 2.99%. Therefore, it can be concluded that the model from equation 3-3 was more appropriate for measuring warehouse performance than the model from equation 3-2 based on its lower MMRE value.
TABLE 3-14 MMRE OF TWO MODELS
Case no.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Actual performance (Assessed by manufacturing firms) (%) 88 92 87 89 78 87 89 83 80 81 85 78 77 76 69 77 80 71 70 60 65 67
Predicted performance from equation 3-2 (%) 89.58 95.73 90.27 87.93 78.12 84.89 93.38 84.68 83.05 85.99 71.38 70.48 80.71 81.51 71.01 84.04 76.67 74.98 72.42 62.78 63.47 65.31
Predicted performance from equation 3-3 (%) 90.33 94.12 89.23 86.29 81.68 88.53 92.29 86.87 83.87 83.40 88.74 80.13 80.57 75.38 66.45 76.96 78.26 69.62 67.43 59.47 63.00 65.97
MRE of equation 3-2
MRE of equation 3-3
.018 .040 .038 .012 .001 .024 .049 .020 .038 .062 .160 .096 .048 .072 .029 .091 .042 .056 .035 .046 .024 .025
.026 .023 .026 .030 .047 .018 .037 .047 .048 .030 .044 .027 .046 .008 .037 .001 .022 .019 .037 .009 .031 .015
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TABLE 3-14 MMRE OF TWO MODELS (Cont.)
Case no.
23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67
Actual performance (Assessed by manufacturing firms) (%) 66 65 66 67 68 67 65 73 82 85 80 75 80 78 79 75 72 73 72 71 67 70 63 65 70 64 67 64 66 70 70 69 70 67 68 70 77 70 74 71 72 71 69 75 78
Predicted performance from equation 3-2 (%) 72.09 78.21 48.98 65.63 73.16 77.19 84.22 69.49 81.36 89.27 98.25 89.20 73.89 80.30 85.23 93.23 71.69 74.94 86.57 91.20 67.30 65.00 70.24 78.82 88.55 60.81 69.94 66.65 71.23 79.46 64.88 71.95 81.79 84.91 75.33 80.20 94.19 94.15 97.39 67.35 69.97 76.01 79.79 89.12 63.12
Predicted performance from equation 3-3 (%) 63.06 61.56 64.89 65.12 66.22 64.83 63.22 75.49 83.91 83.67 80.40 77.23 84.74 81.11 78.62 79.23 73.80 72.80 69.23 68.15 67.41 69.48 65.93 60.78 63.58 63.03 65.33 65.67 63.94 64.76 69.63 70.25 72.81 65.54 69.64 71.80 74.57 72.40 73.85 69.28 70.69 69.39 68.93 69.10 80.61
MRE of equation 3-2
MRE of equation 3-3
.092 .203 .258 .020 .076 .152 .296 .048 .008 .050 .228 .189 .076 .029 .079 .243 .004 .027 .202 .284 .004 .071 .115 .213 .265 .050 .044 .041 .079 .135 .073 .043 .168 .267 .108 .146 .223 .345 .316 .051 .028 .071 .156 .188 .191
.045 .053 .017 .028 .026 .032 .027 .034 .023 .016 .005 .030 .059 .040 .005 .056 .025 .003 .038 .040 .006 .007 .046 .065 .092 .015 .025 .026 .031 .075 .005 .018 .040 .022 .024 .026 .032 .034 .002 .024 .018 .023 .001 .079 .033
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TABLE 3-14 MMRE OF TWO MODELS (Cont.)
Case no.
68 69 70 71 72 73 74 75 76 77 78 79 80
Actual performance (Assessed by manufacturing firms) (%) 84 85 83 79 80 85 80 80 84 83 85 80 90
Predicted performance from equation 3-2 (%) 65.38 72.44 80.83 77.16 67.56 78.73 87.32 88.86 96.18 79.57 81.82 83.99 92.10
Predicted performance from equation 3-3 (%) 83.61 86.21 84.26 78.26 82.01 87.81 84.11 83.99 85.72 83.59 86.93 87.59 85.81
MRE of equation 3-2
MRE of equation 3-3
.222 .148 .026 .023 .156 .074 .092 .111 .145 .041 .037 .050 .023
.005 .014 .015 .009 .025 .033 .051 .050 .020 .007 .023 .095 .047
The model derived from Equation 3-3 was selected for further work. This SEM model was extended using an analogy based approach.
3.2.7 Analogy based Approach

In this step, an analogy based approach was applied to extend the SEM model. This approach is widely used in many fields to measure the similarity between two objects by measuring the distance between them. The greater the distance between two warehouses is, the greater the difference they are. These fields are, for example, cost estimation (Huang and Chiu, 2006; Chiu and Huang, 2007; Li, Xie, and Goh, 2008; and Mittas et al., 2008), games (Jehiel, 2005; and Jehiel and Koessler, 2008), engineering (Zeng and Ethier, 2005; and Robinson and Haldi, 2008), economics (Sousa and Domingos, 2006) and creative design (Gomes et al., 2006).
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Distance Measurements There are different techniques to measure the distance between two objects including Euclidian distance measure and Mahalanobis distance measure. In this research, Euclidian distance is used to measure the distance between warehouse i and warehouse j. It is defined as equation 3-6 (Mittas et al., 2008).
(3-6) Where d(i,j) = distance between warehouse i and warehouse j Xim = Attribute of warehouse i Xjm = Attribute of warehouse j
From equations 3-3 and 3-6, the distance between two warehouses can be measured with the assigned weight of 0.54, defined as equation 3-7 and illustrated in Figure 3-10.
d = (0.54 * (measurement - measurement1)2)1/2
(3-7)
where, measurement = measurement value of a dataset of 201 warehouses measurement1 = measurement value of a sample warehouse
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FIGURE 3-10 DISTANCE BETWEEN A SAMPLE WAREHOUSE AND A DATASET OF 201 WAREHOUSES
d1 A sample warehouse d2 d201
Warehouse no. 1 Warehouse no. 2
Warehouse no. 201
Figure 3-10 shows the distances between a sample warehouse and a dataset of 201 warehouses as d1, d2, , d201. The warehouse from a dataset with the closest distance value is retrieved to predict the performance of a sample warehouse. The advantage of this analogy based approach is that manufacturing firms can observe the resources of other warehouses in order to improve their own performance. For example, as shown in Table 3-15, after calculating the distances between a sample warehouse and a dataset of 201 warehouses, the results show that warehouse no. 40 from a dataset has the closest distance (d = 0.035) from a sample warehouse with the performance at 88%. On the other hand warehouse no. 127 has the furthest distance (d = 7.119) from a sample warehouse with performance at 80%. Therefore, it can be concluded that the sample warehouse is most similar to warehouse no. 40., and therefore the performance of the sample warehouse can be predicted to be 88%. Thus, a sample warehouse can be more
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flexible on the use of its resources in comparison with the use of resources of warehouse no. 40. On the other hand, a sample warehouse could improve its performance by increasing its space and equipment utilisation.
TABLE 3-15 AN EXAMPLE OF ANALOGY BASED APPROACH
Variables
A sample warehouse (performance = 88%)
Warehouse no. 40 (from a dataset) (performance = 88%, d = 0.035 )
Labour hour Labour cost (Baht) Transportation cost (Baht) Downtime of storing equipment (hour) Downtime of order picking equipment (hour) Downtime of shipping equipment (hour) Degree of space utilisation (%) Degree of equipment utilisation (%) Degree of labour utilisation (%) Degree of error-free orders shipped (%)
70,000 100,000 - 120,000 3,285,500 6,000,000+ 16,348,750 20,000,000 25,000,000 150 100 250 200 125 4160% 4160% 6180% 6180% 100 250 100 250 4160% 4160% 4160% 4160%
Warehouse no. 127 (from a dataset) (performance = 80%, d = 7.119 ) 120,000+ 6,000,000+ 25,000,000+ 850+ 550 700 700 850 2140% 2140% 2140% 6180%
3.2.8 Hypotheses Testing

