The Lean Advantage: Transforming E-Commerce Warehouse Operations for Competitive Success

Abstract

This study investigates the transformation of e-commerce warehouse operations by integrating Lean Six Sigma tools to enhance efficiency and sustainability. Beginning with Value Stream Mapping (VSM) to identify inefficiencies, followed by a Hoshin Kanri plan to align improvement initiatives with strategic objectives, the study implemented measures such as pallet pooling, process standardization, automation in inspection and picking, layout optimization, and Kanban systems for continuous improvement. A case study of a local e-commerce warehouse specializing in medical devices and healthcare products identified 29 activities across receiving, inspection, storing, picking, packing, and shipping, highlighting inefficiencies addressed through Lean-driven initiatives. These efforts resulted in a 23% reduction in total lead time, doubled value-added time, and significant improvements in inspection, picking, packing, and automation, reducing delays, lowering costs, and enhancing workflow. The study fills a gap in the literature by integrating multiple Lean tools and utilizing the Critical to Quality (CTQ) matrix to ensure sustainable improvements in e-commerce warehousing, emphasizing the strategic value of Lean Six Sigma in creating efficient, customer-focused operations.

1. Introduction

1.1. E-Commerce Warehousing

E-commerce warehouses have been a mainstay in supply chains, serving as significantly time-critical picking orders and sizable buildings where many raw materials or manufactured goods stay until distribution. The growing sales volumes in e-commerce have led to a new generation of warehouses designed to meet the unique needs of online retailers, agencies, and the evolving demands of business-to-consumer (B2C) customers [1]. Critical factors in e-commerce warehouse operations include handling small orders from private consumers, offering a wide assortment of products to reach a broad audience, and adhering to tight delivery schedules, such as next-day or same-day shipping, which are critical to business success. E-commerce warehouses have transformed into technology-driven fulfillment centers with strategic importance, driven by the rise of e-commerce, same-day deliveries, omnichannel retailing, and global supply chain disruptions [2]. These warehouses can be beneficial, but if maintained properly, they can lead to defects and disruptions in the workflow, causing poor quality and customer satisfaction. The recurring problems and temporary solutions are usually only sustainable for short periods. Long-term solutions for sustaining operations in e-commerce warehouses hinge on implementing accurate inventory management, optimizing order-picking processes, and enhancing efficiency in picking and packing orders based on online customer purchases. Effective management of inventory levels, precise tracking of stock locations, and streamlined workflows are critical to improving overall warehouse efficiency and meeting the demands of modern e-commerce operations.

A typical e-commerce warehouse operation encompasses a range of activities, including unloading and inspecting goods, efficient storage, and handling, order management, picking and packing items, preparing orders, customizing packaging, labeling, and adhering to tight delivery timelines, such as next-day or same-day shipping. Each process step transforms inputs, adds value, and delivers outputs to internal or external customers. In response to evolving demands, many e-commerce warehouses have expanded their capacities over the years to handle fluctuations driven by product-specific trends and seasonal sales. Warehouse solutions have become essential, providing enhanced functionality and the flexibility to adapt swiftly to changes in supply and demand. In conventional warehouses, SKUs are generally stored on person-high shelves accessed by human pickers using manual carts with multiple bins, each designated for a specific customer order. In contrast, e-commerce warehouses utilize grid-shaped frames where bins containing SKUs are stacked and managed by autonomous robots traveling along the grid. These warehouses cope with the “long-tail” phenomenon, where much of the inventory consists of slow-moving or low-demand products, significantly exceeding the variety typically found in store-based retail [3]. Figure 1 illustrates this transformation of warehouse processes.

A critical aspect of e-commerce warehouses is their responsibility to process customer orders as quickly and efficiently as possible. E-commerce warehouses are essential in ensuring the timely delivery of emergency goods like medical devices and instruments. Various defects and waste in a process can disrupt the flow and cause numerous delays, leading to order cancellations, poor customer satisfaction, and supply chain disruptions that can significantly impact the company’s growth. Customers can be dissatisfied when the quality or shipping time of a product ordered does not meet their expectations, often due to inefficiencies caused by waste in the process. Applying Lean principles to warehouse processes reduces these issues and optimizes efficiency, increasing customer satisfaction.

1.2. Lean Six Sigma

The rapid growth of online retail has introduced unique challenges for e-commerce warehousing, driven by the “long-tail” phenomenon, which involves managing a broad assortment of niche products often stored in remote distribution centers to reduce inventory costs and labor expenses. Simultaneously, B2C customers increasingly demand next-day or same-day deliveries for small-sized orders, exemplified by the average Amazon Germany order containing just 1.6 items [4]. Lean Six Sigma in e-commerce warehousing focuses on developing a structured framework to enhance process efficiency while addressing the unique challenges of this dynamic sector. By implementing the DMAIC (Define, Measure, Analyze, Improve, Control) approach [5], warehouses can systematically optimize operations to handle the complexities of increased SKU diversity, rapid fulfillment demands, and tight delivery timelines. Hoshin Kanri is a strategic planning methodology designed to effectively deploy organizational goals and initiatives, driving significant improvements in overall performance. This approach enables organizations to align employee activities and workflows with long-term strategic objectives, ensuring a unified focus and fostering continuous improvement across all levels of the organization [6]. Long-term solutions and establishing a Critical to Quality (CTQ) matrix are essential to sustaining operational efficiency, ensuring accurate inventory management, and improving order-picking processes. Effective operational management is critical for warehouses to serve as strategic assets in the competitive e-commerce landscape. Organizations increasingly realize that selecting the right mix of functions, streamlining workflows, and eliminating waste can reduce costs, enhance flexibility, and provide a competitive edge. When applied to e-commerce warehouses, Lean principles prevent waste recurrence, reduce non-value-adding activities, minimize lead times, and foster a culture of continuous improvement. By leveraging Lean tools and techniques, e-commerce warehouses can address operational disruptions, adapt to fluctuating demands, and achieve sustainable efficiency and scalability.

