How To Calculate Warehouse Space Cost

Posted on December 3, 2018February 25, 2021 by Greenoaks Ltd

How To Calculate Warehouse Space Cost

One of the main factors that you should consider when choosing your warehouse space is the cost. Whether it’s monthly or yearly, you need to be aware of how much the storage space will be costing you in relation to the size of the goods you intend to store. Being aware of your warehouse space cost goes a long way in improving your overall efficiency and even determining whether your warehouse is profitable and cost-effective. You can then come up with ways to streamline your processes. Here is how to calculate warehouse space cost.

1. Measure the outside walls of your warehouse.

When taking these measurements, remember to include the entirety of the warehouse, not just what you consider to be usable storage space. All areas for which you are paying rent need to be measured. This task may take a bit longer if the building is oddly shaped.

For the purposes of this example, let’s assume you have a regular shaped rectangular space that is 50 metres wide by 70 metres long. That gives you 50×70=3500 square metres. This is the first number we will need in our calculations.

2. What expenses have you incurred in the previous 12 months?

You need to review your accounts statements for the last year to determine how much you have spent for the warehouse so far. This number is calculated by adding the cost of rent, utilities, security, and the cost of any other miscellaneous services such as landscaping or janitorial services. When you have this number, add it to the cost of employee salaries over the specified period, including benefits and taxes. Next, include insurance costs and equipment costs. Equipment costs are everything from forklifts to computers and vehicles. Finally, add any other expenses you incurred in the warehouse for that period. You need to consolidate all expenses to determine the overall total warehouse expenses for the past year.

Once this is done, you will have your total operating costs for the warehouse. This is the amount of money it takes to keep the warehouse running for a year. It is the second number we will need in our calculations.

3. You need to calculate your cost per square metre.

To do this, you need to divide the total expenses that you got in step 2 by the total number of square metres that you got in step 1. For the purposes of this example, let’s assume you are spending 700,000 pounds a year to run your warehouse. This means that the 3500-metre square space costs you 700,000/3500= 200 pounds per square metre.

The cost per square metre is a very important piece of data, especially when you want to change warehouses. It is essential in determining the overall costs of operating in different warehouse facilities.

4. You need to figure out your storage costs based on the number of units you handle.

How many units did you ship from that warehouse the previous year? How many units do you currently have in storage? When you add these two numbers, you get the total number of units you handle every year.

For the purposes of this example, let’s assume you handled 700,000 units. You need to take the total warehouse cost you got in Step 2, which came to 700,000 pounds a year, and divide that by the total number of units handled. So that comes to 700,000/700,000= 1 pound per unit. This is how much it costs for every unit you handle in your warehouse. This metric is important because it also helps you determine whether you are being profitable, and by how much. By knowing how much you are spending per unit, you will be able to figure out where you can improve to maximise profitability, and how every change you make affects your cost per inventory unit.

Other Important Metrics To Consider and How To Calculate Them

1. The Vertical Cube

Assumptions:

– From our 3500 square metres above, assume that after subtracting non-storage areas like bathrooms and offices you get 3000 square metres of pure storage space.

– Assume that you have a 7-metre functional floor to ceiling height. Functional here means usable, so we ignore the distance above the lowest obstructions such as sprinklers or lighting fixtures.

– Assume that the tallest rack you can put in the warehouse is 6 metres tall.

The first step is to take the total storage space and multiply it by the floor to ceiling height. That gives us 3000 x 7= 21000 cubic metres. This number is our total vertical cubic feet.

However, we want to know what our potential storage space is. Therefore, we will use the size of the tallest rack we can use, which is 6 metres. This gives us 3000 x 6= 18000 cubic metres, meaning we have 21000-18000= 3000 cubic metres of unused space. You can calculate this using the heights of the storage racks you intend to use. This is why racks that emphasise verticality work best because they are cost-effective.

When we divide the storage cube by the building cube, we get an overall cube utilisation of 86%. The industry average is 73-78%, so our example is way above average, which is great.

This metric is important when you are thinking about moving to a new warehouse location and you need to know how much potential storage you are looking at. It does not give you the actual space utilisation. The higher the density of your storage solutions, the better.

Other Factors That You Need To Consider

Besides the actual size of the warehouse, there are other factors that influence the total final warehouse space cost. Some of these include:

1. Warehouse Location

Location is one of the most important factors you need to think about. Your warehouse needs to be strategically located in relation to your main markets. However, this costs more. Also, consider access to trucking hubs, main roads, airports and rail lines. Remember, you pay more for better access to major areas.