The results from testing the hypotheses at a level of significance of 0.05 described in Chapter 2 are detailed as follows (see Table 3-16, Table 3-17). H1: There are relationships among labour, cost, time, utilisation, and administration measures.
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The proposed model shows that there are relationships among labour, cost, time, utilisation and administration measures. As shown in Table 3-16, the cost and labour measures have a strong negative relationship with the time measures with a value of -0.622. The utilisation and administration measures also have a negative relationship with the time measures with a value of -0.377.
H2: Labour measures are significant to warehouse performance. As shown in Table 3-17, the p value for the labour measures is less than 0.05 (represented by ***). Therefore labour measures are statistically significant to performance of warehouse. As labour hour (ZL1) goes up, performance of warehouse goes down (see Figure 3-9).
H3: Cost measures are significant to warehouse performance. Table 3-17 shows that the p value of cost measures is less than 0.05 (represented by ***). Therefore cost measures are also statistically significant to performance of warehouse. As labour cost (ZC4) and transportation cost (ZC5) go up, performance of warehouse goes down (see Figure 3-9).
H4: Time measures are significant to warehouse performance. Table 3-17 shows that the p value for the time measures is less than 0.05 (represented by ***). Therefore, the time measures are statistically significant to warehouse performance. As downtime of equipment (ZT3, ZT4, and ZT5) goes up, performance of warehouse goes down (see Figure 3-9).
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H5: Utilisation measures are significant to warehouse performance. Testing the hypothesis H5, from Table 3-17, it shows that p value of utilisation measures is more than 0.05 (p = 0.374). However, utilisation measures are considered significant to performance of warehouse, though not as strong as time, cost, and labour measures. As degree of space utilisation (ZU1), degree of equipment utilisation (ZU2), and degree of labour utilisation (ZU3) go up, performance of warehouse also goes up (see Figure 3-9).
H6: Administration measures are significant to warehouse performance. From Table 3-17 the p value of the administration measures is more than 0.05 (p = 0.374). It is similar to the utilisation measures, which is not as strong as the time, cost, and labour measures. However, the administration measures are also considered significant to warehouse performance. As the degree of error-free orders shipped (ZA5) goes up, performance of warehouse also goes up (see Figure 3-9).
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TABLE 3-16 CORRELATIONS (GROUP NUMBER 1- DEFAULT MODEL)
C O S T an d L A B O R T IM E eC 4 eP eL1 eP eC 5 eC 5 eL1 eC 4 eL1 eT 4 eC 5 eC 5 eC 5
< --> < --> < --> < --> < --> < --> < --> < --> < --> < --> < --> < --> < --> < --> < -->
T IM E U T I. an d A D M IN eU 3 eU 3 eT 5 eT 5 eP eT 5 eA 5 eU 1 eU 2 eU 2 eU 2 eT 4 eT 3
E stim ate -.6 2 2 -.3 7 7 -.7 0 0 .3 9 5 .2 5 0 -.2 8 1 .3 1 9 -.2 9 2 .4 3 2 -.3 8 6 .6 1 8 -.2 0 8 .3 4 0 -.3 2 2 -.5 7 3
TABLE 3-17 REGRESSION WEIGHTS (GROUP NUMBER 1 DEFAULT MODEL)
measurement <--- TIME measurement <--- COST and LABOR measurement <--- UTI. and ADMIN ZL1 <--- COST and LABOR ZC4 <--- COST and LABOR ZC5 <--- COST and LABOR ZT4 <--- TIME performance <--- measurement ZT5 <--- TIME ZT3 <--- TIME ZU2 <--- UTI. and ADMIN ZU3 <--- UTI. and ADMIN ZA5 <--- UTI. and ADMIN ZU1 <--- UTI. and ADMIN
Estimate -4.558 -3.698 .603 1.000 1.131 .697 1.000 1.000 .926 1.225 1.293 1.105 1.000 1.075
S.E. .902 .654 .678 .073 .075
C.R. -5.050 -5.656 .890 15.481 9.322
P *** *** .374 *** ***
Label
.099 .108 .139 .127 .126
9.343 11.357 9.285 8.673 8.550
*** *** *** *** ***
3.2.9 The Findings from the Quantitative Study