1.3. Research Objective

E-commerce warehouses adapt to faster demands and face rising operational costs driven by increased SKU diversity, order customization, and rapid fulfillment requirements. The expanding SKU inventory amplifies the need for efficient storage solutions, accurate inventory management, and streamlined order-picking processes tailored to e-commerce’s fast-paced environment. E-commerce warehouses must balance scaling operations to meet growing demand and control costs. However, much of the existing research on Lean warehousing focuses on isolated tools, often overlooking the necessity for a comprehensive, organization-wide approach that prioritizes sustainability. This study addresses these gaps by integrating Value Stream Mapping (VSM) for current-state analysis with Hoshin Planning to align routine operations and improvement initiatives with strategic objectives. Using a Critical to Quality (CTQ) matrix systematically identifies and mitigates inefficiencies, reducing delays and improving overall performance.

This research emphasizes the effectiveness of Lean management techniques in addressing e-commerce warehouse inefficiencies by prioritizing sustainable strategies to minimize shipping delays and returns. Delivering substantial improvements at a relatively low investment cost demonstrates how Lean methodologies can drive operational excellence, improve customer satisfaction, and ensure long-term success in the e-commerce warehousing landscape.

2. Related Works

Most logistics and warehousing organizations are adopting Lean principles to streamline operations, minimize waste, and enhance efficiency by prioritizing value-added activities. In the context of e-commerce, warehouses leverage Lean approaches not only to optimize workflows but also to achieve significant cost savings and improve overall operational performance, ensuring they meet the dynamic demands of the industry. E-commerce warehouses have faced numerous challenges, including the increasing integration and shortening of supply chains, the complexities of global operations, rising customer expectations, and the rapid pace of technological advancements [7]. A review reported by the American Society of Mechanical Engineers illustrated various fields that have identified Lean principles as being applied to their processes by improving efficiency and reducing costs. When implemented successfully, Lean can significantly improve efficiency, cycle time, and productivity. A formal study explored various Pallet Management Strategies (PMSs) in warehouses, focusing on three common approaches: extensive management of pallets (EMPs), transfer of pallet ownership (TPO), and pallet rental (PR) [8]. The study compares these strategies from a supply chain cost perspective by conducting simulations using Anylogic software. The findings suggest that PR consistently offers lower costs, especially for shorter operation periods, while TPO becomes more cost-effective over more extended periods. The research emphasizes the importance of selecting the proper PMS to optimize cost efficiency across supply chains. Another study examines how Lean warehousing practices can improve distribution and overall business performance by reducing waste in warehouse activities. This model assesses the relationship between warehouse waste reduction, operational performance, distribution efficiency, and business success [9]. A study showing the role of Lean practices in improving warehousing efficiency focused on integrating Lean tools to minimize waste and enhance operational performance [10]. This study provides insights into how Lean principles applied to distribution operations can optimize logistics performance and minimize non-value-adding activities [11]. In another study, the authors investigated the impact of Lean warehousing on retail distribution, demonstrating how waste reduction in warehouse operations contributes to better retail logistics performance [12]. The relationship between warehouse waste and overall supply chain efficiency in a study highlighted the strategic role of Lean warehousing in distribution networks [13].

Other studies have illustrated that Lean principles are essential for organizational transformation, with organization-wide Lean thinking impacting processes, reducing lead time by 75%, and increasing productivity by 200% [14]. Lean tools are utilized in various industries to reduce waste in organizations and improve quality control. A published review focusing on using Lean tools and techniques in the supply chain illustrated how this reduces waste and cost, improves quality, and delivers goods to customers faster [15]. A recent study proposed an improvement framework to improve the efficiency of the process cycle across the warehouse processes [16]. The authors analyzed the current state of a warehouse process by identifying waste and non-value-added activities using VSM. Future VSM represents the improvements made after implementing Lean tools, reflecting on significantly improving non-value-added time. Lean is a force that has proven to be an effective model for various industries, including warehousing. To successfully implement Lean methodology, it is essential to understand the base of Lean principles and how they can be appropriately applied to transform organizations effectively. This implementation helps a warehouse uncover potential process improvements toward minimizing shipping delays [16].

Utilizing technology to automate repetitive tasks helps to reduce errors and allows work staff to focus more on complex tasks. A recent study focused on how Amazon transformed its operations with Lean principles to minimize customer shipping delays [13] by implementing autonomation, or Jidoka. This Lean principle helped detect defects before production could continue, preventing quality failures by letting workers take action when problems emerge and increasing customer value. The review also highlights the implementation of VSM and Kaizen to uncover waste in their processes to improve operational rate and efficiency, delivering millions of packages daily to customers faster.

