You work in a warehouse with a forward pick area. Currently, product in the forward pick area is stored in flow racks, from which order pickers pick product and place it into a box on a conveyor containing the current order. The total number of annual picks in your warehouse is 144,000. With the current storage mode (flow racks), an error occurs on about one out of every 100 picks (so the error rate is .01), and each picking error costs $8. Management is considering updating the forward pick area by installing an automated storage mode, and you have been asked to evaluate whether this is a good idea, and if so which storage mode should be chosen. The agreed-upon acceptable payback period for your company is anything less than 2 years. When doing your calculations, take into account the impact on both picking cost and error cost.

Consult automation problem data.xlsx for the initial investment, error rates, and savings per pick for the storage modes that management is considering. The error rates have been converted to decimals for you.

(2 points) Which of the storage modes have a payback period of less than 2 years, and what are the payback periods for these storage modes?

. (2 points) Which storage mode should your company select and why?

(1 point) How high would the savings per pick for the Miniload AS/RS storage mode have to be in order to reduce its payback period to 2 years? (And yes, this does give you a hint about one of the previous questions!)

Error Rate Mode Vertical Carousels Horizontal Carousels Miniload ASRS A-Frame Savings per Pick 0.6 0.4 0.9 1.8 Upfront Cost 0.005 200,000 0.003 110,000 0.005 320,000 0.003 500,000 Error Rate Mode Vertical Carousels Horizontal Carousels Miniload ASRS A-Frame Savings per Pick 0.6 0.4 0.9 1.8 Upfront Cost 0.005 200,000 0.003 110,000 0.005 320,000 0.003 500,000