SCCG: Optimising the capacity and space of warehouses
With the costs of warehousing on the rise, many companies and logistical providers are seeking ways to optimise their warehouse capacity and costs. Experts from The Supply Chain Consulting Group outline a number of ways how this can be achieved.
A warehouse’s storage capacity is the amount of stock that can be held within the facility. This is typically defined as either the number of pallets or units/value of stock that can be accommodated.
Ensuring warehouse storage is optimised can be realised through two activities: stock optimisation (ensuring that there is a correct balance between service levels and the costs of holding stock for items) and space and flow optimisation (ensuring that the physical warehousing equipment and space are employed optimally for storing goods).
Stock optimisation
While reducing the levels of stock in a business can drive efficiencies and reduce warehouse storage requirements, this can be challenging and is a trade-off: requirements such as minimum order quantities (MOQs), having to order full container quantities and unit cost discounts can reduce the ability of businesses to order ‘just in time’ while maintaining low-cost.
Running very lean on inventory for many businesses has lost its appeal after the Covid-19 pandemic and associated supply chain issues have shown the dangers. The winners were often the companies that were sitting on stock. While decreasing stock-turn is often a good aim, accurate forecasting is also difficult and long-lead times can necessitate holding additional safety stock.
Rather than minimising stock, stockholding levels should be optimised to balance service levels, resilience and procurement strategy against the cost of holding inventory.
Research from Supply Chain Consulting Group estimates that the average cost of holding inventory is between 18% and 22% per year.
Optimising storage methods
Once inventory level requirements have been defined, the next step is to optimise space and the flow of products.
The first step in any warehouse capacity optimisation project is to ensure there is deep insight in the capacity of the existing storage media. Analyse drawings of the existing warehouse layout, in order to have a blueprint of the space that is available.
Capacity is analysed according to the products being stored, but a typical measurement would be the percentage of locations that are occupied with stock (occupied locations/total locations).
As well as the number of occupied locations, capacity within the locations should be understood. If location heights are incorrect within the racking, or if multi-depth storage is employed, but is not a good match for the batch sizes to be stored, then utilisation will be poor. This is the case even if the number of occupied locations is high.
Even if the warehouse appears to be full of storage equipment, it may be that real capacity can be increased by employing equipment that is better suited to the profile of goods to be stored. Thoroughly understanding the flow and utilisation of the current layout, including rack configuration and the slotting/pick philosophy may also mean that immediate improvements are possible.
Operating at, or near 100% storage capacity is not always an effective option – as storage nears capacity this can lead to increased inefficiencies in processes later down the chain. For example, stock may not be able to be located near to its picking location during put away, which can impact replenishment speeds.
In order to determine the most appropriate storage and handling system, several factors need to be considered. This includes effective use of space, access to pallets/stock, speed of throughput possible, requirements for inbound and outbound movement and the circulation of personnel and mobile equipment, offsite storage opportunities, and costs, both in terms of capital and operating expenditure (CAPEX and OPEX).