With the high inventory cost, warehousing has the most to gain from Lean initiatives. As Lean principles and tools help eliminate waste and improve the overall efficiency of warehouse operation, a research paper applying a multi-method approach using VSM and Genba Shikumi identified and reduced waste in distribution warehouses. The study achieved a 41.4% reduction in lead time and an 81.5% improvement in value-added time [17]. Another study examines how Lean manufacturing practices affect operational and business performance in small- and medium-sized enterprises in the wooden furniture industry, showing that Lean practices significantly improve operational efficiency and overall business performance [18,19].

Hoshin Kanri is a strategic planning method that translates top-level corporate goals into actionable plans across all organizational levels. By breaking down long-term objectives into annual and quarterly plans, Hoshin Kanri fosters focus, engagement, and continuous improvement [20]. The study found that Hoshin Kanri is essentially a policy-led framework for organizational management. This methodology has been widely adopted by organizations to achieve significant performance gains, quality management and ensure that everyone is working towards a common goal [21].

A recent study showing the relationship between Lean Production, Cloud-Supported Logistics, and Supply Chain Integration highlighted how cloud technologies support Lean practices by improving supply chain collaboration and business performance. The findings show that Cloud-Supported Logistics enhances the efficiency of Lean operations and supply chain integration [22]. Research has been published on the effect of Industry 4.0 technologies, including IoT, Big Data Analytics, and Cloud Computing, on Lean and agile supply chain strategies. This research reveals that these technologies significantly enhance Lean supply chains but have limited direct effects on agility, although they contribute to improved operational performance when combined [23]. Other research explored the transformative role of the Internet of Things (IoT) in warehouse management, focusing on how IoT technologies like RFID, sensors, and GPS improve inventory tracking, demand forecasting, and operational efficiency. The study concludes that IoT adoption enhances financial performance, labor productivity, and customer satisfaction [24].

Many of these studies illustrate how, in this highly competitive economy, various organizations rely on improving processes efficiently and eliminating waste to decrease costs and be ahead of their competitors. Many companies strive to optimize their supply chain operations by investing in advanced technologies like warehouse management systems (WMSs), robotics, automation, and other Industry 4.0 technologies to achieve higher productivity and competitiveness. These technologies are revolutionizing warehouse operations by improving efficiency, accuracy, and speed. While these applications result in improved warehouse processes and reduced labor costs, this requires significant investment, often beyond the capability of companies. The review of the literature study also highlights the limited application of Lean management tools and techniques, including the integration of VSM with Hoshin Planning and the Critical to Quality (CTQ) matrix.

The primary contribution of this study is the development of an integrated lean framework that combines Lean Six Sigma principles, organization-wide (Hoshin) Planning, and sustainability to address the evolving challenges of e-commerce warehousing. As the number of SKUs (Stock Keeping Units) increases in e-commerce operations, so do the demands for storage space, order-picking efficiency, and precise inventory management. E-commerce warehouses face the dual challenge of scaling operations to meet growing customer demand while keeping costs under control.

While much of the existing research on Lean warehousing focuses on implementing isolated Lean tools, it often overlooks the critical importance of comprehensive, organization-wide planning and the need for sustainable practices. This study bridges these gaps by proposing a holistic approach that integrates Value Stream Mapping (VSM) for detailed current-state analysis with Hoshin Planning to align daily operations, improvement efforts, and long-term strategic goals. Additionally, the study employs a Critical to Quality (CTQ) matrix to systematically identify inefficiencies, mitigate delays, and enhance overall warehouse performance.

The remainder of this paper is structured as follows: Section 2 examines the current state of warehouse activities, providing VSM of the initial warehouse processes. Section 3 develops the framework for the Analyze, Improve, and Control phases, focusing on streamlined warehouse activities, Hoshin Planning, and process capability indices. Section 4 presents the results summary and discusses the effectiveness of the Lean improvement initiatives. Finally, Section 5 offers concluding insights and highlights key takeaways from the Lean implementation.

3. Current State of Warehouse Activities

3.1. Case-Study Background

This study focuses on an e-commerce warehouse in the Northeastern United States that distributes medical devices and healthcare products. Employing nearly 500 workers, the warehouse faces rising operational costs driven by frequent expedited shipping, inefficient inventory management, and revenue losses due to delayed shipments. The warehouse’s supply chain operations include regular inbound and outbound order processing, with core activities encompassing receiving, inspecting, storing, picking, packing, and shipping a wide range of medical and healthcare products to various healthcare providers and agencies. However, challenges such as inaccurate inspections, inefficient handling practices, and organizational bottlenecks have resulted in prolonged lead times and increased customer complaints, significantly impacting operational efficiency and customer satisfaction.