1. Obviously, there are relationships among the labour, cost, time, utilisation, and administration measures. The evidences show that the cost and labour measures
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have negative relationships with the time measures. Utilisation and administration measures also have negative relationships with the time measures.
2. For the labour measures, labour hour is statistically significant to warehouse performance.
3. For the cost measures, labour cost and transportation cost are statistically significant to warehouse performance.
4. For the time measures, downtime of storing equipment, downtime of order picking equipment and downtime of shipping equipment are statistically significant to warehouse performance.
5. For the utilisation measures, degree of space utilisation, degree of equipment utilisation, and degree of labour utilisation are considered significant to warehouse performance.
6. For the administration measures, degree of error-free orders shipped is also considered significant to warehouse performance.
7. Interestingly, the findings from descriptive analysis are similar to the findings of other researchers. For example, McGinnis et al. (2002) found that warehouses in their database that have a high degree of automation also tend to have a large
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labour cost. This is similar to our findings that degree of warehouse automation and labour cost can not trade off against each other. De Koster and Warffemius (2005) found that warehouses with a high degree of complexity tend to have a high degree of automation. Conversely, warehouses with a low degree of complexity tend to have a low degree of automation. This is also similar to our findings that the correlation between warehouse complexity (A2) and warehouse automation (A3) is positive.
CHAPTER 4
QUALITATIVE STUDY: TRIANGULATION
4.1 Introduction Chapter 3 provides the model for measuring warehouse performance with ten measured variables that are significant to warehouse performance. However, to increase the rigour in warehouse performance research, Mentzer and Flint (1997) suggest the use of the triangulation approach. Triangulation was used in this study to argue for multiple studies of a warehouse performance phenomenon using different methods to triangulate on the true nature of such phenomenon. Campbell and Fiske (1959) started using triangulation in social sciences. They recommend that more than one method should be used in the validation process to ensure that the variance reflected the trait not the method. Later, Denzin (1978) discusses methods of triangulation by outlining four types of triangulation: data triangulation, investigator triangulation, theory triangulation and
methodological triangulation. This chapter consists of two sections. Firstly, multiple case studies were in-depth interviewed in order to be used in conjunction with the survey research from this study (described in chapter 3). Lastly, the SEM model was validated using data from an international company in Australia. A methodological triangulation method was adopted to test whether different methodological approaches produce convergent findings about warehouse performance
measurement.
Chapter 4 Qualitative Study: Triangulation
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4.2 Multiple case studies: Designing Case Research In this step, a research framework was first constructed and the variables and questions for this study were identified. Voss et al. (2002) suggest that there needs to be consideration of the categories intended for study and their relationships to each other. Miles and Huberman (1994) also point out that a research framework should explain the categories needed for study in narrative form or in graphical form.
4.2.1 Research Framework The framework of multiple case studies research is shown in Figure 4-1.
FIGURE 4-1 RESEARCH FRAMEWORK OF MULTIPLE CASE STUDIES
1. Defining research question
2. Choosing cases
3. Developing research instruments
4. Data documentation and coding
5. Data analysis Source: Adapted from Voss et al. (2002)
6. Conclusion
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4.2.1.1 Defining Research Question It is very important to have a well defined research question at the start of the process in order to guide the collection of data. Research Question 1: Is the SEM model generated able to measure warehouse performance? This research question was derived from Figure 4-2 and the study of Mentzer and Konrad (1991) and McGinnis et al. (2002), where the aim is to determine if the SEM model is able to measure the performance of any warehouse.
FIGURE 4-2 THE DETAILS OF THE SEM MODEL
Labour cost Labour hour Downtime of storing equipment Transportation cost Downtime of order picking equipment
COST AND LABOUR
TIME
Downtime of shipping equipment
Performance
UTILISATION AND ADMINISTRATION
Degree of space utilisation
Degree of errorfree orders shipped Degree of labour utilisation
Degree of equipment utilisation
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Figure 4-2 shows ten variables that are significant to warehouse performance. These variables were grouped into three groups: cost and labour; time; and utilisation and administration. In the first group, cost and labour, there are three variables: labour hour, labour cost and transportation cost. The second group includes time measures. In this group, there are three variables: downtime of storing equipment, downtime of order picking equipment and downtime of shipping equipment. The last group covers utilisation and administration measures. In this group, there are four variables: degree of space utilisation, degree of labour utilisation, degree of equipment utilisation and degree of errorfree orders shipped.
Research Question 2: What are the key variables for measuring warehouse performance? In this multiple case research study, the focus is on three themes: warehouse management (WM), warehouse functions (WF) and warehouse performance measurement (WPM). These three themes were derived from both the SEM model and the study of many researchers including Mentzer and Konrad (1991); McGinnis et al. (2002); and Huq et al. (2006). Therefore, this research question will determine the key variables that companies use to measure their warehouse performance, with a focus on these three themes.
4.2.1.2 Choosing cases
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The ideal number of cases is hard to define; however, the fewer the case studies, the greater the opportunity for in-depth observation (Voss et al., 2002). Many researchers performing multiple case study research chose from one to 30 cases. For example, Meredith and Vineyard (1993) investigate the implementation and evolution of manufacturing technology strategies through three companies. McLachlin (1997) consider whether each of a number of management initiatives is necessary for the implementation of just-in-time manufacturing by performing case-based research methodology with six plants for theory testing. Narasimhan and Jayaram (1998) conduct a longitudinal reengineering project in a service context. Pagell and Krause (1999) visit 30 plants for in-depth interviews in order to address the relationships between environmental uncertainty and operational flexibility. Boyer and McDermott (1999) examine the theoretical arguments on why strategic consensus in operation strategy is important through seven manufacturing plants. Therefore, nine case studies of six companies from Thailand and other three companies from Australia were carried out. Managers from the nine companies were interviewed in-depth on the three themes selected (warehouse management, warehouse functions and warehouse performance measurement). Later, the pattern matching technique was adopted to evaluate and discuss the findings. In addition, one of three companies from Australia was chosen for validating the SEM model. Pattern matching was defined by Campbell (1975) as a useful technique for linking data to the propositions. He adds that pattern matching is a situation
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where several pieces of information from the same case may be related to some theoretical proposition. In case study research, the pattern matching technique has been adopted by many researchers such as Santos et al. (2001). They used pattern matching in their benchmarking study between UK and Brazilian construction sites. The general profiles of nine companies are described in the following section.
1. Company Business Profiles in Thailand The six warehouse managers from Thailand were interviewed in-depth. Different industry sectors were evaluated: two hard disk drive companies, two animal feed companies, and two foam packaging companies. The field observation of each warehouse was also conducted. The business profiles of these companies are described below.
1.1 Business Profile of company A Company A runs their business in the hard disk drive industry. They are one of the foremost leaders in producing data storage. The company is an international company which was first established in the United States of America in 1979 as a disc drive manufacturer. A few years later they expanded their business to Asia by establishing companies in Thailand in 1983 and in Malaysia in 1988. In Thailand, the company produces and exports several hard disk drive components and has been supported by the Board of Investment of Thailand
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(BOI). The company started with 50 employees and has shown significant expansion over the years; by 1987 there were two factories, with another to follow two years later. Later in 1994, the company established another three factories, with a further to follow in 1996. However, in 1997, Thailand faced a big economic crisis causing many companies to close down their businesses. Company A was one of them. Initially they closed down three of their factories, with the others to follow later on. Today the company has two factories with more than 5,000 employees. The company has won the best company for safety environment at workplace by the Department of Labour Protection and Welfare six years in a row. The vision of this company focuses on the integration of technology and productivity for producing different products. The company aims to quickly response to changes in the hard disk drive market. The company has two warehouses located in their own factories. They adopted a computer system to operate their warehouses. They use a Radio Frequency Identification (RFID) system to track their products and stock. The company sells their products in Thailand and also exports their products overseas. The company uses eight indicators to measure the performance of their warehouses. These indicators are labour hour, labour cost, transportation cost, downtime of storing equipment, downtime of shipping equipment, degree of space utilisation, degree of equipment utilisation, and degree of error-free orders shipped. They measure their performance every six months. Their performance is more than 80%.
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1.2 Business Profile of Company B Company B also operated in the hard disk drive industry. It is an international company which was first founded in the United State of America in 1970. They expanded their business to Thailand in 2002 and established another factory in 2003. The company has also been supported by the Board of Investment of Thailand (BOI). The company produces and exports hard disk drive components including the slider, Head Gimbal Assembly (HGA) and Head Stack Assembly (HSA). Their vision is to meet the customers expectations and demands and to invest in technology. They focus their knowledge and their innovation on products that reliably keep information and content safe and secure from loss. Their mission statement is based on PAPPI (Passion, Action, Productivity, Perseverance and Integrity). The company also employs Radio Frequency Identification (RFID) systems in their two warehouses. The company sells their products in Thailand and also exports their products overseas. Their customers are some of the largest companies in the world, as well as private users. The company measures the performance of their warehouses every three months. Interestingly, they use six performance indicators that are very similar to indicators used by company A. These indicators are labour hour, labour cost, transportation cost, downtime of shipping equipment, degree of space utilisation, and degree of error-free orders shipped. The company has been trying to improve their performance every year or at least keep their performance stable.
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1.3 Business Profile of Company C The company runs their business in the animal feed industry. They were founded in 1978 to produce and distribute animal feed in Southern Thailand. Almost 10 years later, they expanded their business into livestock farming with the objective of moving towards further integration. They commit to six cultural foundations for sustainability success that are 1) embrace change, 2) master learning and sharing, 3) innovation, 4) integrity and honesty, 5) result oriented and 6) dedicate to countries. They have an emphasis on product development to satisfy consumers requirements. The company cooperates with other parties, including research institutes both in Thailand and overseas, with mutual objectives of sustaining the industry while having a business that adheres to environmental friendliness. Today, the companys business operations include raw material sourcing for animal feed production and distribution, animal breeding and farming, meat processing and the manufacturer of ready-to-eat cooked meat products. They are highly concern about managing occupational safety and health (OS&H) for every employee. In addition, the company considers the employee to be the most valuable resource as human capital. The company has won awards for five consecutive years for the best safety workplace. They also won the best renewable energy project in utilising vegetable oil to bio-diesel in Singapore. The company concerns on the increasing in globalisation in food trade and greater consumer demand for traceability of a food products origin, quality and safety by integrating its strength of infrastructure in argo-industry and aquaculture
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businesses, together with a stringent quality assurance system in food manufacturing. The quality cycle begins from the field to the consumer along the whole production chain. The quality assurance activities are not only targeted at food safety but also food quality. The company has established a safety and quality verification program that is well recognised internationally such as Good Manufacturing Practice (GMP), Hazard Analysis and Critical Control Points (HACCP), ISO9001, ISO22000, and British Retail Consortium (BRC). In managing their warehouses, they are highly concerned with cleanliness. The company has a practical inventory system to store raw materials and finished goods. Computer systems are used to operate the whole warehouses including a barcode system. The products of this company are sold in Thailand and overseas. Obviously, the company uses similar indicators as company A and B. These indicators are labour hour, labour cost, transportation cost, downtime of order picking equipment, degree of space utilisation, and degree of error-free order shipped.
1.4 Business Profile of Company D Company D also operates within the animal feed industry. They were founded in 1999 as an animal feed manufacturing firm. They first started to produce and distribute shrimp feed with two pellet lines at a maximum production capacity of 72,000 tons per annum. Four years later, they expanded their production lines to five pallet lines and then six pallet lines in 2004. Today, they
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operate at eight pallet lines with a maximum production capacity of 168,000 tons per annum. In 2007, a second factory was established to produce and distribute feed for fish and swine animals with a maximum production capacity of 350,000 tons per annum. The company is highly concerned with the safety and quality of their products. Therefore, in 2005 they received GMP, HACCP, and ISO 9001 certifications. Today, the company is one of the leading shrimp feed producers in Thailand. They have committed to becoming the leader producer in other animal feed products including fish and swine feeds in both Thailand and the Asian region in the near future. To achieve this commitment, the company established a knowledge research and development centre in 2006. This centre has been set up to undertake research work, animal feed development and problem analysis in order to improve product quality, in-house knowledge and human resources. The company continuously supports and focuses on staff training and development at all levels. Training courses are organised for all departments, from managerial to shop-floor level. They encourage their staff to participate in training courses and conferences. They also have an exchange program with other institutes to provide training and collaboration in research projects. In addition, the company has adopted 5S activities (Sort, Set, Shine, Standardise, Sustain) along with a total quality management system (TQM) to create mutual understanding and excellent quality control of products and services. The company manages their two warehouses through computer systems including a barcode system. They use a barcode system to trace their raw
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materials, finished products and their inventory. The company focuses on safety, quality and cleanliness in their warehouses to ensure that their customer is always satisfied with the products. The company uses seven performance indicators: labour hour, labour cost, transportation cost, downtime of shipping equipment, degree of space utilisation, degree of labour utilisation, and degree of error-free orders shipped. Over the last five years, their performance has improved and they aim to have zero error in orders shipped.
1.5 Company Profile of Company E The company operates their business in the foam packaging industry. In Thailand, many people use foam containers in their daily life, especially for takeaway food. The company was founded in 1983 as a foam packaging manufacturing firm. Their main products are containers made from polystyrene foam including food boxes, trays, plates and cups. They continuously research and develop their products to satisfy the customers requirements. They also produce food containers from other raw materials such as polypropylene (PP) and polyethylene terephthalate (PET). They are committed to producing food containers that are high quality and safe for storing food. Therefore, they have received GMP, HACCP and ISO 9001 certifications. These certifications ensure that the company always operates their business to meet the appropriate standards. Moreover, they continuously have training courses to improve the efficiency of their staff.
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Not only does the company focus on customers needs, but they are also concerned about environment. They have been producing their product without any chlorofluorocarbon (CFC) chemicals. They have also been producing green products made from polylactic acid (PLA) derived from renewable resources such as corn starch or sugar cane. The company manages their two warehouses with a computerised system and they check their products and stock with a barcode system. They focus on warehouse safety and space utilisation to ensure that their warehouses are fully functional. Degree of space utilisation is one of the seven performance indicators that the company pays the most attention. The other six indicators are labour hour, labour cost, transportation cost, downtime of order picking equipment, downtime of shipping equipment, and degree of error-free orders shipped. In addition, they aim to increase their space utilisation by 10% in 2010.
1.6 Business Profile of Company F This company has operated their business in the foam packaging industry for more than 40 years. They produce a variety of foam packages including foam boxes for food, computers and electronic devices. Moreover, the company has expertise in producing foam components such as drain trays for appliances such as air conditioners. The company focuses on research and development of their processes. Currently they are researching the process involved in producing a foam-based
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pallet to replace wooden and plastic pallets. They are particularly interested in developing a foam pallet with plastic sheet cover for more durable usage. The company is also concerned about the environment. Their foam is recyclable so that it can help reduce pollution. To ensure that the company meets the appropriate work standards, they have achieved ISO9001 certification. Just like the other companies, this company also adopts information technology to run their warehouse. They use barcode systems to track their stock and products. The company uses similar indicators as company E to measure the performance of their warehouse. These indicators are labour hour, labour cost, transportation cost, downtime of shipping equipment, degree of space utilisation, and degree of error-free orders shipped. Their performance is usually higher than 85%.
2. Company Business Profiles in Australia In-depth interviews and field observation were conducted with three warehouses in Australia. The business profiles of these companies are described below. 2.1 Business Profile of Company G Company G is an international company operating in warehousing and transportation. The company is a provider of logistics solutions. This company is a third party logistics solution where the facility is owned by their customer and the company is responsible for the management of the facility.
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The global financial crisis in 2009 affected almost every business across the world. This company was one of them. They had to deliver some financial savings by changing from 24 hours a day, six days a week and three shifts operation to 18 hours a day, five days a week, and two shifts operation. This change was able to offer some financial savings for them. In managing their warehouse, they use barcode systems to track their stock. Recently, they made a change to their carton picking procedure. Previously cartons were picked from racking levels 1 and 2, so they devised a new layout where the carton picking would only occur from level 1. In order for the level 1 picking to be successful they needed to change the pick path and also the product configuration in the warehouse. Once this was achieved, they noted a 15% increase in productivity (200 cartons per hour compared to 175 cartons per hour previously). The company focuses on labour measures to measure the performance of their warehouse. They use pallets per labour hour for receiving function, pallets per labour hour for put away function, pallets per labour hour for order picking function and pallets per labour hour for shipping function as their main indicators. Their performance is usually greater than 90%.
2.2 Business Profile of Company H The company is an international company also operating in warehousing and transportation. They are the largest privately owned supply chain solutions company in the Asia Pacific region. Like Company G, this company provides
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logistics services to their customer where the facility is owned by their customer and they are responsible for the management of the facility. They manage their warehouse by using computer systems such as barcode systems to track their stocks. They are now changing their rework procedure by reducing one process. Previously, the rework procedure used to be done after all pallets were checked in and put-away to be stored in allocated racks. Later some pallets would be picked for rework as orders were raised. After that the reworked products are to be put-away and ready to be shipped to customer. However, under the new rework procedure, the products would be reworked immediately after they are unloaded from the trucks and checked-in. They are targeting rework productivity to be increased by 10%. Nine indicators are used to measure the performance of their warehouse. These indicators are labour hour, labour cost, downtime of storing equipment, downtime of order picking equipment, downtime of shipping equipment, degree of space utilisation, degree of equipment utilisation, degree of labour utilisation, and degree of error-free orders shipped.
2.3 Business Profile of Company I The company is an Australian owned company operating in the fruit industry. They grow a variety of fruit and sell them in Australia and overseas. Because of the life cycle of their products, their warehouse only stores the fruit for a short time. However, management of the warehouse is quite complicated as they
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have to manually allocate the fruit and pick them later using a first-in, first-out procedure. Recently they devised a new layout whereby the order picking and storing would be easier. They also plan to adopt barcode systems to allocate the space and track their stock. A few years ago, the company started to measure their warehouse performance by using labour cost and transportation cost as their indicators. Three more indicators have been added: labour hour, degree of labour utilisation, and degree of error-free order shipped. They aim to decrease the errors from orders shipped as well as reduce labour cost.
4.2.1.3 Developing Research Instruments In case study research, research instruments used for collecting data include interviews, personal observation, informal conversations, or even attendance at meetings and events (Voss et al., 2002). Therefore, in this study indepth interviews for collecting data were conducted using four steps. The first step was the design of the question set to be used in the interviews. Three themes to be covered during the interviews were outlined: warehouse management (WM), warehouse functions (WF) and warehouse performance measurement (WPM) as described in Figure 4-3. The questions used in the interviews are presented in Appendix D. In the next step, access to the company was organised, highlighting the benefits of having their warehouses analysed in a systematic way. Then an agenda
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for the research meetings was set up, providing an outline of areas of warehouse management being investigated in this study and the type of data wanted for the analysis. The last step was to conduct interviews. It is important to keep in mind that the interviewer should be able to ask good questions, be flexible and be unbiased (Yin, 1994). The taking notes method was used to transcribe the data in this study. This method was selected because this method is less likely to inhibit interviewees from answering the questions during the interviews. This may occur with the tape recording method, which is also very time-consuming when transcribing tapes (Voss et al., 2002). However, the taking notes method also has its weaknesses. In particular, it is not possible to record all the information provided by the interviewees. Therefore, field observation was used to follow up the interviews by using observation and analysis. This field observation method pays an important role in case study research because it is useful to record the ideas or incidents as soon as they occur (Voss et al., 2002).
FIGURE 4-3 THE THREE THEMES FOR CASE STUDY INTERVIEWS

