Planning a Warehouse Network and Design: Key Factors to Consider

In this post, I’d like to talk about the key factors that will impact on the optimum facility network and design required to meet your warehousing or storage requirements.

Since I first published this article back in 2009, warehouse design principles haven’t altered that much, but as we received many comments, including requests for more information, I figured it might be a good idea to expand on the original piece.

In addition to the original content, this new version covers some of the things you should consider in the early stages of warehouse design, even before you start to think about the FAST concept and its application to warehouse layout. It includes some questions to answer in determining the number of warehouses required in a network, and their optimal locations.

Some Tips for Multi-Warehouse Network Planning

Let’s begin with a look at network planning, because whether your company requires one warehouse or five, your service, efficiency, and costs will be influenced heavily by your choice of location and capacity. Of course, it would be possible to write an entire book on this particular subject, so for the sake of keeping this article relatively brief, I’ll stick to a short explanation of crucial factors to consider when planning a warehouse network (even if it is a network of one).

Outbound Logistics: Keeping Customers Satisfied

Your customer service offer is one of the most critical of these factors, particularly concerning order lead times. For example, if speedy delivery is a part of your service strategy (which is often the case in today’s on-demand environment), you will either need to locate your warehouses close to customers, or close to the facilities of your preferred carriers. This requirement, in turn, will influence decisions about the number of warehouses required, and their capacity.

What Happens in Your Warehouses?

Aside from considering customer service aspects, such as lead times and supply chain velocity, you will also need to think about anticipated throughput and more specifically, receiving, storage, and dispatch volumes, as well as the types of processes that will be performed in your warehouse facilities.

Your distribution strategy too, will have a bearing on network optimisation. For instance, is your strategy all about the highest possible levels of customer service, or does your company compete more in the low-cost space? What levels of inventory availability do you require? How fast are your inventory turns?

Then there are the physical requirements for each warehouse. Will you deploy automated equipment, or are your processes primarily manual and likely to remain that way?

Think About Inbound Too

Don’t forget to consider inbound logistics. Where are your suppliers located? What lead-times are acceptable for incoming deliveries? How reliable are your suppliers? These are all questions to be answered and taken into account when planning the size and location of your warehouses.

Start Thinking FAST

If you are already familiar with the FAST concept in warehouse design layout (if not, see the sections below), you will know that the objective of FAST is to ensure each activity-locations are close enough together to enable smooth workflows, but not too close to clutter the process and reduce efficiency.

You can apply the similar thinking to the layout of your warehouse network, although the emphasis should be more on locating your warehouses close enough to customers to support your service offering, without introducing difficulties on the supply side.

Planning Individual Warehouse Design and Capacity

If you have established the number of warehouses required and their locations, the next thing you might want to think about is structural design and capacity. There are a lot of different factors to consider in getting these things right, so it makes sense to list the key questions that you will need to answer before getting to work on the design. The following list of suggested questions is not exhaustive, but it should help you to make a start in determining your requirements.

What activities will take place in your warehouse? Will your operation comprise intake, storage, picking, packing, and dispatch, or will you need areas set aside to perform value-added services?

What are the characteristics of your products? This factor will have a significant impact on your warehouse design, meaning you will need to be thorough in determining your needs. Be mindful of the following:

• What types of products will you store in your warehouse?
• How easy are they to store in stacks on the floor or in warehouse racking?
• Are the products hazardous, fragile, or is there any other reason they need special handling?
• How will the products be stored? Will they be full pallets, cartons, individual items?
• Will your products require any processing other than storage?
• Do your products need to be stored in compliance with any special rules or regulations?
• Do your products need any form of control in the storage environment (frozen goods, temperature control?)

Are your products subject to seasonality? Will your inventory volumes fluctuate much due to seasonality, or only a little? Try to allow enough capacity for peak storage and throughput, while avoiding too much overcapacity during the quieter months.

Will your warehouse have to handle returns? As more and more companies—especially those engaged in ecommerce—are discovering, it can often be better to manage reverse logistics as a discrete process than to try to integrate returns handling with the normal forward flow. If your warehouse will need to process many returns from customers, you may wish to allow for extra space dedicated to their storage and processing.

The FAST Approach to Warehouse Layout Design

Let’s move on now, to look at the actual layout of your warehouse/s. Four significant elements come into play when designing or laying out any storage or distribution facility, regardless of whether for example, it is a large multi-temperature composite distribution centre servicing a high market network, a spare parts store in a mobile service centre, or a raw materials store supporting a manufacturing operation.