3.2. Define Phase

This phase establishes the project’s objectives and scope, identifying key warehouse processes, from tracking stock locations to fulfilling orders and shipping them to customers. The scope is specifically confined to analyzing value-added activities and addressing non-value-added activities (waste) within these processes. The illustrated e-commerce company primarily manages the reception and distribution of various healthcare products. The process involves receiving inventory from suppliers, inspecting items for damaged or defective items, and appropriately sorting and storing the products to ensure efficient handling and distribution. Delivery includes picking based on online purchases, packing items into correctly sized boxes, and loading the boxes for distribution and shipping to customers. The company has reported increased costs of expedited shipping and inventory management and lost revenue due to delayed shipments. These delays stem mainly from defect detection, human errors, and waste in the processes, all disrupting the workflow and preventing goods from being promptly delivered to customers. This study began with conducting Value Stream Mapping (VSM) to analyze the current state of the warehouse processes and highlight the flow of information, process lead time, value-added and non-value-added time, and materials. The mapping of the current state of operations presents a guide to choosing the right Lean tools for further improvements.

After undertaking the VSM, a strategic planning technique known as Hoshin Planning provides a comprehensive visualization of the entire process. Hoshin Planning is a powerful tool that bridges the gap between strategy and execution, ensuring a company’s strategic objectives. The core objective of Hoshin Planning is aligning employees throughout the company with crucial project goals. This detailed understanding of the flow of information and products is critical for the service to reach the customer efficiently. The VSM of the current system state in Figure 2 has revealed several bottlenecks that hinder efficiency. The lack of electronic communication between the operations team has led to more manual activities.

The current system only practices visual inspection without a consistent procedure, causing human error in quality detection. Items are not always stored in the allotted bays, causing laborious picking of the orders, which includes considerable time searching for the items. By applying Lean principles in each warehouse process, the aim is to reduce these bottlenecks, leading to significant operational improvements. The process cycle time efficiency (PCE) equation is shown below:

PCE = (Value Added Time)/Cycle Time.

(1)

During the observation period, the current state revealed a total value-added time (VAT) for receiving and shipping of 920 min and a cycle time (C/T) of 1360 min, resulting in a process cycle efficiency (PCE) of 67.65%, significantly below the organizational target of 75%. The sequence of activities, each with a critical role in delivering products to customers, highlights the direct impact of each process on overall performance. The current state analysis provides insights into the cycle time required to complete each process and identifies individual activities ‘the start and end times. The major issues associated with each activity, as illustrated in Figure 2, are as follows:

Receiving: Manually entering details into the system and assigning storage locations, lacking consistency and efficient labeling.

Inspection: The manual order-checking process, lacking standardized procedures, has become a time-consuming bottleneck, leading to inconsistencies and errors. Implementing and adhering to standardized procedures are crucial to mitigate these issues and improve efficiency.

Storing: The current warehouse layout, which contributes to errors and delays, underscores the necessity of a well-organized layout. Ensuring items are prepared promptly for the next process is vital to preventing these issues and improving overall warehouse operations.

Picking: Lack of a clear pick path has led to workers spending significant time retrieving items to fulfill a customer order.

Packing: The correct box size and avoiding overpackaging are crucial to avoid wasted resources and product damage.

Shipping: Manually loading items in the truck and inspecting for defects or improper labeling can take significant time and cause fatigue. Items loaded into a cargo container are not well organized, making it difficult to locate a customer order.

3.3. Measure Phase

The measurement phase focuses on evaluating the current state of warehouse functions to identify inefficiencies and areas for improvement. For example, the current state involves four activities in receiving and five in shipping. In the improved state, we anticipate fewer activities in both receiving and shipping, which collectively contribute to the overall efficiency and effectiveness of the warehouse operations. Minimizing manual and excessing activities from each process through Lean techniques significantly improves productivity. Currently, the warehouse operates with 29 activities distributed across core processes: receiving (4), inspection (5), storing (7), picking (4), packing (4), and shipping (5). The objective is to streamline these processes by reducing unnecessary steps. The detailed steps of these activities are as follows:

• Receiving (Four Activities)

• Unloading: Removing goods from delivery trucks.
• Checking Documentation: Verifying shipment details against purchase orders.
• Initial Inspection: Performing a quick visual inspection for obvious damage.
• Barcode Scanning: Scanning items into the warehouse management system.

• Inspection (Five Activities)

• Detailed Quality Check: Inspecting items for defects or damage.
• Measuring Dimensions: Ensuring items meet specified dimensions and weight.
• Documentation of Issues: Recording any discrepancies or damages.
• Managing Pellets: Re-pelleting items, if necessary, after inspection.
• Sorting: Organizing items based on their storage locations.

• Storing (Seven Activities)

• Assigning Storage Locations: Determining the storage location for each item.
• Transporting to Storage: Moving items to their designated storage locations.
• Placing Items on Shelves: Physically placing items in the appropriate spots.
• Updating Inventory Records: Entering storage details into the inventory system.
• Labeling Shelves: Ensuring shelves are clearly labeled for easy identification.
• Implementing FEFO and FIFO: Arranging items based on First Expired, First Out and First In, First Out principles.
• Periodic Audits: Regular checks to ensure inventory accuracy.

• Picking (Four Activities)

• Retrieving Orders: Accessing orders from the warehouse management system.
• Locating Items: Finding the items in their storage locations.
• Picking Items: Physically retrieving the items from the shelves.
• Confirming Picks: Scanning items to confirm they match the order details.

