As described by my colleague in a recent post, a distribution center’s capacity has 3 dimensions – one of which is storage capacity or the amount of physical inventory that can be stored within the DC.
Often times when the current storage has reached its limits, operators will express the need for more. The implication is that operational costs will increase if the issue is not resolved – that is a fact – but how you decide to solve the problem is a different question; a) increase square footage, meaning spending big dollars on the expansion of a facility or b) convert existing space to improve operating storage capacity.
The former might ultimately end up being the solution but the latter is definitely the first option that should be analyzed, BUT...
More pallet positions doesn’t necessarily mean more operating capacity
If you are constantly fighting to find available space, you might end up making less-than-acceptable compromises. For example, a slot too large for a slow mover with little inventory will potentially force you to have multiple SKUs in a large opening. This means more wood per slot and more handling.
While conducting a recent audit at a food wholesale operation, the warehouse supervisor told me “if we convert this section to drive-in racks, we could increase the number of pallet positions by 15%”. Maybe so, but my response was what would this provide him in terms of usable storage capacity?
The reasoning behind creating more pallet positions within the same square footage – by converting to high-density racks like drive-ins for instance – is misleading and might not be helpful. In fact, it could even make matters worse due to the utilization factor.
A pick slot is anywhere from full to empty, therefore used at 50% on average. If only one lane is assigned to an item, the entre drive-in rack is used as a pick slot, meaning that half of the pallet positions are empty on average. Assuming the proven approach of one SKU per slot, the only way to improve the drive-in’s utilization factor is to have multiple lanes for a given SKU – and that is A LOT of inventory for one item!
High-density racks must be utilized by high inventory products in order to provide good utilization factors (e.g. 80-85%) and compete with “regular” single-deep racks. If not, you are just creating empty capacity. The following table presents the average utilization factor of drive-in racks based on the number of lanes assigned to a SKU:
So, in order to get at 80-85% utilization factor for drive-in racks, you will need to assign 3 lanes to a given SKU. Profiled at 3-deep/4-high for example, this represents 30 pallets on hand – on average. Manufacturers are most likely to fit this profile but for distributors, only a limited set of items in some industries will make good use of these high-density racks (e.g. bottled water in food retail).
The most important thing to consider before increasing storage capacity is whether or not you should aim at improving storage utilization – that is to have as many SKUs as possible assigned to a slot type that matches their velocity/inventory profile. This applies to all slot sizes.
Resetting the layout of a distribution center to increase storage capacity will vary in complexity and costs depending on the nature and magnitude of the required changes. However, these initiatives can increase the lifespan of your current facility and buy you more time before the next big investment is required.
Keep in mind, the important thing is not the size of your DC, but how you use it...
For a visual representation of how a drive-in rack works, watch this short video at Industrial Warehouse Racks.