Warehouse management (WM) Warehouse functions (WF)
Performance
Warehouse performance measurement (WPM)
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4.2.1.4 Data Documentation and Coding After collecting data through the interviews and field observation, the next step was to document and code the data. All data was transcribed to a Microsoft Excel spreadsheet. The documentation included ideas and insights during the field visit. When coding the data, the pattern matching method was used to limit the numbers of categories as shown in Figure 4-4. The summary of the findings across the case studies is presented in Table 4-1.
FIGURE 4-4 CATEGORIES OF DATA

Major changes Key issues facing the firm Meeting schedule Key issues facing the firm
Warehouse management (WM)
Warehouse Functions (WF)
How is WF organised? WF plans
Performance
Warehouse performance measurement (WPM)
Key performance indicators
Actions to improve performance
What improvement after taking actions Problems during measurement
Preparation for measuring performance How to monitor warehouse performance
Discussion with team member
Key issues facing the firm
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TABLE 4-1 SUMMARY OF THE FINDINGS ACROSS THE CASE STUDIES
Key indicators for warehouse performance measurement 1. Labour measures 1. Labour hour 2. Pallets/labour hour for receiving function 3. Pallets/labour hour for put away function 4. Pallets/labour hour for order picking function 5. Pallets/labour hour for shipping function 2. Cost measures 6. Labour cost 7. Transportation cost 3. Time measures 8. Downtime of storing equipment 9. Downtime of order picking equipment 10. Downtime of shipping equipment 4. Utilisation measures 11. Degree of space utilisation 12. Degree of equipment utilisation 13. Degree of labour utilisation 5. Administration measures 14. Degree of error-free orders shipped
A Y
B Y
C Y
D Y
E Y
F Y
H Y
I Y
N N N N Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y
Y Y Y Y Y Y Y
Y Y
Indicators 1, 6, 7, 8, 9, 10, 11, 12, 13, and 14 are indicators from the SEM model Y = Case studies use indicators from the SEM model N = Case studies do not use indicators from the SEM model; however, these indicators were found not to be significant to warehouse performance at a level of significance of 0.05
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From Table 4-1, it is interesting that case studies in Thailand have very similar patterns of performance indicator usage. As expected, all of them use the same five indicators from the SEM model. These indicators are labour hour, labour cost, transportation cost, degree of space utilisation, and degree of errorfree orders shipped. Only company A from the hard disk drive industry use downtime of storing equipment and degree of equipment utilisation whereas only company C and E use downtime of order picking equipment. Moreover, only company D uses degree of labour utilisation. The case studies in Australia, namely company G, H, and I, have a different indicator pattern. Company H uses nearly all the indicators from the SEM model; the exception being transportation cost, while company I uses five indicators (labour hour, labour cost, transportation cost, degree of labour utilisation and degree of error-free orders shipped). Interestingly, company G uses four indicators that were taken into account when building up the SEM model; however, they were found not to be significant to warehouse performance. These indicators are pallets/labour hour for receiving function, pallets/labour hour for put away function, pallets/labour hour for order picking function, and pallets/labour hour for shipping function.
4.3 Validation of the SEM model At this step, the validation of the SEM model using an international company in Australia was performed.
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The company used for the validation was company G (in warehousing and transportation). The profile of this company was addressed earlier in Chapter 3. This company implements their own scorecard system to measure their warehouse performance. They use pallets per man hour and cartons per hour in their warehouse functions including receiving, handling, order picking and shipping functions. An example of this scorecard system is illustrated in Table 42. TABLE 4-2 SCORECARD SYSTEM OF COMPANY G
Task
Score
UOM (Unit of Measurement)
Target Achieved
Actual
Actual
(Weighting) (Score)
Check-in Put-away Replenishment Full picks Part picks Truck-loading Turnaround times Credits Total
5.00 15.00 5.00 25.00 15.00 10.00 10.00
Pallets per man hour Pallets per man hour Pallets per man hour Pallets per man hour Cartons per hour Pallets per man hour %TA less than 1.5 hrs
95 34 24 23 195 62 95%
94.0 31.7 23.2 23.9 187.9 59.6 92.32%
4.95 14.00 4.83 25.95 14.46 9.61 9.72
4.95 14.00 4.83 25.00 14.46 9.61 9.72
15.00 100
%National Invoices
1.00%
0.70%
21.43 104.9
15.00 97.56
From Table 4-2, the company measures their performance monthly and in the month indicated in the scorecard they scored 97.56 out of 100. Therefore, in validating the SEM model all the necessary data for nine months were collected.
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These data are presented in Appendix E. The data collected were labour hour (L1), labour cost (C4), transportation cost (C5), downtime of storing equipment (T3), downtime of order picking equipment (T4), downtime of shipping equipment (T5), degree of space utilisation (U1), degree of equipment utilisation (U2), degree of labour utilisation (U3), and degree of error-free orders shipped (A5). After that these data were calculated with equation 3-3 described in Chapter 3. The results show that the SEM model provided a rating for their warehouse performance that was similar to their scorecard system. For example, the company measures their performance at 97.56% while the SEM model measures their performance at 95.32% for the same month. A comparison of a second month, found a company score of 90.21% while the SEM model measures their performance at 91.35%. A full comparison of all the months tested (February to November 2009) is presented in Table 4-3. In addition, the SEM model is able to retrieve the information of other warehouses from a dataset of warehouses that perform in a similar manner to a particular company, so that the company can use the information in order to compare their warehouse with other warehouses.
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TABLE 4-3 WAREHOUSE PERFORMANCE MEASURED FROM COMPANY GS SCORECARD AND THE SEM MODEL
Month (2009)
Warehouse performance from company Gs Scorecard (%)
Warehouse performance from the SEM model (%)
MMRE
February March April May June July August September November
98.63 96.44 90.21 94.54 96.59 94.57 95.11 95.41 97.56
93.79 91.58 91.35 95.12 93.11 90.24 89.03 92.45 95.32
.049 .050 .013 .006 .036 .046 .064 .031 .023
From Table 4-3, the company rating is generally higher than the score generated by the SEM model. The only exception was in April and May when the SEM model measured performance at 91.35% in April and 95.12% in May while the company measured their performance at 90.21% and 94.54% respectively. The Mean Magnitude of Relative Error (MMRE) of the SEM model was calculated. The results show that the SEM model measured the performance of company G differs from their own scorecard with the value of MMRE at (0.318/9) x 100% = 3.53%.
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In this study two sets of validation testing were performed. The SEM model was tested using data from 80 companies in Thailand, as described in Chapter 3, as well as the validation using the Australian data. In both instance, it was found that the SEM model generated in this study can measure the performance of warehouses in a comparable manner to that used by the companies themselves, with only slightly different performance values from their own performance measurement systems.
4.4 Data Analysis: Triangulation As stated earlier, the methodological triangulation was used to triangulate three different methods for warehouse performance measurement. These three methods are the SEM model, the multiple case research study and validation of the SEM model using data from 80 companies in Thailand and a company in Australia. From the SEM model, there are ten indicators that are significant to warehouse performance. These indicators are, for example, transportation cost, labour cost, labour hour, downtime of storing equipment, degree of labour utilisation, and degree of error-free orders shipped. The results from the multiple case study show that all ten indicators from the SEM model are used by the Thai and Australian companies to measure their warehouse performance. However, there are four indicators that only company G used to measure their performance. Such indicators are pallets/labour hour for receiving function, pallets/labour hour for put away function, pallets/labour hour
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for order picking function, and pallets/labour hour for shipping function. Interestingly, these four indicators were considered when building up the SEM model but they were found not to be significant to warehouse performance. The results from the model validation using 80 companies in Thailand and an international company in Australia (company G) show that the SEM model is able to measure the performance of their warehouses with MMRE values of 2.99% and 3.53% respectively. Therefore, these results show that there is high agreement among these three methods; the indicators from the SEM model are used in practice for measuring warehouse performance by companies from both Thailand and Australia.
4.5 The Findings from the Qualitative study 4.5.1 The results from the case studies show that there are 14 indicators used to measure warehouse performance. Ten of them are used in the SEM model. The other four indicators were taken into account while building up the SEM model; however, they were not significant to warehouse performance.
4.5.2 In validating the SEM model using 80 companies in Thailand and a company in Australia, the results show that the SEM model can measure the performance of these warehouses with MMRE values of 2.99% and 3.53% respectively. Moreover, the SEM model can retrieve other warehouses
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information from a dataset in order for a company to compare their warehouse with other warehouses.
4.5.3 There is strong agreement from triangulation that the SEM model is able to measure the performance of warehouses from both Thailand and Australia. All the case studies agree that the ten indicators from the SEM model are significant to warehouse performance.