• Packing (Four Activities)

• Packaging Materials: Choosing the appropriate boxes and packing materials.
• Packing Items: Carefully packing items to prevent damage during transit.
• Labeling Packages: Printing and attaching shipping labels.
• Final Inspection: Final check to ensure the package is correct and secure.

• Shipping (5 Activities)

• Sorting Packages: Organizing packages based on delivery routes.
• Loading onto Delivery Vehicles: Placing packages into the delivery trucks.
• Shipping Records: Shipping records in the warehouse information system.
• Shipping Documents: Print invoices, bills of lading, and necessary documents.
• Tracking Shipments: Entering tracking information to monitor shipment status.

In the illustrated warehouse system, human errors and disruption in any activity can stop operations until the defects are fixed and solved. Workers must wait, which causes delays in shipments, customer complaints, and order cancellations.

Table 1. Initial state of warehouse process cycle times.

	Receiving	Inspection	Storing	Picking	Packing	Shipping
Cycle Time	60 min	110 min	180 min	300 min	150 min	120 min
Start	9.00 a.m.	10.30 a.m.	1.30 p.m.	9.00 a.m.	1.30 p.m.	9.30 a.m.
End	10.30 a.m.	12.20 p.m.	5.00 p.m.	12.30 p.m.	5.00 p.m.	11.30 a.m.

illustrates the current state of operations, in terms of cycle times and start and end times.

The performance and productivity of the warehouses have suffered because many tasks are still carried out manually, even though they could be completed more efficiently and effectively with automation and machinery.

Table 2. Initial state of warehouse processes.

Process	Value-Added Time 1	Non-Value-Added Time 1	Total Lead Time 1	% of Value-Added Time
Receiving	60	90	150	6.52%
Inspection	110	70	180	11.96%
Storing	180	40	220	19.57%
Picking	300	140	440	32.61%
Packing	150	60	210	16.30%
Shipping	120	40	160	13.04%
Total	920	440	1360	100%

¹ Time in minutes.

shows warehouse processes before the Lean implementation.

4. Analyze, Improve and Control Activities

4.1. Analysis Phase

In the improved state, key activities remain focused on core processes, starting with unloading supplies from the truck and updating the warehouse management system (WMS) to confirm the receipt of correct items. Items are inspected to ensure they are damage-free and match the order details. Workers use pallet jacks to store items in designated locations, which are labeled and assessed before being sent to the next station for picking and packing. The WMS displays the item details on monitors, allowing workers to select and scan items to verify order accuracy. Items are then packed into appropriately sized boxes, suggested by the monitor system, before being loaded onto delivery trucks for distribution. Key Lean improvements include the application of Pallet Management Strategies (PMSs), the 5S Methodology to organize receiving areas, standardization of inspection procedures to enable timely and efficient checks, Kanban systems for picking, and automation in packing and loading processes to minimize manual labor and enhance efficiency. These improvements ensure streamlined workflows and reduced process waste.

Employing the Hoshin Kanri (Hoshin Planning) approach, Lean objectives are strategically aligned with these activities to ensure focused implementation and continuous improvement. Hoshin Planning serves as a policy deployment method, ensuring that strategic goals translate into actionable progress at all operational levels. This approach provides a clear roadmap for ongoing improvement and sustainability in warehouse operations, aligning Lean applications across key segments for measurable results.

A. Strategic Objective: The strategic objective is to define long-term goals aligned with the warehouse’s mission. This improved warehouse process aims to reduce the 29 activities identified in the initial state of warehouse operations to 18, representing a reduction of nearly 38%. Hoshin Planning helps prioritize these activities, aligns them with strategic objectives, and recognizes resource limitations to drive meaningful progress. The primary aim of this Lean initiative is to reduce the number of activities across critical processes, aiming for the following: Receiving from four to three activities; Inspection from five to four activities; Storing from seven to four activities; Picking from four to three activities; Packing from four to two activities; and no change in Shipping.

Receiving: Improve through PMS and layout planning.

Inspection: Standardize processes to ensure consistency.

Storing: Enhance through label information and inventory management.

Picking: Utilize a semi-automated zone-batch picking method.

Packing: Adopt color-coded Kanban for workflow efficiency.

Shipping: Monitor process capability index measures.

B. Breakdown objectives: The breakdown objectives include specific and measurable targets for each operational area. In this breakdown objectives, we include the following Lean implementations:

PMS and Layout Design (Receiving): Efficient pallet management and an organized warehouse layout ensure smooth handling of goods at every stage, from unloading to storage.

Standardized Process (Inspection): Aligning inspection activities with ISO 9001 standards ensures consistent quality checks, minimizing variability and reducing non-conforming orders.

Label Information (Storing): The company introduced FEFO-based label information to pre-arrange SKU inventory management, ensuring efficient product storage and minimizing receiving bottlenecks.

Zone-Batch Picking (Picking): Automated systems guide the pickers by bringing the stock to their stations and updating the warehouse management system for efficient order fulfillment.

Kanban and Automation (Packing): Color-coded Kanban cards simplify packing tasks, while automation increases packaging speed, reduces fatigue, and enhances productivity.

