The Impact of Warehouse Automation on Lead Times and Cover Time Planning

Volvo GTO is a leading global truck manufacturer, producing vehicles for both domestic andinternational markets. The company’s powertrain division, responsible for engine production, islocated in Skovde, Sweden. In response to increasingly strict EU emissions regulations, Volvo is being driven toward innovation and the development of new engine models. However, theintroduction of new engines leads to a growing number of parts, which in turn places new demands on production and internal logistics within the powertrain facility. To address these newlogistical demands, Volvo is exploring the use of an automated Small Box Warehouse (SBW).This study contributes to that effort by examining the potential effects such a system could haveon internal material flows in engine assembly.The analysis explores how the implementation of the SBW can affects internal material flows,lead times, cover-time planning, and potential uncertainties from the warehouse to the kit-stations that supply the engine assembly. This was done through interviews with key stakeholders,observations, process mapping, and calculations resulting in the identification of two distinctstates: the current state and the future state. Based on discrete-event simulations conducted by Volvo using historical consumption data, the study compares the current manual warehousingsystem with a proposed automated future state. The results show that implementing the SBW canimprove lead time predictability by reducing variability in the process. This improvement comesmainly from moving reorder point responsibility closer to actual demand as well as the reductionof manual picking which allows for better control over when parts are reordered, leaning towardsa more Just-In-Time oriented flow. Furthermore, the implementation of the SBW can also lead toan increase in both average and minimum inventory levels for high-, medium-, and low-volumepart numbers. This is primarily driven by the greater predictability of future lead times. With anaverage reduction of lead time, low- and medium-volume part numbers with less frequent usage,provide a even higher inventory levels, in contrast, high-volume part numbers experienced themost significant impact, as their frequent usage makes them more sensitive to lead time changes.The increase in inventory levels further contributes to a positive effect on high-volume parts byimproving availability and reducing the risk of shortages. Despite improved predictability, thecurrent transition plan still involves risks, including operational uncertainties related to systemdowntime and changes to established workflows. These factors could result in material shortages during periods of peak demand. Despite this, the proposed future state indicates more stability andcontrol over material flows, offering a viable path forward for improved efficiency andresponsiveness in assembly logistics