Ehsan Khodabandeh PhD
Jun 1st, 2017

Are you an analyst who has never stepped foot in a warehouse? Are you a recent graduate interviewing for your first Supply Chain position? If so, the question “What is the warehouse capacity?” may, at first, seem like a simple calculation of the area within four walls. But as you stop to think further you may be left wondering what real-life lingo and considerations would help you answer this question with more confidence in the applicability of your response. This blog post will take us into the minds of warehouse managers and their considerations when we talk warehouse capacity and how to deal with shortages.

A typical answer to this ‘What is the warehouse capacity?’ question is in terms of the number of pallets that can be stored in the warehouse and not just the entire area of the building. The number itself often has a major impact on the way the company does business as well. The available ‘Pallet Positions’ directly relates to the maximum amount of inventory that can be held and thus, the amount of product that can be produced, purchased, or accepted (in case of a 3rd party warehouse) in anticipation of future demand.

This estimation of warehouse capacity depends on many features such as the physical size of the warehouse, the design of the warehouse, the average size of the pallets, how high pallets can be stacked, the clearance needed for the aisles, and the type of warehouse (unit load, carton pick, piece pick). Some of these features are actually interdependent as well. For example, the clearance needed for the aisles and intersections depends on the equipment used for storage and retrieval which itself depends on how the warehouse operates and the specific products being stored.

Now, let’s say the business is growing and there is a need to store more product. When this happens there are actually a few options to consider for increasing the “warehouse capacity”. Not surprisingly, each has its own associated advantages and limitations.

Expanding the warehouse, increasing warehouse utilization (store more product in the existing space), or outsourcing and using 3rd party warehouses, are a few options to consider. The first option is usually the most expensive and strategic one. To truly analyze these different options however, costs such as labor, space, equipment, and the type of products being stored are two of the most important factors to consider. For example, is labor or space more expensive in my business? If space is the answer, then it might make sense to start by simply attempting to store additional pallets anywhere you can find room in your current space.

Beware that this is typically a temporary band aid which can quickly become even more costly due to an increase in the labor/handling costs associated with stacking higher or in harder-to-manage locations. This may even require an investment in more or specialized equipment which should also be considered. As these costs add up or even increase over time, companies are then left to consider the trade-off with renting space elsewhere and/or using 3rd party warehouses.

For now, let’s continue to look deeper into this analysis of squeezing more products into the current warehouse and evaluate how costs and product type can play a role in the resultant capacity plans. For a better illustration, consider the example below where 140 pallets are currently stored on the warehouse floor. The question is “Can we store more pallets in this warehouse and somehow increase our space utilization?”

Figure 1: Pallets in a single-deep layout

Pallet Stacking:

The first solution that comes to mind is to simply store pallets on top of each other. Stacking pallets on top of each other definitely provides more pallet positions (floor space required to hold a single pallet) per unit of floor space. But as obvious as it may seem, we don’t want to jump into this solution too quickly. This is often not a ‘one size fits all’ solution but depends highly on the type of product you are working with. Consider heavy, fragile or pallets with uneven surfaces, which physically cannot be stacked very high or stacked at all. This layout then immediately rules out the use of all the spaces above them which then generates no additional space to work with.

Figure 2: Pallet stacking failure

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Pallet Racks:

Another option to consider is installing pallet racks, also known as selective racks, which enables the use of the space above the product itself.

Figure 3: Pallet racks with 10-high

However, using pallet racks also comes with a cost. When considering implementation you want to ensure enough benefits from storing products on racks in order to justify this additional cost. So what are some of the benefits commonly realized by storing on racks?

  • It might reduce labor/handling required by making product easier to store and retrieve. As mentioned before, especially if the product has an uneven shape or surface, is heavy, fragile, or unstable to stack on top of each other.
  • It might create additional pallet positions. For example stacking pallets on shelves 3-high instead of 2-high on the floor.

Just like stacking pallets isn’t a foolproof solution on its own there are also trade-offs to be considered in using pallet racks as well. For example if pallets are already stacked 3-high and racks are now being considered for creating an additional position, one must consider the extra space lost to the beams of the rack, the space above each pallet in a rack, and the space from the ceiling. When considering all of that, it might be possible that overall an extra position does not result and even more concerning, the current 3rd position is lost as well.

Floor Layouts:

Another option for storing more product in the current warehouse space is the analysis of effective utilization of the floor space in general. Consider Figure 4 below, which utilizes a double-deep layout (lanes that are two pallet-positions deep) and is capable of fitting about 43% more pallet positions in the same floor area than the original single-deep layout in Figure 1 above. As you might have already suspected by now, there are additional trade-offs to consider here as well. The single-deep layout may provide only 140 pallet storage locations, but all pallets are directly accessible. This means that they are all available for reassignment as soon as the current pallet is shipped out. However in the double-deep layout, despite having 200 pallet storage locations, only 100 of them are directly accessible. Moreover, those 100 are not available for reuse until the inner pallet location in the same lane becomes available. This loss of potential storage locations is called honeycombing. This is the reason why you hear the phrase “the warehouse is operating 100% capacity” but you still see a lot of empty spaces. Another downside of deeper lanes is reduction of movement flexibility. It’s seen in the figures that the single-deep case has 8 aisles but in the double-deep case, there are 6 aisles. This means we have less direct access to product and less space for equipment to operate in simultaneously.

Figure 4: Comparing pallets in a single-deep layout (top) and double-deep layout (bottom)

What now?

The options mentioned above are just a few to consider when trying to get more from an existing warehouse. There are a number of mathematical models that can help in the decision making process to ensure the balancing of all of the above considerations and more. Some of these models will be discussed in future blogs.

Take Aways:

  • A warehouse that looks empty and able to store more pallets may not be practically empty. Always carefully consider the product types and requirements before making this assumption.
  • Simple solutions such as using pallet racks to take advantage of the empty space above pallets should also be considered carefully to ensure they actually create the additional space and their benefits outweigh their costs.
  • Deeper lanes can be considered for creating more pallet storage locations but it should be remembered that while deeper lanes produce more pallet storage locations they also result in less accessibility and movement flexibility.

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