4.2. Improvement Phase

Improvement initiatives are mainly to implement Lean tools and practices to address inefficiencies. The following are the improvement initiatives that are aligned with the breakdown objectives:

Pallet Pooling System: Implementing the Pallet Pooling System enhanced operational efficiency, streamlined workflow, improved safety, and significantly reduced costs by optimizing pallet usage across operations.

5S Methodology: The 5S principles (Set in Order, Shine, Standardize, Sustain) were applied to create a cleaner, more organized workspace that enhances safety, reduces errors, and improves overall operational efficiency by eliminating clutter and streamlining processes.

Automation in Quality Control: Sensors and scanners were introduced to standardize quality inspections, minimizing variability and reducing human error, thereby improving the accuracy and consistency of inspections.

Layout Planning (Storing): A new warehouse layout, based on the FEFO approach, was implemented to optimize storage space, improve inventory management, and facilitate smoother product flow, reducing retrieval times and enhancing overall efficiency.

FEFO and FIFO: Both FEFO for perishable goods and FIFO for non-perishable items were adopted to ensure efficient stock rotation, prevent waste, and maintain product quality by prioritizing goods based on expiration dates or order of arrival.

Automated Sorting: Inventory management software and scanners were installed to automate the sorting of products based on size, destination, or type, increasing accuracy, reducing manual errors, and speeding up the sorting process.

Color-Coded Kanban (Packing): The introduction of a visual scheduling system using color-coded Kanban cards enhanced task management, accelerated replenishment, and streamlined the packing process, resulting in faster order fulfillment.

Automated Packing Machine: Automation in packing improved packing speed, minimized downtime, and boosted productivity by reducing manual labor and errors, ultimately ensuring more efficient operations.

Improved Targets: Improved Targets finally quantify the expected results and track progress against strategic goals. These Lean implementations successfully reduced the original 29 activities to 18 in the optimized state. Throughout the process, management supported employees, fostering a collaborative environment that encouraged their participation in the ongoing Lean initiatives.

• Receiving (3 Activities)

• Unloading and Sorting: Combining unloading and sorting to streamline processes.
• Barcode Scanning: Scanning items into the warehouse management system.
• Updating Inventory Records: Entering details into the inventory system and assigning storage locations.

• Inspection (3 Activities)

• Automated Documentation: Using automation to record any discrepancies or damages.
• Repackaging if Necessary: Repackaging items as needed after inspection.
• Inspection and Sorting: Performing a quick visual inspection while sorting items.

• Storing (4 Activities)

• Transporting to Storage Area: Moving items to their designated storage locations.
• Placing Items on Shelves: Physically placing items in the appropriate spots.
• Updating Inventory Records: Entering storage details into the inventory system.
• Implementing FIFO: Arranging items based on First-In-First-Out principles.

• Picking (3 Activities)

• Kanban Retrieval: Using Kanban cards to retrieve orders from the warehouse management system.
• Locating and Picking Items: Finding and retrieving items from their storage locations.
• Confirming Picks with Kanban: Using Kanban cards to confirm items match the order details.

• Packing (2 Activities)

• Automated Packing: Using automation to pack items into appropriate boxes.
• Automated Labeling: Using automation to print and attach shipping labels.

• Shipping (3 Activities)

• Automated Sorting and Loading: Using automation to sort packages and load them onto delivery vehicles.
• Updating Shipping Records: Recording shipping details in the warehouse management system.
• Generating and Tracking Shipping Documents: Printing invoices, bills of lading, and entering tracking information.

4.3. Improved State Warehouse Mapping

The Value Stream Mapping (VSM) of the initial state revealed several persistent bottlenecks that constrained the warehouse’s capacity and operational efficiency. In the improved state, these bottlenecks have been addressed through better workflow management, process restructuring, and strategic automation, resulting in enhanced performance tailored to the dynamic demands of e-commerce operations. The warehouse now demonstrates greater efficiency, with goods moving more quickly and seamlessly through various stages. Key improvements include the implementation of the 5S methodology to streamline the receiving process, reducing value-added time, and improving workflow through better pallet management and the application of First Expired, First Out (FEFO) labeling. Standardized inspection processes, combined with automation, have significantly reduced inspection time and eliminated non-value-added activities, ensuring faster and more accurate quality checks. While storage time increased marginally due to enhanced inventory management and optimized layout planning, the benefits of improved organization outweighed the trade-off.

The picking, packing, and shipping processes have experienced substantial efficiency gains. The use of Kanban systems in the picking process reduced the overall lead time by optimizing task prioritization and sequencing. Automation in packing and shipping has improved both speed and accuracy, contributing to reduced worker fatigue and minimizing the occurrence of errors. These advancements have led to a measurable reduction in picking time and a significant decrease in non-conforming orders, directly enhancing customer satisfaction. The improved state showcases how Lean initiatives can transform e-commerce warehouse operations by reducing waste, enhancing workflow, and meeting the high expectations of online retail. Figure 3 illustrates the VSM for the improved state, highlighting the enhanced efficiency and streamlined processes.

The above VSM provides a visual representation of the improved state of warehouse processes. By mapping it out, the VSM highlights the impact of Lean initiatives on improving efficiency, reducing waste, and optimizing operations in e-commerce warehousing.