2. Value Added Services

What exactly does your warehouse do for you? Do you just store things there? Does it take care of everything including the entire process of handling inventory, counting, sorting, storage, packing and delivery? Your total eventual costs depend on these.

3. Terms and Conditions

Is it possible to lease that warehouse for a long period of time to reduce costs? Can you lease extra storage space as needed?

As for the conditions, is your stock being stored for the long term or the short term? Security, ventilation, air conditioning and cleaning services, all these are part of the overall conditions you need to pay for, and you get charged for each one.

When It Comes To The Warehouse Itself, These Are The Factors You Need to Consider

1. Types of Storage Racks Used

The type of storage racks to be used will, of course, be influenced by the kind of products you are storing. Generally, slow movers are stored in bulk racks while fast movers are stored in pallet flow racks. However, it is up to you to determine the kind of solutions you need in your warehouse, and how to maximise the overall efficiency.

2. The Vertical Cube

You need to maximise your utilisation of the vertical cube. Take advantage of high-density storage and taller racks to be most cost-effective.

3. PickPaths

You need to optimise the layout of your pick up paths. Do not sacrifice pick path efficiency for storage density. This is one of the most common mistakes companies make. Do not compromise your picking speed and efficiency just to stock more product, it is not worth it.

4. Pick Rate

Make sure that your fastest moving inventory is closest to the pick path, or has the shortest path. You should also consider placing the faster-moving products closer to the ground, while slower moving products go higher.

5. Dead Inventory

Do you have items that are just eating up space and barely moving? What is the longest period of time you intend to store a product while still maintaining profitability? If you have dead inventory, how can you eliminate it and find better use of the space?

Final Thoughts

Knowing your warehouse space cost is an essential step in maximising your profitability. For more information, you can have a look at our services page where we have a collection of efficient storage solutions to meet your every warehousing need.

How To Organise Warehouse Shelving

Posted on December 3, 2018February 25, 2021 by Greenoaks Ltd

How To Organise Warehouse Shelving

Warehouses are an essential part of any supply chain. The efficiency of your warehouse directly affects the overall efficiency of your entire business. This is why warehouses are so important. Their organisation can make or break an entire business.

The overall organisation of a warehouse encompasses everything from warehouse management software to shelving, labelling, and spatial organisation. This article shall focus on how to organise warehouse shelving, providing possible solutions that can help you maximise efficiency through the organisation of your warehouse shelving spaces.

General Warehouse Organisation Tips and Tricks

Before we dive deeper into the subject, there are a few common sense tips that everyone needs to check off their list when organising their warehouse. While each of these tips is quite straightforward, they tend to be easier said than done. This is because, in a warehouse, everything you do needs to be in line with a particular set of goals. Your actions should also aim to reduce running costs while maximising productivity and optimising space. One of the most important goals should also be ensuring superior customer service is delivered at all costs.

That being said, here are a few general tips for you to consider:

1. Be Clean

Keeping your warehouse clean can go a long way in improving efficiency. Simply allocating a few hours every week to cleaning tasks can yield a significant impact on productivity. The cleaner your warehouse is, the easier it is to move around in, and your employees will be way more efficient in their work.

2. Discourage Clutter

A warehouse that looks messy gives off a vibe of lack of efficiency. To an outsider, it looks like the leadership is poor, morale is low, employees are overwhelmed or revenue is being lost. This is not the sort of picture you want to paint for your visitors, staff or suppliers. You need to make sure that your work process discourages clutter, and your workers understand this.

3. Take A Closer Look At Your Inventory

Do you have more stock than you need? Is it possible to reduce your safety stock? Or can you negotiate a different agreement with your supplier to get them to supply you with smaller batches more frequently? The most important thing when it comes to inventory is ensuring that it is as lean as possible. Only keep around what you need. Having a lean inventory means that there will be fewer products for your workers to sift through to locate what they need, and everything will move so much more efficiently.

4. Safety First

Warehouses are among the most accident-prone work environments. Safety should be your priority, even before efficiency. Your workers are literally the oil that keeps your business moving. You need to think about their safety and avoid putting them in any unnecessary danger. Workers that feel safe are more confident moving around in their environment. Therefore, a safe warehouse becomes an efficient warehouse.

