Forward-reserve storage strategies with order picking: When do they pay off?

Customer order response time and system throughput capacity are key performance measures in warehouses. They depend strongly on the storage strategies deployed. One popular strategy is to split inventory into a bulk storage and a pick stock, or Forward-Reserve (FR) storage. Managers often use a rule of thumb: when the ratio m of average picks per replenishment is larger than a certain factor, it is beneficial to split inventory. However, research that systematically quantifies the benefits is lacking. We quantify the benefits analytically by developing response travel time models for FR storage in an Automated Storage/Retrieval system combined with order picking. We compare performance of FR storage with turnover class-based storage, and find when it pays off. Our findings illustrate that, in FR storage systems where forward and reserve stocks are stored in the same rack, FR storage usually pays off, as long as m is sufficiently larger than 1. The response time savings can go up to 50% when m is larger than 10. We validate these results using real data from a wholesale distributor.