4.4. Control Phase

The control phase focuses on integrating, standardizing, and sustaining the implemented changes to ensure the system operates efficiently over the long term. The Six Sigma methodology is a powerful tool to maintain the implemented changes and drive continuous improvement for long-term operational success [24]. Assuming normality, let the random variable X represent the process distribution of a quality characteristic, where X follows a normal distribution with the mean μ and standard deviation σ, denoted as $X~ \mathcal{N}(\mu , \sigma )$. To align with Lean implementation in warehouse management, a comprehensive performance measurement system should be established. A key component of this system is the Critical to Quality (CTQ) matrix, which serves as the most closely related process performance indicator. Six Sigma methodology complements CTQ analysis by employing the process capability index (C_p) to establish performance goals. C_p acts as a critical indicator of the allowable performance level within a process [25].

According to research, when the standard deviation (σ) is one-sixth of the tolerance (σ = d/6) and the process mean (μ) deviates from the target value (T) by less than 1.5, the process quality can be considered to meet the Six Sigma (6σ) standard [21]. In this context, d represents half of the specification interval, calculated as d = (USL − LSL)/2, where USL is the upper specification limit and LSL is the lower specification limit. The target value T is the midpoint of the specification limits, i.e., T = (USL − LSL)/2. Achieving this level of precision results in a defect rate of just 3.4 parts per million. Key warehouse activities should be continuously monitored using performance indicators to ensure consistent improvement. The process capability index (C_p) can be calculated using the following formula:

$$C_p(process capability index)={\displaystyle \frac{USL-\mu }{3\times \sigma }}$$

(2)

where μ = mean of the data; and σ = standard deviation of the data. For instance, implementing an automated loading system in the Shipping department could significantly enhance the speed and accuracy of loading operations by utilizing conveyors, thereby reducing manual labor, minimizing human errors, and alleviating worker fatigue. Before implementing the new system, it is crucial to assess the process capability (C_p) of the current standard loading time, which is set at two hours. Based on 40 observed loading operations conducted over a two-week period, the target loading time is capped at 120 min. The C_p calculation represented by Equation (3) is as follows:

$$C_p={\displaystyle \frac{120-96.34}{3\times 7.346}}=1.07$$

(3)

With a mean loading time of 96.34 min and a standard deviation of 7.346 min, the resulting sigma level is 1.07, which is slightly above the 3-sigma level. Typically, a 3-sigma process corresponds to a 7–8% rate of shipping delays, while a 4-sigma process would reduce delays to less than 1%. Although further improvement toward a 4-sigma level is feasible, current management is satisfied with the results achieved thus far. Figure 4 illustrates the variations in shipping times based on the observations.

Active employee involvement is crucial for the success of CTQ initiatives. As employees are deeply connected to daily operations, they are uniquely positioned to identify inefficiencies and areas of waste in real time. Their hands-on experience is vital for pinpointing key process metrics that directly impact quality. Through targeted training and development programs, employees gain a deeper understanding of Lean principles, empowering them to provide valuable insights and propose meaningful improvements. Their active participation ensures that CTQ efforts are aligned with real operational needs, leading to more effective waste reduction and fostering a culture of continuous improvement.

5. Results Summary

Lean implementation emphasizes achieving more with fewer resources by eliminating non-value-added activities and promoting continuous improvement. In addition to enhancing inspection efficiency and improving packing and shipping operations, this study focuses on reducing the total number of processes. The goal is to boost the overall performance of warehouse operations, ultimately ensuring higher customer satisfaction.

Table 3. Improved warehouse processes after the Lean implementation.

	Receiving	Inspection	Storing	Picking	Packing	Shipping
Cycle Time	50 min	90 min	150 min	120 min	90 min	120 min
Start	9.00 a.m.	10.20 a.m.	1.30 a.m.	9.00 a.m.	12.00 p.m.	2.30 p.m.
End	10.20 a.m.	12.10 p.m.	4.30 p.m.	12.00 p.m.	2.30 p.m.	4.30 p.m.

underscores the importance of continuous improvement and highlights the practical application of Lean tools in increasing the value-added time within warehouse processes.

The implementation resulted in a faster process for storing incoming SKUs and quicker picking, packing, and loading of orders. The Lean initiative yielded cost savings by reducing labor expenses and minimizing returns and packaging errors through automation.

Table 4. Improved state of warehouse processes.

Process	Value-Added Time 1	Non-Value-Added Time 1	Total Lead Time 1	% of Value-Added Time
Receiving	50	30	80	5.43%
Inspection	90	30	120	9.78%
Storing	150	50	200	16.30%
Picking	120	30	150	13.04%
Packing	90	20	110	9.78%
Shipping	120	30	150	13.04%
Total	620	190	810	100.00%

¹ Time in minutes.

illustrates the marked improvement in warehouse processes following the application of Lean techniques, exhibiting the success of this approach in improving efficiency and achieving operational excellence.

