Seven Critical Steps to Planning a Warehouse or Distribution Center

By Craig Bertorello

There's no room for mistakes in today's economy — and that includes building or reengineering distribution centers. Because these facilities are critical components of the supply chain, they require a detailed planning process to ensure they meet return on investment expectations.

More than ever, the "measure twice, cut once" rule applies, since having to tack on additional capital outlays five, six or seven years down the road is costly. The projection of inventory and how it is to be stored and moved are the driving factors, as a 20 percent deviation on a 200,000 square foot storage area can result in a 40,000 square foot shortfall or surplus.

In the final design phase, picking and storage will rule the day; yet they have opposing agendas. Large storage areas increase travel distances and reduce the picking efficiency. On the other hand, the ideal picking operation requires relatively small amounts of product stored in dedicated locations, relatively close to one another, which works counter to a facility's storage efficiency.

When considering the design and layout of a new distribution center, it's important to first consider which of the four scenarios most closely resembles your operation:

Low Activity/Low Storage Requirements. This combination represents the simple, smaller warehouse operation. Rarely are automation or sophisticated storage and picking mediums or devices justified for these smaller operations. In most instances, floor storage, stacked pallets, simple pallet racks and/or conventional shelving are utilized within the facility, along with manual handling.

Low Activity/High Storage Requirements. This combination typically calls for high bay, multi-level, high-density storage and a random location strategy. Order picking can be manual or semi-manual.

High Activity/Low Storage Requirements. This combination generally suggests a very condensed forward picking area supported by simple overstock storage. The high pick activity level often justifies automating the order picking system and the use of automated material handling systems.

High Activity/High Storage Requirements. This combination is characteristic of a typical large distribution center. The high pick activity and high storage requirements often justify the use of exceedingly automated order picking systems, heavily automated material handling and sortation systems and high-density storage.

Once the storage and picking scenario is understood, taking into account economic forecasts (consumer spending habits down in today's stagnant economy could change over the next few years, and inventory requirements with it), the planning process is now off and running.

Keeping in mind that a distribution center may be a company's largest capital investment, as well as the final stop before the product reaches the customer (or doesn't), it's imperative the planning is done perfectly the first time. To accomplish this objective, here are seven critical steps to follow when planning a warehouse or distribution center.

Define goals and objectives. These should be closely aligned with the overall strategy for the new facility. They can be defined as minimizing warehousing operating costs, maximizing picking productivity, or simply providing the best customer service. They can also be defined more specifically, such as maximizing cube utilization, providing maximum flexibility in the final layout to accommodate future expansion or changes in business, or maximizing efficiency and productivity with a minimal amount of resources.

Document the process. Review the existing or proposed methodology and process, and conduct personal interviews with the staff dedicated to all major functional areas within the process. Recent changes in the economy may have caused some downsizing and movement of personnel to work areas they may not be totally familiar with, so be sure to interview enough people familiar with each functional area. If those interviewed can't identify areas of opportunity for improvement in their department or area, you should look to interview more from that department or functional area as there is always room for improvement.

Collect information and data. Collect any and all information specific to the new facility. Since it is best to work from inside the facility out when considering new construction, don't let any building constraints restrict design. When considering existing space for the new facility, make sure the information includes accurate drawings showing column sizes and locations, dock and personnel doors and locations, ceiling height restrictions and ceiling girder/joist construction. It is also important to collect all relevant product information pertaining to the number of stock keeping units (SKUs) to be stored and picked within the facility, along with their dimensional measurements, weights, order history and velocity data.

Analysis. Once information about the building and the inventory has been collected, a thorough analysis should be performed in order to determine if the goals and objectives can be obtained. The analysis should answer the following questions:

  • How well does the product flow into, within and out of the facility?
  • Does the forward pick area (pick modules) hold sufficient inventory to avoid excessive replenishment requirements?
  • Is the storage system and area large enough to accommodate the inventory, including any required safety stock?
  • What type of conveying and sortation equipment will be used?
  • What are the staffing requirements?
  • Does the operating budget include staffing, maintenance, utilities and the cost of the information system?
  • How well will the facility adapt to a change in operating requirements?
  • How effectively will the warehouse management system work with the automated material handling system?

Create a detailed project plan


About the Author Craig A. Bertorello TriFactor, LLC