August 2009

1. It's not just about the storage.

If your warehouse is grinding to a halt, it's easy to think that your problems are caused by the amount of stock you've got. But your warehouse isn't just for holding stock. Think about it - if you can't get your products out to your customers (and in from your suppliers) you don't make any money. And, in fact, when companies come to me because their warehouse isn't working, it's surprising how often the root of their problem is throughput, not storage.

So the first thing to remember when you need to increase the capacity of your warehouse is that throughput is as important as storage.

2. Hours - Your unused resource.

So if throughput is your problem, what can you do? Here's some good news - it's usually easier to solve than a lack of storage space. That's because throughput isn't just about square metres. It's also about how many hours you use them for.

As a simple example, one loading bay operating for 16 hours can handle just as much as two operating for 8 hours each.

What are the operating hours of your warehouse right now? Most of those I visit are somewhere between 40 and 80 hours a week. But there are 168 hours in each week. So if you're short of throughput capacity, use as many of those 168 hours as possible. You could have the opportunity to double - or even triple - your throughput without increasing the size of your warehouse.

3. The two rules for reducing your stock.

Of course, however well you manage your throughput, you may still be short of storage space. How can you solve this problem?

First of all, try to reduce the amount of stock you hold. Easy to say - but how do you do it? You've got two choices.

The first is to order little and often. For example, if you order half as much but twice as often, then you will halve your batch stock (this is the difference between your minimum and maximum stock levels). Your shipping costs may increase, but it could still be worthwhile. It's certainly worth checking out.

The second is to reduce your safety stock - in other words, reduce your minimum stock level. Of course, if you do this, you increase the risk of stock-outs. This is a statistical fact of life, but you can limit the effect on your business. Work with your suppliers to improve their reliability. If you can be sure your suppliers will deliver on the day they promise, you won't need as much safety stock. And don't have a blanket safety stock policy. Tailor the amount of safety stock to the particular product. Is it really an important product for you and your customers? And how unpredictable is the demand for this product compared with the others you hold?

4. How to use your space better

Even if you reduce your stock, you may still need to increase your storage density. Many people think this means they have to reduce the width of their aisles - and of course this works. But it's not the only thing you can do, and it's not always the best. Narrow aisles are not a good idea if you've got a lot of picking activity, and the benefit you get is much reduced if your warehouse is small or not particularly high.

So don't just squeeze your aisles - use the space that's actually devoted to storage more effectively. That means having a storage mode that suit your product and its picking profile.

That means doing the math - you have to understand your product cube and velocity. There's a huge range of storage equipment - and something will suit you. You just need to know how to choose what's right for you. This is a whole topic in its own right - but if you'd like to know more, just drop me an email at stephen.errey@lucidea.co.uk .

So, if you've got the task of increasing the amount of business your warehouse will support, what are the messages you should take away this month?

Here they are:

1. Throughput is as important a constraint as storage.
2. Increase your throughput by increasing the hours you work.
3. If you want to reduce your stockholding, order little and often and reduce your safety stock - selectively.
4. Use your space better by choosing your storage mode to suit your products.

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