4.6 Discussions When building up the SEM model, 25 indicators from five measurement areas were taken into account. However, only ten of them were found to be significant to warehouse performance. The findings from case studies using six companies in Thailand and three companies in Australia strongly agree that the SEM model is able to measure the performance of warehouse. However, company G in Australia argues that their own scorecard with different indicators from the SEM model is also able to measure their warehouse performance effectively. Interestingly, the indicators they used were the indicators found not to be significant to warehouse performance when building up the SEM model. With the results from the triangulation method, it is obvious that the SEM model can be used to measure the performance of warehouses in Thailand and Australia. Since the SEM model consists only of significant indicators, it is more appropriate than company Gs scorecard. Furthermore, the SEM model can
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overcome the limitations of traditional models by allowing companies to compare their performance over time.
CHAPTER 5
CONCLUSIONS
5.1 Conclusions This research consists of two parts: a quantitative study and a qualitative study. In the quantitative study, the SEM model was proposed to measure warehouse performance using a dataset of 201 warehouses in Thailand. The SEM model was tested for accuracy using the MMRE technique with 80 companies in Thailand. The results show that the SEM model is able to measure the warehouse performance with a MMRE value of 2.99%. Furthermore, the SEM model was developed using an analogy based approach. This development allows the company to retrieve information about other warehouses from a dataset in order to compare it with the companys information. The SEM model consists of ten indicators that are significant to warehouse performance. These indicators are labour hour, labour cost, transportation cost, downtime of storing equipment, downtime of order picking equipment, downtime of shipping equipment, degree of space utilisation, degree of equipment utilisation, degree of labour utilisation, and degree of error-free orders shipped. Furthermore, the SEM model explores the unknown relationships among labour, cost, time, utilisation, and administration measures. Cost and labour measures were found to have a strong negative relationship with time measures with the value of -0.622. Similarly, utilisation and administration measures also have a negative relationship with time measures with the value of -0.377.
Chapter 5 Conclusions
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Moreover, labour measures have a negative relationship with performance. As labour hour goes up, performance of warehouse goes down. Similarly, cost measures have negative relationships with performance. As labour cost and transportation cost go up, warehouse performance is reduced. Time measures also have negative relationships with performance. As downtime of equipment goes up, performance of the warehouse goes down. On the other hand, utilisation measures have a positive relationship with performance. As degree of space utilisation, degree of equipment utilisation and degree of labour utilisation go up, performance of the warehouse also goes up. Similarly, administration measures have positive relationships with performance. As degree of error-free orders shipped goes up, performance of the warehouse also goes up. In the qualitative study, in-depth interviews and field observation were conducted with six companies from Thailand and three companies from Australia. Data from one of the companies from Australia (company G) was used to validate the SEM model, followed by methodological triangulation using the three different methods used in this study. These methods were the SEM model, multiple case study research and validation of the SEM model. The results from the case study research show that all of the ten indicators from the SEM model are used in practice to measure warehouse performance. Interestingly, there are four indicators used by company G that are shown by this study to be insignificant with respect to warehouse performance. These indicators are pallets/labour hour for receiving function, pallets/labour hour for put away
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function, pallets/labour hour for order picking function, and pallets/labour hour for shipping function. The results from validating the SEM model using 80 companies in Thailand and company G in Australia indicate that the SEM model is able to measure the warehouse performance with MMRE values of 2.99% and 3.53% respectively. From the triangulation results, it can be concluded that the SEM model could reliably measure the performance of the warehouses in Thailand and Australia. Therefore, it can be concluded that the SEM model is able to measure warehouse performance in real situations.
5.2 Research limitations Although the SEM model is able to measure the warehouse performance, it still has some limitations. These are as follows. 1. The dataset of 201 warehouses used in this research is based on only three industry groups (animal feed, hard disk drive, and foam packaging) in Thailand. 2. Although a sample size of 201 warehouses is sufficient to build up a SEM model according to SEM assumptions, increasing the numbers of samples may be useful for further developing the model.
5.3 Contributions to knowledge This research offers three contributions. Firstly, the derived SEM model in chapter 3 indicates that the SEM model can overcome the limitations of traditional
107
models. The traditional models can measure the performance of a warehouse but they cannot compare the performance of any warehouse over time as they lack the relative values between performance indicators (McGinnis et al., 2002). Obviously, the ability of the SEM model to explore the unknown relationships between performance indicators is a significant contribution in this field of study. Furthermore, the SEM model offers the retrieval process with analogybased approach. No literature reports this retrieval process with traditional warehouse performance models. The significant contribution of such process allows a warehouse manager to access the most similar and the least similar information about other warehouses in a dataset of 201 warehouses. Therefore, a warehouse manager can improve their own warehouse by comparing their information with other warehouses information. Secondly, multiple case study research and validation of the SEM model offer a real situation for measuring warehouse performance. Case studies with six companies in Thailand and three companies in Australia together with the validation of the SEM model were used to explain and prove the findings from the quantitative study of this thesis. Theoretically, the SEM model was built on ten significant indicators identified from previous literature. The interview process showed that these ten indicators are in fact used to measure warehouse performance within the industries reviewed. Moreover, the results from the validation of the SEM model using data from 80 companies in Thailand and a company in Australia indicate that the SEM model is able to measure the warehouse performance in real situations.
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Lastly, this thesis applies triangulation to warehouse performance measurement which was found to be one of the least developed aspects of this study within the literature. Methodological triangulation was used to examine the SEM model, case studies and validation of the SEM model. The objective of applying triangulation was to examine the convergence of the findings from the quantitative and qualitative studies in this thesis. This thesis goes beyond what has been offered in literature. It proposes the SEM model together with case studies and validation of the SEM model using 80 companies in Thailand and a company in Australia.
5.4 Future work The details of this research could be extended for further studies as follows. 1. The questionnaire survey can be conducted on warehouses from other countries or from other industrial sectors in order to extend the dataset of warehouses. 2. Other performance indicators may be considered with the SEM model for measuring warehouse performance. In addition, the major bottlenecks in the implementation of the developed model in real life industrial case are addressed as follows. 1. This model was developed with SEM technique, therefore the manufacturing firm should understand its underlying assumptions and limitations before implementing it in your firm. As this SEM model uses 10 indicators to measure
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warehouse performance, thus the manufacturing firm should use the model appropriately. 2. The SEM model is not fully software supported, therefore the manufacturing firm may take more time to measure their warehouse performance.
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APPENDIX A
THE DETAILS OF FIVE PERFORMANCE MEASURES
Appendix A The Details of Five Performance Measures
125
1. Labour Measures 1.1 Labour hour for the 12-month period (L1) 1.2 Pallets/labour hour for receiving function (L2) 1.3 Pallets/labour hour for handling function (L3) 1.4 Pallets/labour hour for storing function (L4) 1.5 Pallets/labour hour for order picking function (L5) 1.6 Pallets/labour hour for shipping function (L6)
2. Cost Measures 2.1 Deteriorating cost of equipment for the 12-month period (C1) 2.2 Maintenance cost of equipment for the 12-month period (C2) 2.3 Infrastructure cost for the 12-month period (C3) 2.4 Labour cost for the 12-month period (C4) 2.5 Transportation cost for the 12-month period (C5)
3. Time Measures 3.1 Downtime of receiving equipment for the 12-month period (T1) 3.2 Downtime of handling equipment for the 12-month period (T2) 3.3 Downtime of storing equipment for the 12-month period (T3) 3.4 Downtime of order picking equipment for the 12-month period (T4) 3.5 Downtime of shipping equipment for the 12-month period (T5)
Appendix A The Details of Five Performance Measures
126
4. Utilisation Measures 4.1 Degree of space utilisation (U1) 4.2 Degree of equipment utilisation (U2) 4.3 Degree of labour utilisation (U3)
5. Administration Measures 5.1 Degree of warehouse flexibility (A1) 5.2 Degree of warehouse complexity (A2) 5.3 Degree of warehouse automation (A3) 5.4 Degree of warehouse safety (A4) 5.5 Degree of error-free orders shipped (A5) 5.6 Degree of transactions processed on time (A6)
APPENDIX B
THE DETAILS OF THE QUESTIONNAIRE
Appendix B The Details of the Questionnaire
128
A model for warehouse performance measurement
My name is Premporn Khemavuk. I am a Ph.D. student at school of Mechanical and Manufacturing Engineering, The University of New South Wales (UNSW), Australia. I am carrying out questionnaire survey in the areas of warehouse system and its performance.
Background of the study The purpose of this study is to explore factors related to warehouse system in order to measure its performance. The results of this study not only provide a warehouse performance measurement model but are also useful to manufacturing firms in terms of improving their warehouse system toward high performance.
