Class-based storage policy distributes products among a number of classes and for each class it reserves a region within the storage area. The procedures reported in the literature for formation of storage classes primarily consider order-picking cost ignoring storage-space cost. Moreover, in these procedures items are ordered on the basis of their cube per order index (COI), and items are then partitioned into classes maintaining this ordering. This excludes many possible product combinations in forming classes which may result in inferior solutions. In this paper, a simulated annealing algorithm (SAA) is developed to solve an integer programming model for class formation and storage assignment that considers all possible product combinations, storage-space cost and order-picking cost. Computational experience on randomly generated data sets and an industrial case shows that SAA gives superior results than the benchmark dynamic programming algorithm for class formation with COI ordering restriction.
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