The Lean implementation significantly improved the efficiency of warehouse processes. These Lean initiatives, using Kanban, automation, and standardized processes, increased the percentage of value-added time in key operations like shipping and inspection while also reducing non-value-added time in critical areas. This comprehensive approach enhanced workflow efficiency, minimized delays, and optimized warehouse operations, resulting in lower operational costs and improved customer satisfaction. The changes suggest a smoother, leaner operation, cutting the number of activities from 29 to 18. The overall lead time decreased from 1360 to 810 min, representing a 40.44% reduction. The percentage improvement in time efficiency is given by the following equation.

$$Time Efficiency={\displaystyle \frac{T_{before } - T_{after}}{T_{before }}}\times 100\%$$

(4)

where T_before and T_after are the time taken for any processes before and after implementing Lean tools and methodology, respectively.

The lead time of the receiving process was reduced by 11%. This indicates a significant improvement in the workflow, likely due to better organization and pre-arrangement of SKUs using the FEFO approach and visual inspections. The inspection process lead time was reduced by 25%, which is a result of the updated process standardization according to ISO 9001. This decreased the non-value-added time and reduced the number of non-conforming orders, making the inspection process more streamlined and efficient. The storing process saw a 20% reduction in value-added time. Although the non-value-added time increased, the overall layout planning based on the FEFO approach, and the implementation of SS principles contributed to better organization and reduced storing time. Automation played a crucial role in this improvement by increasing packing speed, reducing worker fatigue, and minimizing downtime, leading to more efficient operations.

The most significant improvement was observed in the picking process, with a significant increase in value-added time efficiency. This major improvement can be attributed to the implementation of Kanban, which improved task organization and workflow, and significantly reduced lead time (47%). The packing process similarly experienced lead time improvement, with a 33% reduction in lead time. A C_p of 1.07 indicates a sigma level slightly above 3. While a 3-sigma process might incur shipping delays of 7–8%, a 4-sigma process typically results in less than 1% delays. Although the current performance is acceptable, there is room for improvement to achieve a 4-sigma level.

The improvements in value-added and non-value-added time across the warehouse processes are significant. Non-value-added time saw a notable reduction, decreasing from 440 min in the initial state to 190 min in the improved state, representing a 56.82% improvement, and the total cycle time was reduced by 40.44%, as shown earlier. Figure 5 compares the initial and improved states of the warehouse processes.

This reduction in lead time occurred across several processes, including receiving (46.67%), inspection (33.33%), storing (9.09%), picking (65.91%), and packing (47.62%), with shipping remaining constant. This shift indicates that more time is dedicated to activities that directly contribute to the value of the processes. Key improvements include eliminating non-value-added time in the inspection and shipping processes while storing, which saw a 57.14% reduction and a 60% improvement in picking. While there was no measurable decrease in shipping, the company maintained its current standard loading time of two hours. This indicates that the shipping process maintains its satisfactory level and no further improvements were identified as essential during this Lean implementation phase. The company also integrated cross training for its workers to enable flexibility and continuous improvement. This allows workers to adapt to changing demands, contribute to problem solving and resolve unexpected delays.

There may be opportunities to optimize shipping processes that could yield additional gains in overall efficiency. To further enhance the operations, the company may consider incorporating continuous improvement and further Lean initiatives to sustain the gains and achieve further improvement. Utilizing Lean tools and techniques to improve warehouse processes has proven to play an integral part in reducing waste and increasing productivity. By utilizing Lean tools and techniques, the lead time of warehouse processes and shipping delays can be minimized and improve customer satisfaction by enhancing the overall efficiency.

6. Conclusions

This study examined the application of Lean principles to achieve notable gains in warehouse operations. Value Stream Mapping (VSM) was used to identify inefficiencies in current processes, followed by developing a Hoshin Kanri plan that aligns improvement initiatives with strategic objectives. Process capability indices ensured continuous process improvement. The Lean initiatives, including VSM and other Lean tools, and developed training programs were effectively implemented to identify waste and opportunities for enhancement. As a result, the overall warehouse efficiency improved significantly, with the total lead time being reduced by 40.44% and non-value-added time being reduced to less than half. Key improvements included shorter inspection times, streamlined picking and packing processes, and increased automation. However, areas for further improvement remain, particularly in reducing non-value-added time during storing and optimizing the shipping process. By uniting VSM, Hoshin Planning, and CTQ within a single framework, this research significantly contributes to the literature, offering a comprehensive methodology for optimizing warehouse operations. This actionable lean framework improves efficiency and customer satisfaction and emphasizes sustainable practices, ensuring that warehouse operations remain adaptable and environmentally responsible in the face of growing demands.

The Lean methodologies, with a strong emphasis on automation, significantly reduced the time required to store incoming SKUs and shortened the time needed to pick, pack, and load orders. These process improvements translated to substantial cost savings through decreased labor expenses and reduced returns caused by packaging errors. The added benefit of automation is its contribution to environmental sustainability by minimizing packaging waste and optimizing material usage.

Future research should integrate advanced technologies with Lean principles to optimize warehouse operations further and drive continuous improvement. Key focus areas include AI-driven optimization, utilizing AI to enhance inventory management and order fulfillment accuracy. Implementing robotic solutions can streamline tasks such as picking and packing while refining storage and shipping processes. Businesses can elevate customer satisfaction, secure long-term success, and contribute to highly resilient e-commerce warehouses by prioritizing energy-efficient warehouse operations and real-time dynamic decision-making for resource allocation.