Incentives There will be no remuneration or rewards of this study. No cost will occur to participants because of participation in normal circumstances.
Confidentially and Anonymity All responses from this study will remain strictly confidential. Only aggregated responses will be reported and no attempt will be made to determine individual responses. Thus, this study assures strict confidentiality.
129
Supervision This study is supervised by Dr. Maruf Hasan (m.hasan@unsw.edu.au). Please do not hesitate to contact him if you have any question. Alternatively you may contact me at z2176587@student.unsw.edu.au
Definitions 1. Deteriorating cost of equipment This cost is about deterioration of every equipment that used in warehouse including forklift, wrapping machine, and computer. 2. Infrastructure cost This cost includes only electricity bill and water bill for warehouse. 3. Transportation cost This cost includes only transportation cost from warehouse to customers or from warehouse to distribution centers. 4. Utilisation It can be thought of as the percentage that a resource (labour, space, equipment) is used. 5. Warehouse flexibility It refers to how much warehouse can operate in any situations such as rush orders, cancelled containers. 6. Warehouse complexity It refers to how much warehouse can handle the complexity such as variety of products, storage allocation and average number of daily order lines.
130
7. Warehouse automation It refers to how much warehouse is operated automatically such as barcodes systems and RFID.
Instruction This questionnaire has three sections. Please tick or fill in the blank as appropriate. I greatly appreciate your cooperation. Thank you very much.
Section I: General profile 1. Company name Address ........................................ Phone number .. 2. Annual revenue (million Baht) 2.1 less than 100 2.2 100 less than 300 2.3 300 less than 500 2.4 500 + 3. Size of warehouse (in square meter) 3.1 less than 3,000 3.2 3,000 less than 4,000 3.3 4,000 less than 5,000 3.4 5,000 + 4. Performance of warehouse system... %
131
Section II: Warehouse management measurement areas Part I Labour measures 1.1 Labour hour for the 12-month period (Hours) 1. less than 20,000 2. 20,000 less than 40,000 3. 40,000 less than 60,000 4. 60,000 less than 80,000 1.2 Pallets/labour hour for receiving function 1. less than 10 2. 10 less than 15 3. 15 less than 20 4. 20 less than 25 1.3 Pallets/labour hour for handling fun 1. less than 10 2. 10 less than 15 3. 15 less than 20 4. 20 less than 25 1.4 Pallets/labour hour for storing function 1. less than 10 2. 10 less than 15 3. 15 less than 20 4. 20 less than 25 5. 25 less than 30 6. 30 less than 35 7. 35 + 5. 25 less than 30 6. 30 less than 35 7. 35 + 5. 25 less than 30 6. 30 less than 35 7. 35 + 5. 80,000 less than 100,000 6. 100,000 less than 120,000 7. 120,000 +
132
1.5 Pallets/labour hour for order picking function 1. less than 10 2. 10 less than 15 3. 15 less than 20 4. 20 less than 25 1.6 Pallets/labour hour for shipping function 1. less than 10 2. 10 less than 15 3. 15 less than 20 4. 20 less than 25 5. 25 less than 30 6. 30 less than 35 7. 35 + 5. 25 less than 30 6. 30 less than 35 7. 35 +
Part II Cost measures 2.1 Deteriorating cost of equipment for the 12-month period (Baht) 1. less than 1,000,000 2. 1,000,000 less than 2,000,000 3. 2,000,000 less than 3,000,000 4. 3,000,000 less than 4,000,000 2.2 Maintenance cost of equipment for the 12-month period (Baht) 1. less than 100,000 2. 100,000 less than 200,000 3. 200,000 less than 300,000 4. 300,000 less than 400,000 5. 400,000 less than 500,000 6. 500,000 less than 600,000 7. 600,000 + 5. 4,000,000 less than 5,000,000 6. 5,000,000 less than 6,000,000 7. 6,000,000 +
133
2.3 Infrastructure cost for the 12-month period (Baht) 1. less than 100,000 2. 100,000 less than 200,000 3. 200,000 less than 300,000 4. 300,000 less than 400,000 2.4 Labour cost for the 12-month period (Baht) 1. less than 1,000,000 2. 1,000,000 less than 2,000,000 3. 2,000,000 less than 3,000,000 4. 3,000,000 less than 4,000,000 2.5 Transportation cost for the 12-month period (Baht) 1. less than 1,000,000 2. 1,000,000 less than 5,000,000 3. 5,000,000 less than 10,000,000 4. 10,000,000 less than 15,000,000 5.15,000,000 less than 20,000,000 6. 20,000,000 less than 25,000,000 7. 25,000,000 + 5. 4,000,000 less than 5,000,000 6. 5,000,000 less than 6,000,000 7. 6,000,000 + 5. 400,000 less than 500,000 6. 500,000 less than 600,000 7. 600,000 +
Part III Time measures 3.1 Downtime of receiving equipment for the 12-month period (Minutes) 1. less than 100 2. 100 less than 250 3. 250 less than 400 4. 400 less than 550 5. 550 less than 700 6. 700 less than 850 7. 850 +
134
3.2 Downtime of handling equipment for the 12-month period (Minutes) 1. less than 100 2. 100 less than 250 3. 250 less than 400 4. 400 less than 550 3.3 Downtime of storing equipment for the 12-month period (Minutes) 1. less than 100 2. 100 less than 250 3. 250 less than 400 4. 400 less than 550 3.4 Downtime of order picking equipment for the 12-month period (Minutes) 1. less than 100 2. 100 less than 250 3. 250 less than 400 4. 400 less than 550 3.5 Downtime of shipping equipment for the 12-month period (Minutes) 1. less than 100 2. 100 less than 250 3. 250 less than 400 4. 400 less than 550 5. 550 less than 700 6. 700 less than 850 7. 850 + 5. 550 less than 700 6. 700 less than 850 7. 850 + 5. 550 less than 700 6. 700 less than 850 7. 850 + 5. 550 less than 700 6. 700 less than 850 7. 850 +
135
Part IV Utilisation measures Please mark a number from 1 to 5 which best reflects your opinion about each question.
Very low 1
Low 2
Neutral 3
High 4
Very high 5
1 means degree of utilisation is between 0-20% 2 means degree of utilisation is between 21-40% 3 means degree of utilisation is between 41-60% 4 means degree of utilisation is between 61-80% 5 means degree of utilisation is between 81-100%
Question 4.1 Degree of space utilisation 4.2 Degree of equipment utilisation 4.3 Degree of labour utilisation
Part V Administration measures Please mark a number from 1 to 5 which best reflects your opinion about each question.
136
Very low 1
Low 2
Neutral 3
High 4
Very high 5
1 means degree of administration is between 0-20% 2 means degree of administration is between 21-40% 3 means degree of administration is between 41-60% 4 means degree of administration is between 61-80% 5 means degree of administration is between 81-100%
Question 5.1 Degree of warehouse flexibility 5.2 Degree of warehouse complexity 5.3 Degree of warehouse automation 5.4 Degree of warehouse safety 5.5 Degree of error-free orders shipped 5.6 Degree of transactions processed on time
Section III: Recommendations
Officer use only
APPENDIX C
A DESCRIPTIVE ANALYSIS OF DATA COLLECTED
Appendix C A Descriptive Analysis of Data Collected
138
A dataset of 201 warehouses are provided with descriptive analysis. These warehouses vary in term of indicators such as labour hour, downtime of equipment, and transportation cost. Figure C-1 shows that most of warehouses are smaller than 5,000 sq. m. in area with about 18% of the warehouses are smaller than 3,000 sq. m. About 38% of the warehouses have the areas between 3,000 to less than 4,000 sq. m. while about 14% of the warehouses are larger than 5,000 sq. m.
FIGURE C-1 DISTRIBUTION OF WAREHOUSES BY SIZE
warehouse_size
80
60
Frequency
40
20
0 less than 3,000 3,000 - less than 4,000 4,000 - less than 5,000 5,000 +
warehouse_size
139
Figure C-2 shows that most of warehouses have revenues less than 100 million Baht whereas only a few warehouses have revenues between 500 and 1,000 million Baht.
FIGURE C-2 DISTRIBUTION OF WAREHOUSES BY REVENUE
revenue
120
100
80
Frequency
60
40
20
0 less than 100 100-less than 500 500-less than 1,000 1,000 +
revenue
140
Figure C-3 shows that approximately 84% of the warehouses have total labour equivalent to 49 or less full time employees (according to McGinnis et al., 2002, 1 full time employee is equivalent to 2,000 labour hour per year). However, there are about 30 warehouses in a dataset with the equivalent of 50 or more full time employees.
FIGURE C-3 DISTRIBUTION OF WAREHOUSES BY LABOUR HOUR (L1)
L1
60
Frequency
40
20
0 less than 20,000 20,000 - less 40,000 - less 60,000 - less 80,000 - less than 40,000 than 60,000 than 80,000 than 100,000 100,000 less than 120,000 120,000 +
L1
141
Figure C-4 indicates that most of warehouses do between 20 and 30 pallets per labour hour for receiving function. On the other hand, only 4 warehouses do less than 10 pallets per labour hour. Only a few warehouses also do about 40 or more pallets per labour hour.
FIGURE C-4 DISTRIBUTION OF WAREHOUSES BY PALLETS PER LABOUR HOUR FOR RECEIVING FUNCTION (L2)
L2
100
80
Frequency
60
40
20
0 less than 10 10 - less than 20 20 - less than 30 30 - less than 40 40 - less than 50 50 - less than 60 60 +
L2
142
Figure C-5 presents that approximately 85% of warehouses do between 10 and 25 pallets per labour hour for handling function. About 5% of warehouses do less than 10 pallets per labour hour. The rest of warehouses do 25 or more pallets per labour hour.
FIGURE C-5 DISTRIBUTION OF WAREHOUSES BY PALLETS PER LABOUR HOUR FOR HANDLING FUNCTION (L3)
L3
60
Frequency
40
20
L3
143
Figure C-6 shows that most of warehouses do less than 20 pallets per labour hour for storing function. However, over a dozen warehouses do more than 20 pallets per labour hour.
FIGURE C-6 DISTRIBUTION OF WAREHOUSES BY PALLETS PER LABOUR HOUR FOR STORING FUNCTION (L4)
L4
80
60
Frequency
40
20
L4
144
Figure C-7 indicates that about 80% of warehouses do less than 20 pallets per labour hour for order picking function. Another 20% of warehouses do more than 20 pallets per labour hour with only 2% of them do 35 or more pallets per labour hour.
FIGURE C-7 DISTRIBUTION OF WAREHOUSES BY PALLETS PER LABOUR HOUR FOR ORDER PICKING FUNCTION (L5)
L5
80
60
Frequency
40
20
L5
145
Figure C-8 shows that most of warehouses do between 10 and 30 pallets per labour hour for shipping function. Approximately 6% of warehouses do 30 or more pallets per labour hour. While only 2% of warehouses do less than 10 pallets per labour hour.
FIGURE C-8 DISTRIBUTION OF WAREHOUSES BY PALLETS PER LABOUR HOUR FOR SHIPPING FUNCTION (L6)
L6
60
50
Frequency
40
30
20
10
L6
146
Figure C-9 presents that about 90% of warehouses spend between 1 million and 5 million Baht on deteriorating cost of equipment. About 6% of warehouses spend 5 million Baht or more on such cost. Only about 2% of warehouses spend less than 1 million Baht.
FIGURE C-9 DISTRIBUTION OF WAREHOUSES BY DETERIORATING COST OF EQUIPMENT (C1)
C1
60
Frequency
40
20
0 less than 1 million baht 1,000,000 less than 2,000,000 baht 2,000,000 less than 3,000,000 baht 3,000,000 less than 4,000,000 baht 4,000,000 less than 5,000,000 baht 5,000,000 less than 6,000,000 baht 6,000,000 +
