A Simulation Model of a Retail Distribution Centre with RFID Technology

This paper presents a simulation model that has been developed to analyse how the application of Radio Frequency Identification technology (RFID) affects material handling activities in a retail distribution centre. The simulation model handles both stochastic and dynamic behaviours, and describes how the receiving, picking and shipping activities will behave and perform over time when RFID tags are applied to all individual products and units throughout the retail supply chain. The simulation model indicates that there is a great potential for increasing the efficiency of a distribution centre using RFID. INTRODUCTION Radio Frequency Identification (RFID) technology has shown potential as a means of increasing efficiency and effectiveness in supply chains (Kärkkäinen & Holmström 2002). Several companies have been able to improve their business processes e.g., improving efficiency in distribution centres, by using RFID technology (Falkmann 2000) (Frontline Solutions 2000). RFID technology uses radio-frequency waves to transfer data between a reader and a tag (transponders) that is attached to the movable item to be identified. This means that no physical line-of-sight or contact between the reader and the tagged item is required. There are several functionalities and types of tags. Tags can be read-only or readand-write, which enables adding information to the tag. The information on the tags can range from static identification numbers to user-written data. Furthermore, memory capacity and the data transfer range also depend on the tag used. The readers can be at fixed points or mobile and be able to read and write information on many tags simultaneously, called “anticollision”. Unfortunately, the use of this technology has thus far been limited to tracking high value products or products in closed loop settings where the tags are continually reused. Studies of applying Auto-ID technology, such as RFID, in distribution centres on unit and product level have suggested that there is a great opportunity to improve both efficiency and costumer service (Alexander et al. 2002). Once it has overcome various technical and economic obstacles, RFID will have the potential to one day be attached to ordinary consumer products and packages. Currently open standards and the price per tag restrain retail supply chains from applying them to consumer products, but the performance capabilities of RFID technology are being pushed forward, and price reductions are being worked on. By 2010, industry sources expect the prise per tag is to have fallen to less than 0.01 EURO (Harrop 2002). This means that RFID tags could be a substitute to the traditional barcodes. The purpose of this paper is to present a simulation model that has been developed to analyse how the application of RFID technology can affect material handling activities and the order process in a retail distribution centre. The simulation model describes how the receiving, picking and shipping activities at the distribution centre could behave and perform over time when RFID tags are applied to all individual products and units throughout the retail supply chain. In addition, the simulation model describes out of stock situations at a retail outlet when an RFID system can capture the behaviour of each individual product. The next section is a brief empirical description of the distribution centre and the retail outlet. Then, simulation scenarios are described and the simulation results presented. Finally there will be a short discussion. DISTRIBUTION CENTRE The modelled distribution centre handles about 2 700 types of ambient fast-moving consumer goods and processes around 350 000 traded units per week, which are distributed to over 150 retail outlets. The distribution centre is made up of four sections, à 4000 square meters, were each section contains different product groups and is divided into zones. The material handling activities within sections are highly independent of one another. Orders received from retail outlets are divided into pick orders designed for every section or zone to enable efficient order picking. Furthermore, each section has its own allocated resources. This enabled us to concentrate on developing a model that describes one of the four sections in the distribution centre. The modelled section contains about 690 types of products, such as nuts, candy, chips, cans, tins, pet food, soup etc. The section consists of two zones that cover 4 aisles each. Though each zone runs a picking route where the pick locations are fixed and situated on the lowest rack level, whereas the other levels, 2-5, are used as buffer storage. In every section there are two reach trucks, and over 50 pick trucks are used all over the distribution centre. In every section there are two dedicated docking bays assigned for receiving goods, and six for deliveries to retail outlets. The three main activities in the retail distribution centre related to the material flow are receiving, picking and shipping. Receiving Activities The receiving activities are unloading, verification, labelling and transportation to buffer storage. The distribution centre automatically generates orders or indicates that an order should be generated when the stock level falls below a predefined point. Orders are in pallet quantity and are delivered according to a product-specific schedule. When the delivery truck carrying the ordered pallets arrives at the distribution centre it is directed towards a specific docking bay and is unloaded by the truck driver. The received pallets are verified for product type, quantity and due-by date by an incoming goods controller. The controller and the truck driver then sign the proof of delivery documents when all delivered pallets are verified and unloaded. One incoming goods controller is assigned to every section of the distribution centre. The pallets are then labelled and transported and put into the buffer storage by a reach truck using a manual method intended to place the pallet as close as possible to the pick