The four fundamental factors can be remembered by using the pneumonic FAST or fast standing for:

• F-Flow
• A-Accessibility
• S-space
• T- Throughput

These are not in any order of priority. I would advise you to attach equal importance to each of them, and aim to obtain the best compromise of these often-conflicting influences. As one factor is considered and altered, each of the others should be revisited to evaluate the overall impact of that change.

F is for Flow

What we’re looking for here is a logical sequence of operations within the warehouse where each activity is located as close as possible to that which precedes it and similarly, the function that follows it.

We are concerned with the controlled and uninterrupted movement of materials, people and traffic with, if possible, no cross-flow clashes or areas of high traffic or work density.

It’s also critical to know where materials are located within the system, and the status and location in the storage and handling equipment and medium. The aim here should be to situate the various warehouse activities so that each contributes to a smooth flow of operations with a minimum amount of movement and disruption.

A is for Accessibility

By accessibility, we don’t merely mean whether or not we can get to the product. For example, we need to know if we can get to the required level of packaging unit. In the case of bottled water for instance, from a regional or national FMC distribution centre, we’ll be looking at being able to receive and issue product by the pallet load or possibly even by the truckload.

Therefore, you only need to access full pallets, and since bottled water is very fast moving with a long shelf life, a strict policy of first-in-first-out (FIFO) by row to individual pallet level need not be followed. At the wholesaler or distributor level, you might be accessing inventory down to case level and then in the convenience store stock room, individual bottles.

It can go further than this, of course. For pharmaceuticals, access may need to extend beyond individual item level down to specific lock and batch number. These requirements for levels of accessibility must be achieved, especially in the pick face and fast moving stock holding areas, but without unnecessarily compromising the next factor in the FAST model, which is the use of space.

S is for Space

When considering how to use warehouse space the maximum should be allocated to operational storage and stock processing purposes, while giving up the minimum of space necessary for associated functions such as offices, working areas, empty pallets storage, battery charging, etc.

Thanks to the array of storage media available in today’s market, it’s possible to make optimum use of the cubic capacity of a warehouse’s space—and not only within the floor area.

As most modern storage equipment is free standing and requires no structural support from the building itself, a warehouse building can be of the simplest and cheapest big box design. For the same reason, it’s possible to build flexibility into the operation, by selecting the storage media that best meets the current stock profile and then changing it as the business evolves to meet future requirements. Again, this can be done without expensive and disruptive changes to the actual building—but remember, you still have to consider flow, accessibility, and now finally, throughput.

T is for Throughput

In exploring warehouse throughput, we are not only looking at the categories of product passing through the warehouse, but also the nature of the product and its velocity through the flow. By nature, we mean the handling characteristics, dimensions and any other factors that will affect how inventory moves through the facility, such as hazard, bulk, fragility, security requirements and compatibility with other products.

The velocity of the product will consider the volume that’s moving through the warehouse on each day. You will need to determine pick period activities as well as minimum activity levels. High availability of accurate throughput data will be of great aid to the outcome of the design or layout exercise.

The better your data is and the longer the time spent collecting and analyzing it, the less the risk. However, it is still possible to come up with an acceptable solution when one does not have the luxury of accurate data going back into history. You have to do the best with what is available.

There’s Plenty to Think About in Warehouse Design

As concisely as I have tried to explain warehouse design in this article, I’m sure it will leave you with the impression that planning and designing a warehouse (or warehouse network) is a considerable undertaking.

I wouldn’t try to convince anyone to the contrary, and indeed, I would recommend you to engage a reputable external specialist to help you, unless of course, yours is a large organisation with plenty of internal expertise in warehouse design. I hope though, that the points set out above will give you some idea of the primary considerations.

Summary of Main Points

To summarise, I would say that when considering your warehouse layout or design, the factors of flow, accessibility, and space must be balanced to enable the demand for throughput, meaning the volume passing through and the time parameters to be met.

Similarly, the optimal flow of goods through your inbound and outbound supply chain should be considered when deciding upon the number and locations of warehouses.

Finally, concerning the structural and capacity requirements of individual warehouses, some of the most important things to think about are your service offering, the characteristics of your products, and types of activity that you expect to conduct within the facility.

Editor’s Note: This post was originally published in July 2009, under the title “Warehouse Design – Key Factors to Consider”. It has since been revamped and extended with extra sections to make the information more comprehensive. The most recent updates were made in February 2019.

Best Regards,
Rob O’Byrne
Email: [email protected]
Phone: +61 417 417 307