Capacity, Too Much or Too Little

So how much space do we "need"? A typical industry response would be that at it's fullest point, a DC needs to be at 85% capacity. So what does that actually mean? Does that number have to do with reserve capacity, or active, or both? In my experience, 85% is a good number as long as we are only talking about reserve locations (secondaries). When a DC gets tight on space, putaways end up going to some really far away points in the warehouse. By far away, I mean nowhere close to the active location. Most systems have a progression that starts with right above the active and ends with "out in the parking lot". Also, nobody wants to pay for storage trailers. Can you have too much reserve capacity? Well yes, too much reserve capacity can create an opportunity to house too much inventory. With the costs however, associated with too little space, most building engineers would likely tell you that they would rather err on the side of too much reserve, than too little.

When figuring active capacity, most distribution professionals simply just divide the number of assigned locations by the total number of configured actives. So basically, if you have 100 active locations, and 80 of them are assigned, then you are at 80% capacity. For the sake of simplicity, I believe that this the best way to discuss active capacity, particularly with logistics analysts and inventory analysts, who are predisposed to creating as much Inventory waste as they possibly can. But this number is also important for the slotter. If he is in the middle of the busy season, a slotting supervisor can create capacity in a large area by moving the slower moving SKUs to an area with smaller locations. Another way to increase capacity is to de-slot SKUs that are not in the building at the present time and have no outstanding purchase orders against them. If an item is out of season, or on clearance, then it definitely does not need to be occupying that valuable real estate, not when it is busy, but not even when it isn't. When the busy season ends, the SKU count will often drop by as much as 20%. If during that time you leave those SKUs spread out across say ten aisles, instead of reducing that path to eight, you are making a huge mistake, but one often made by DC Operations. Remember that slotting is all about reducing travel time and creating dense picking. A "spread out" DC accomplishes neither of those goals. So does that 85% number apply to active locations? In my opinion, no. At your busiest time, the time when your SKU count is the highest, your active capacity should be between 95 and 100. That's right, and when that SKU count decreases, the number of aisles/areas that you pick out of should also.

A lack of capacity can be costly, in terms of re-work, double handling, and outside storage. But too much capacity is equally as dangerous, in my view. I have said it for years, and it irritates the heck out of many that hear me say it, but too much space is the enemy of productivity. I believe an effective operation is one that operates in as small a space as possible. Lots of room hides things like inventory waste, and creates transportation waste, and the waste of motion. A spread out warehouse is easier to manage, but easy is often a synonym for inefficient. If you have an order filler that is running at 100% productivity, and you decrease his pick path by 10%, assuming that 60% of a picker's productivity is travel time, in theory that individual should now be hitting 106%. If you have 50 bodies filling orders, now you only need about 47. Another way to shorten steps is to create smaller actives more suited to the amount of inventory you normally have on hand for that SKU. For example, if all you have are carton flow locations that hold about 20,000 cubic inches of inventory, and half of your SKUs never have more than 10,000 cubic inches onhand, then you need to get rid of half of those flow racks, and put up some shelves. Shelving, in this instance, could reduce the amount of space needed by as much as half, maybe more. All of that empty space in those flow racks, is, you guessed it, waste.

Capacity is a touchy subject. Everybody knows how expensive it can be when a DC runs out of room, but going to the other extreme and building a runway is not the answer. Also, when that busy season dies down, you must resist that temptation to relax and take it easy. No, if the SKU count decreases, the footprint should also. Running a lean operation should never be easy, but then again, easy should never be the goal.