C1
147
Figure C-10 illustrates that approximately 80% of warehouses spend between 100,000 and 400,000 Baht on maintenance cost of equipment. About 10% of warehouses spend 400,000 Baht or more on maintenance cost of equipment and the other 10% of warehouses spend less than 100,000 Baht.
FIGURE C-10 DISTRIBUTION OF WAREHOUSES BY MAINTENANCE COST OF EQUIPMENT (C2)
C2
80
60
Frequency
40
20
0 less than 100,000 baht 100,000 200,000 300,000 400,000 500,000 less than less than less than less than less than 200,000 baht 300,000 baht 400,000 baht 500,000 baht 600,000 baht 600,000 +
C2
148
Figure C-11 indicates that about 85% of warehouses spend between 100,000 and 500,000 Baht on infrastructure cost (only electricity bills and water bills). About 11% of warehouses spend 500,000 Baht or more while the rest of them spend less than 100,000 Baht on infrastructure cost.
FIGURE C-11 DISTRIBUTION OF WAREHOUSES BY INFRASTRUCTURE COST (C3)
C3
60
50
Frequency
40
30
20
10
0 less than 100,000 baht 100,000 200,000 300,000 400,000 500,000 less than less than less than less than less than 200,000 baht 300,000 baht 400,000 baht 500,000 baht 600,000 baht 600,000 +
C3
149
Figure C-12 shows that most of warehouses about 88% spend less than 5 million Baht on labour cost. While the other 12% of them spend 5 million Baht or more on labour cost.
FIGURE C-12 DISTRIBUTION OF WAREHOUSES BY LABOUR COST (C4)
C4
40
30
Frequency
20
10
0 less than 1 million baht 1,000,000 less than 2,000,000 baht 2,000,000 less than 3,000,000 baht 3,000,000 less than 4,000,000 baht 4,000,000 less than 5,000,000 baht 5,000,000 less than 6,000,000 baht 6,000,000 +
C4
150
Figure C-13 presents that over 50% of warehouses spend less than 20 million Baht on transportation cost. About 26% of warehouses spend between 20 million and 25 million Baht while the rest of them spend more than 25 million Baht.
FIGURE C-13 DISTRIBUTION OF WAREHOUSES BY TRANSPORTATION COST (C5)
C5
60
50
Frequency
40
30
20
10
0 less than 1 million baht 1,000,000 less than 5,000,000 baht 5,000,000 less than 10,000,000 baht 10,000,000 - 15,000,000 - 20,000,000 - 25,000,000 + less than less than less than 15,000,000 20,000,000 25,000,000 baht baht baht
C5
151
Figure C-14 shows that about 60% of warehouses have downtime of receiving equipment less than 400 minutes with about 110 warehouses have downtime between 100 and 400 minutes. About 10% of warehouses have more than 700 minutes of downtime of receiving equipment. The rest of warehouses have downtime between 400 and 850 minutes.
FIGURE C-14 DISTRIBUTION OF WAREHOUSES BY DOWNTIME OF RECEIVING EQUIPMENT (T1)
T1
60
50
Frequency
40
30
20
10
0 less than 100 minutes 100 - less than 250 250 - less than 400 400 - less than 550 550 - less than 700 700 - less than 850 850 +
T1
152
Figure C-15 shows that over 95% of warehouses have downtime of handling equipment more than 100 minutes with about 17% of them have downtime more than 850 minutes. However, only about 3 warehouses have less than 100 minutes of downtime.
FIGURE C-15 DISTRIBUTION OF WAREHOUSES BY DOWNTIME OF HANDLING EQUIPMENT (T2)
T2
50
40
Frequency
30
20
10
T2
153
Figure C-16 presents that most of warehouses have downtime of storing equipment more than 100 minutes with about 26% of them have downtime between 550 and 700 minutes. While only about 3% of warehouses have downtime less than 100 minutes.
FIGURE C-16 DISTRIBUTION OF WAREHOUSES BY DOWNTIME OF STORING EQUIPMENT (T3)
T3
60
50
Frequency
40
30
20
10
T3
154
Figure C-17 indicates that most of warehouses have downtime of order picking equipment more than 100 minutes with about 30% of them have downtime between 550 and 700 minutes. Approximately 40% of warehouses have downtime between 100 and 400 minutes. However, only a few warehouses have downtime less than 100 minutes.
FIGURE C-17 DISTRIBUTION OF WAREHOUSES BY DOWNTIME OF ORDER PICKING EQUIPMENT (T4)
T4
60
50
Frequency
40
30
20
10
T4
155
Figure C-18 shows that most of warehouses have downtime of shipping equipment between 100 and 700 minutes with about 55 warehouses have downtime between 550 and 700 minutes. Approximately 10% of warehouses have downtime more than 700 minutes whereas only 1% of warehouses have downtime less than 100 minutes.
FIGURE C-18 DISTRIBUTION OF WAREHOUSES BY DOWNTIME OF SHIPPING EQUIPMENT (T5)
T5
60
50
Frequency
40
30
20
10
T5
156
Figure C-19 illustrates that approximately 45% of warehouses have degree of space utilisation more than 60% indicating that these warehouses have space utilisation in high or higher level. Only about 1% of warehouses have very low degree of space utilisation.
FIGURE C-19 DISTRIBUTION OF WAREHOUSES BY DEGREE OF SPACE UTILISATION (U1)
U1
100
80
Frequency
60
40
20
0 0 - 20% 21 - 40% 41 - 60% 61- 80% 81 - 100%
U1
157
Figure C-20 shows that approximately 90% of warehouses have degree of equipment utilisation less than 81%. This indicates that only a few warehouses have equipment utilisation in higher level. While about 80 warehouses have equipment utilisation in neutral level. However, only 4 warehouses perform less than 20% of equipment utilisation.
FIGURE C-20 DISTRIBUTION OF WAREHOUSES BY DEGREE OF EQUIPMENT UTILISATION (U2)
U2
80
60
Frequency
40
20
0 0 - 20% 21 - 40% 41 - 60% 61- 80% 81 - 100%
U2
158
Figure C-21 shows that about 20% of warehouses have labour utilisation in higher level. While only 3% of warehouses have very low degree of labour utilisation. About 36% of warehouses have high degree of labour utilisation.
FIGURE C-21 DISTRIBUTION OF WAREHOUSES BY DEGREE OF LABOUR UTILISATION (U3)
U3
80
60
Frequency
40
20
0 0 - 20% 21 - 40% 41 - 60% 61- 80% 81 - 100%
U3
159
Figure C-22 shows that 20 warehouses in a dataset have higher degree of warehouse flexibility. However, 16 warehouses in a dataset have very low degree of warehouse flexibility. About 60% of warehouses have neutral or high degree of warehouse flexibility.
FIGURE C-22 DISTRIBUTION OF WAREHOUSES BY DEGREE OF WAREHOUSE FLEXIBILITY (A1)
A1
60
Frequency
40
20
0 0 - 20% 21 - 40% 41 - 60% 61- 80% 81 - 100%
A1
160
Figure C-23 shows that about 45% of warehouses have neutral degree of warehouse complexity. However, only 1 warehouse has higher degree while 8 warehouses have very low degree of warehouse complexity. About 22% and 28% of warehouses have low degree and high degree of warehouse complexity respectively.
FIGURE C-23 DISTRIBUTION OF WAREHOUSES BY DEGREE OF WAREHOUSE COMPLEXITY (A2)
A2
100
80
Frequency
60
40
20
0 0 - 20% 21 - 40% 41 - 60% 61- 80% 81 - 100%
A2
161
Figure C-24 shows that only 10 warehouses have higher degree of warehouse automation while 16 warehouses have very low degree. Approximately 77% of warehouses have warehouse automation in neutral or lower degree.
FIGURE C-24 DISTRIBUTION OF WAREHOUSES BY DEGREE OF WAREHOUSE AUTOMATION (A3)
A3
100
80
Frequency
60
40
20
0 0 - 20% 21 - 40% 41 - 60% 61- 80% 81 - 100%
A3
162
Figure C-25 shows that about 90% of warehouses have neutral or higher degree of warehouse safety. There are 41 warehouses have higher degree while only 2 warehouses have very low degree of warehouse safety.
FIGURE C-25 DISTRIBUTION OF WAREHOUSES BY DEGREE OF WAREHOUSE SAFETY (A4)
A4
80
60
Frequency
40
20
0 0 - 20% 21 - 40% 41 - 60% 61- 80% 81 - 100%
A4
163
Figure C-26 shows that about 95 warehouses have error-free orders shipped in high degree. However, only 2 warehouses have very low degree. There are 44 warehouses have higher degree of error-free orders shipped.
FIGURE C-26 DISTRIBUTION OF WAREHOUSES BY DEGREE OF ERROR-FREE ORDERS SHIPPED (A5)
A5
100
80
Frequency
60
40
20
0 0 - 20% 21 - 40% 41 - 60% 61- 80% 81 - 100%
A5
164
Figure C-27 indicates that about 90% of warehouses have transactions processed on time in neutral or higher degree. There are 46 warehouses have higher degree while only 5 warehouses have very low degree of transactions processed on time.
FIGURE C-27 DISTRIBUTION OF WAREHOUSES BY DEGREE OF TRANSACTIONS PROCESSED ON TIME (A6)
A6
60
Frequency
40
20
0 0 - 20% 21 - 40% 41 - 60% 61- 80% 81 - 100%
A6
APPENDIX D
INTERVIEW GUIDE
Appendix D Interview Guide
166
Interview Guide
Background Company Industry.. Position..
Warehouse Management 1. What are the key issues facing your firm in regard of warehouse management? 2. Are you currently undergoing, or have you undergone any major changes in your warehouse management? Please explain. 3. Do you have a meeting with your warehouse team? If yes, how often?
Warehouse functions 4. What are the key issues facing your firm in regard of warehouse functions? 5. How is your warehouse functions organized? 6. How far in advance can you plan your warehouse functions?
Warehouse Performance Measurement 7. What are the key issues facing your firm in regard of warehouse performance? 8. What are the keys indicators that your firm use to measure the performance of warehouse? 8.1 Labour measures:..
Appendix D Interview Guide
167
8.2 Cost measures: 8.3 Time measures:.. 8.4 Utilisation measures:... 8.5 Administration measures: 9. From question 8, which keys do you consider to be significant to warehouse performance? Why? 10. What did you prepare before measuring the performance of warehouse? 11. Did you have any problems during the measurement? If yes, what are they? 12. What actions did you do to improve your warehouse performance after the measurement? 13. From question 12, please give some examples of improvements in regard of warehouse performance after such actions? 14. Do you continuously monitor the performance of your warehouse in regard of the improvements? If yes, how? 15. Do you discuss the result of the performance of warehouse with your warehouse team including worker?
APPENDIX E
DATA COLLECTED FROM COMPANY G
Appendix E Data Collected from Company G
169
TABLE E-1 DATA COLLECTED FROM COMPANY G FOR NINE MONTHS
Month 2009 Feb Mar Apr May Jun Jul Aug Sep Nov
L1
C4
C5
T3
T4
T5
U1
U2
U3
A5
4,800 4,000 4,800 5,600 4,640 4,800 5,200 4,800 4,320
97,000 81,000 100,000 120,000 93,000 95,000 110,000 98,000 90,000
50,000 30,000 45,000 55,000 42,000 47,000 52,000 46,000 40,000
5 8 8 4 6 3 2 3 10
10 12 8 10 5 9 11 4 8
15 10 12 8 6 9 10 7 11
90% 95% 92% 85% 80% 88% 82% 80% 86%
85% 88% 82% 75% 82% 80% 77% 79% 80%
80% 85% 83% 80% 82% 89% 90% 88% 85%
95% 97% 95% 98% 97% 92% 95% 96% 91%
APPENDIX F
LIST OF PUBLICATIONS
Appendix F List of Publications
171
Journal paper Khemavuk, P. and Hasan, M. (2010), Warehouse Performance Measurement: Structural Equation Modeling Technique and Analogy Based Approach, International Journal of Logistics and Transport, Vol. 3, No. 2, pp. 57-73.
Conference papers Khemavuk, P. and Hasan, M. (2009), Measuring Warehouse Performance with Regression Analysis and Factor Analysis, International Conference on Advanced Manufacturing and Automation, Tamilnadu, India.
Khemavuk, P. and Hasan, M. (2007), Measuring Performance of Supply Chain with SCOR model: E-Logistics Aspects, the 2nd International Conference on Operations and Supply Chain Management, Bangkok, Thailand.

