Use the right data to right-size your warehouse

  • July 31, 2023
Employee are discussing a plan

Warehouses aren’t one size fits all. Too little warehouse capacity can restrict the volume of SKUs you can ship, inhibiting revenue and service levels. Too much warehouse capacity inflates your overhead expenditures and ties up working capital.

Unfortunately, unlike shopping for clothes, you can’t try on your new space before you buy it. And there’s no return policy. We all know the adage, “measure twice, cut once.” The same fundamental principle applies to warehouse design. The capacity of your warehouse should satisfy both current and future business requirements. It also needs to be flexible enough to accommodate unforeseen fluctuations.

If you’re evaluating the capacity of your current warehouse, the best place to start is with your data. Hopefully, it’s both available and trustworthy. Estimating the data you use to calculate capacity requirements is a surefire way to end up with a warehouse that meets neither the current nor the future needs of your business. It doesn't matter how educated those guesses are.

It’s critical to capture and understand the following data before you can right-size your warehouse:

  • Product dimensions and weight. Typically maintained in product item masters or provided by suppliers, this data consists of item attributes like length, width, height, depth, weight and stackability. These attributes determine the storage and handling requirements for each item — the largest indicators of capacity. If you can get this data right, you’ll have addressed almost 80% of your space requirements.
  • Product volumes. Inbound and outbound volumes are critical components to identifying capacity requirements across nearly all functions inside your warehouse. You can use this data to determine inventory turns. When applied to the profile established for each item, you can calculate storage media requirements and capacity. When applied to productivity data, you can determine throughput requirements and headcount. You can also establish the amount of space needed for inbound and outbound areas.
  • Productivity data. To determine headcount requirements, it helps to combine product volumes with the number of items your material handlers can touch per hour for each function in your warehouse (for example, unload, put-away, pick, stage, assemble and load). This data also helps with your facility’s overarching material handling strategy. Once you better understand your headcount and material handling requirements, you can determine the capacity requirements for:
    • Inbound and outbound areas
    • Material handling equipment (MHE) storage and charging
    • Indirect space such as break rooms, parking, bathrooms and other office areas
  • Order profiles. What picking solution should you employ to meet the service levels your customers expect? Do you need to preassemble any items? Should you stage orders or use a time-phased release? Can you consolidate orders? Are there any special material handling requirements? You can answer all these questions by reviewing your order profiles. They provide information such as lines per order, units per line, weight per order, cube per order, time of day, destination, shipment method and order type. The material handling solution you select (for example, order pickers and conveyors), as well as the picking strategy, order staging requirements and other such details, will impact additional capacity requirements inside your warehouse.
  • Inventory snapshots. It’s important to know the storage location history of your inventory within the warehouse at any given point in time (for example, end of month or end of week). It helps determine your storage capacity. Along with the product dimensions and median and peak inventory requirements, this data makes storage estimation more accurate. You can also assess the impact of increasing or decreasing inventory turns by different product groups.

Although they’re not crucial, a few other data sets are beneficial to determining and justifying the cost associated with a warehouse project. These include:

  • Operational cost data. If you need to develop a comprehensive business case for a new or retrofitted facility, this data is often necessary to justify and greenlight such a project. It requires an operational cost perspective that encompasses a robust knowledge of cost per unit, function, person, hour and square foot, material handling and equipment maintenance costs and any other capital investment the project requires. Together, this data can guide an analysis of facility design alternatives that meet operational and service level requirements while staying within financial bounds.
  • Capital expenditure requirements. Unless your company is experimenting with on-demand storage, your warehouse is a long-term asset. You must work with your finance team to determine the financial criteria for building out a new space or renovating an existing one. If you can’t satisfy your internal rate of return, then you may want to consider outsourcing to a third-party provider.

Collecting and analyzing this list of data is the first step in transforming your existing warehouse or planning for a new facility. While analyzing data and modeling different solutions may seem time-consuming, it’ll pay off throughout the asset’s lifecycle. Most warehouses are a long-term investment. If you get it right, you’ll operate efficiently for years to come and stay aligned with your broader, long-term business strategy.

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