5. Shelving and Space Utilisation

Think about your traffic patterns when placing your shelves and determining space utilisation. A good understanding of how shelves and space need to be utilised is one of the fastest ways to improve efficiency in a warehouse.

6. Customised Organisation

Every industry is different. This also applies to warehouses. They function differently depending on the industry they are in. Does your warehouse ship multiple items to the same destination at the same time? Does it send out individual packages to different destinations? Every subtle change in the business model means that an accompanying organisational change needs to be effected to ensure the highest degree of efficiency.

7. Standardisation

When you come up with a particular solution to an organisational problem, you also need to come up with a way to make sure that your workers understand the process that it takes to maintain that solution. For example, when it comes to being clean, you need to come up with a way to ensure the warehouse stays clean, even when you are not around. Lack of standardisation is one of the main reasons why most warehouses revert to their old ways after merely a few days.

How To Organise Warehouse Shelving

Warehouse shelving is one of the biggest factors affecting the overall productivity and efficiency of a warehouse. Today, warehouse space is more expensive than ever to maintain. Similarly, companies need increasingly bigger stocks to keep up with the competition. This means that only two options are presented: either get a bigger, more expensive space to house all your products or take advantage of the opportunities your shelving has to offer by using high-density shelving that has been well organised. Here is how to organise warehouse shelving:

1. Inventory

Before you begin, you need to take a detailed inventory of what is existing in your warehouse. When reorganising your warehouse, you do not necessarily have to get rid of all your existing shelving spaces. Figure out what you have, what can stay and what needs to be replaced to make room for newer, more efficient and higher density shelves. You can also relocate a few existing shelves to create space for more. However, you need to pay attention to aisle spaces. Which brings us to our next point.

2. Pay Attention To Aisle Spaces

There are different spatial requirements for a worker working alone in an aisle, for two workers working in an aisle, for two workers working on facing shelves in an aisle, and for multiple workers working in the same aisle. There are also different spatial requirements for forklifts or other warehouse machinery. The spatial provisions of your aisles can significantly reduce potential accidents. Always make sure you measure allocated aisle spaces and determine whether they are wide enough for your workers to work in.

3. Be Flexible

Sometimes, shelving can be bulky. The largest, heaviest shelves usually end up being bolted to the floor to secure them. However, when organising your warehouse shelving and considering what sort of shelf to get, consider getting a shelf that can be installed on a shelf track. Shelf tracks are great for compact areas while providing an added level of freedom and flexibility. It is easier to focus on creating layouts that work through experimentation and trying to find the most efficient arrangement.

4. Pallet Racking Systems

Pallet racking is an efficient shelving storage solution that allows you to stock more inventory in a small space. The shelving spaces use durable steel, and the storage system allows for more vertical storage. Pallet racking systems are an absolute must if you are looking to expand your business, or even if you are just looking to become more efficient and organised in your current space.

5. Make Use Of Vertical Spaces

Before you decide to move on to a new location due to lack of space, consider exhausting your current space first by using vertical space. If you get shelving that prioritises vertical storage over horizontal, you may end up saving nearly half your current storage space. Vertical storage units are the best use of a warehouse’s available square footage. It saves costs and increases efficiency, taking your business to the next level. Our Services Page will give you an in-depth look at all the different types of shelves with this capability.

6. How To Draw Your Shelving Layout Organisation

When planning your shelving layout, imagine you have a wide open plan in the building. Ignore columns and any other obstructions, and come up with the most efficient layout plan possible. Maximise efficiency and productivity while allowing for ergonomic movement within the aisles. Once this is done, draw in your columns and such, and alter the design a little to accommodate them. The end result is a highly efficient layout design that also takes into account all the obstacles and uniqueness of your warehouse.

7. Maximising Shelving Efficiency

When organising your shelving, there are a few things you need to pay attention to. First, make sure your racks are in long rows. Make these rows as long as possible. Next, do not arrange your pallets along the walls, as this limits their efficiency. Finally, never create L-shaped storages. They are a nightmare for forklifts and human workers alike.

Final Thoughts

Warehouse space is very expensive in this day and age. You need to make sure you are getting the most out of it. This is why shelving space must be maximised without compromising on efficiency and productivity. Hopefully, these tips will help you begin to figure out what you have been doing wrong and what you can do to fix it. To get the best value for your money, check out our Services Page for a more detailed look at exactly what we have to offer.

Month: December 2018