Recently, a large food manufacturer came to Raymond West looking for some guidance on the space they should allocate for a new finished goods warehouse they were building for their line of baked goods. Here is a simple analysis that will help you identify the amount of space needed for your warehouse and introduce some of the online tools Raymond West provides on its website to help with the calculations.

The operational data

To begin, it is important that you identify a few crucial pieces of information. You will need to know:

• The number of SKUs to be stored in the storage area
• The number of pallets to be stored
• The number of inventory turns
• The number of shifts to be worked
• Pallet length
• Pallet width
• Pallet height
• Warehouse clear height
• The price of land or lease price of square footage over the term of the lease

Quick definitions

Let’s take a moment to define terms to be sure you are collecting the correct information.

SKUs – these are discreet tracking identifiers for the products being stored in the warehouse. SKU stands for Stock Keeping Unit. In other industries, SKUs can be called, part numbers (PNs) or Catalog Numbers, etc.
Pallets to be stored – this term might not refer to your industry. When we refer to pallets in grocery, we are talking about a unitized load. Your unitized load might not be palletized or might be handled differently, such as totes, or crates, etc.

Inventory turns – When you turn your inventory, you have moved the product through the storage area and replaced the inventory with new inventory. One way to measure turns is to take the value of your inventory on hand and compare it to your annual sales. If the value of the inventory is $1 million and your annual sales equal $10 million, you have 10 turns a year.

Another way to measure turns to look at the number of pallets stored in the warehouse and compare it to the number of pallets being shipped per week. If you ship on average (8) full trailers per day with (24) pallets on a trailer per day, you will have shipped 192 pallets per day. Over a five-day week, you will have shipped 960 pallets. If your warehouse holds 960 pallets only, it will be said that you have (52) inventory turns per year.

Number of shifts – to determine the number of hours worked, it is important to know the number of shifts worked per day. If shipping takes place over one shift, but receiving from manufacturing is over three shifts, it is important to know this information to bring into your calculations. The assumption is there are three possible shifts per 24-hour day. If you work your warehouse (4) 10-hour shifts, this should be noted.

Pallet length – When measuring the length of a pallet, convention dictates that the front to back dimension is always the direction that the long 2 x 4 sections of wood run, called the stringer. Do not forget to include the depth of the product in this measurement. If the boxes stored on the pallet overhang the pallet by an inch in both directions, then the pallet dimension should be the depth of the wood pallet plus the overhang (2”).

Pallet width – the face of the pallet that presents the fork pockets.

Pallet height – the height of the pallet refers to the height of the wooden structure plus the height of the load.

Clear height – is the height of the warehouse up to which product can be stored.

SKUs vs pallets

In the absence of a velocity report, performing a Pareto’s Law analysis is very useful. Pareto’s Law is also sometimes referred to as the 80-20 rule. It is much more complicated than this basic ratio. When applied to the warehouse, we regularly see the following relationship between SKUs and pallets:

• 10 percent of the SKUs in a warehouse represent 50 percent of the volume stored in the warehouse. These SKUs are called the fast movers.
• The next 10 percent of the fastest moving SKUs represent 30 percent of the pallets in your warehouse.
• The next number of SKUs (30 percent) represents 15 percent of the pallets stored in the warehouse.
• And the final 50 percent of the SKUs in your warehouse (the slow movers) will represent only 5 percent of the pallets stored.
• Pareto’s Law can be said to be an observation of what is true in many warehouses, but it is also a very useful tool to apply to SKUs and pallet quantities when analyzing SKUs’ activity. Using Pareto’s Law analysis will help keep the warehouse’s balance between SKUs and pallet velocity (movement).

In the Learn section of our website is our calculator that will perform the Pareto’s Law analysis for you.

Hypothetical example

If a warehouse has 350 SKUs and 5,000 pallets a typical Pareto’s Law analysis would look like this:

Knowing the SKUs and the number of pallets allows you to calculate the average number of pallets per SKU, which is helpful in selecting storage media (rack, shelving, etc).
When you divide the number of pallets above by the number of SKUs, you get the average number of pallets per SKU. Of course, you will want to always round up to the nearest whole pallet.

The rule of 4

The rule of 4 as it applies to designing a warehouse is based upon space utilization.
The goal in using storage space is to achieve 88 percent space utilization. The reason for this is that a higher utilization requires too many aisles to achieve the storage slot space utilization, and therefore is wasteful. A lower utilization causes the warehouse to have honeycombing, which is the phenomenon of a warehouse that has pallet locations filled with half empty pallets – the locations are full and locked up, but the actual storage space contains more air than product.

If in the example below, you imagine that each square represents a pallet of the same SKU, then the four boxes show how it makes good space utilization sense to present four pick faces.
The reason for this is because when picking orders, the first pallet will be picked from first and will be on average 50 percent full. 50 percent full means that at one time, the pallet will be full and at another it will be empty. Therefore the mathematical average of the picked pallet is 50 percent full. The average utilization will be as follows.

Once the fourth pallet is depleted, the empty slot will be filled with another pallet.

Therefore, the space utilization of four pick faces will be 87.5 percent (75 percent plus 12.5 percent). To achieve 87.5 percent storage capacity, you must take the pallets / SKU and divide that number by 4 to achieve 87.5 percent space utilization and then store that product (SKU) at that depth (one fourth of the total average number of pallets per SKU).

Knowing this will help you determine the storage media (racking type) suggested for the number of pallets on hand for a particular SKU. In the above example, we would store the fastest moving SKUs in a storage depth of 6.25 pallets deep (rounded to 6 pallets deep).
Storage media suited for pallets stored 6 deep can include:

• Bulk stacking
• Drive-in racking
• Push-pack rack
• Pallet flow
• Pallet shuttle

For more information on these types of rack, please contact us today.