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A MODEL FOR WAREHOUSE PERFORMANCE MEASUREMENT

THISSHEET IS TO BE GLUED TO THEINSIOE FRONT COVER OFTHETHESIS

...te /tr /t' ro

Abstract Acknowledgement Table of Contents List of Tables List of Figures

I III IV VII VIII

Quantitative Study: Build up a Model for Warehouse Performance Measurement 27 27 28 31 31 31 32 32 32 33 36 37 38 38 39 39 41 41 42 46 47

Qualitative Study: Triangulation

76 76 77 77 78 79 92 94 96 100 101 102

104 104 106 106 108 110

124 127 137 165 168 170

LIST OF FIGURES (Cont.)

LIST OF FIGURES (Cont.)

Chapter 2 Warehouse Management

Raw Materials Warehouse

Finished Goods Warehouse

(Adapted from Frazelle, 2002)

Chapter 2 Warehouse Management

Chapter 2 Warehouse Management

Chapter 2 Warehouse Management

FIGURE 2-2 WAREHOUSE LAYOUT

Front Aisle (Adapted from Petersen II, 1999)

Chapter 2 Warehouse Management

Chapter 2 Warehouse Management

FIGURE 2-3 ACTIVITIES IN WAREHOUSE OPERATIONS

(Adapted from Gunasekaran et al., 1999)

Chapter 2 Warehouse Management

Chapter 2 Warehouse Management

Chapter 2 Warehouse Management

Chapter 2 Warehouse Management

Chapter 2 Warehouse Management

FIGURE 2-4 MAJOR WAREHOUSE PERFORMANCE MEASUREMENT AREAS

Chapter 2 Warehouse Management

(Adapted from McGinnis et al., 2002)

Chapter 2 Warehouse Management

Chapter 2 Warehouse Management

Chapter 3 Quantitative Study: Build up a Model for Warehouse Performance Measurement

FIGURE 3-1 A CONCEPTUAL MODEL FOR MEASURING WAREHOUSE PERFORMANCE

L1, L2, L3, L4, L5, L6

C1, C2, C3, C4, C5

T1, T2, T3, T4, T5

A1, A2, A3, A4, A5, A6

Chapter 3 Quantitative Study: Build up a Model for Warehouse Performance Measurement

Chapter 3 Quantitative Study: Build up a Model for Warehouse Performance Measurement

FIGURE 3-2 THE THEORY TESTING SURVEY RESEARCH PROCESS

1. Link to the theoretical level - Define hypothesis - Define unit of analysis

6. Test the models Testing the accuracy of 2 models

7. Extend the proposed model with Analogybased Approach

9. The findings - Draw the findings from a proposed model

Source: Adapted from Forza (2002).

Chapter 3 Quantitative Study: Build up a Model for Warehouse Performance Measurement

Chapter 3 Quantitative Study: Build up a Model for Warehouse Performance Measurement

Chapter 3 Quantitative Study: Build up a Model for Warehouse Performance Measurement

Chapter 3 Quantitative Study: Build up a Model for Warehouse Performance Measurement

Chapter 3 Quantitative Study: Build up a Model for Warehouse Performance Measurement

Chapter 3 Quantitative Study: Build up a Model for Warehouse Performance Measurement

Chapter 3 Quantitative Study: Build up a Model for Warehouse Performance Measurement

Chapter 3 Quantitative Study: Build up a Model for Warehouse Performance Measurement

TABLE 3-1 INDUSTRY MAKEUP OF RESPONDENTS

Industry Hard Disk Drive Animal Feed Foam Packaging Total

% of Total 33.64 30.91 35.45 100.00

Chapter 3 Quantitative Study: Build up a Model for Warehouse Performance Measurement

Chapter 3 Quantitative Study: Build up a Model for Warehouse Performance Measurement

TABLE 3-2 THE SKEWNESS VALUES OF ALL VARIABLES

TABLE 3-3 THE CRONBACHS ALPHA