Industrial Warehouse Space Planning and Processes

Louise Schlatter, SSOE Group; Tim Stansfield, IET Inc.

Problem: At peak production, a plant is turning out enough product to fill a 120,000-square-foot warehouse, but the existing 80,000-square-foot warehouse was built to meet the inventory requirement of the average production volume.

Facilities Solution: Invest millions of dollars to expand the warehouse to 120,000 square feet.

But what if there was a solution that required zero capital investment and optimized both the facility and the processes associated with it? In this case there is: a revised production and inventory changeover strategy that makes more effective use of working capital and existing space.


Data-driven Team Decisions

Effective solutions such as this are more likely to be identified when all stakeholders collaborate in strategic master planning based on analysis of historic production and demand data.

As in any profession, plant facilities and process managers become experts in their respective areas, engaging in independent planning that de-emphasizes the strong link that could exist between the two areas. The one-sided strategies that result, such as increasing warehouse space, often tie up capital in costly and inefficient solutions.

When both sides of the house collaborate in strategic master planning, each member of the planning team must justify his or her functional needs and challenges to the rest of the team. As a result, everyone on the team, including the one justifying, then better understands the issues and challenges. And when the processes are driven by a solid analysis of historic production and demand data, the team is able to identify cost-effective strategic solutions that might well have eluded the individual facilities and process leaders.

A Closer Look at a Common Problem: Warehouse Space

Let’s dig deeper into the problem outlined above: how much warehouse space does a plant really need? A common challenge in the manufacturing industries is finding the right balance between production scheduling and the amount of warehouse space for production input and output.

More is not necessarily better. Excess warehouse space costs money, not only in terms of land, construction and ongoing O&M, but also in compromising the efficiency of the production processes. Also, working capital is non-value-added, so there is a lot of pressure on manufacturing today to make prudent capital investments or to change the processes enabling organizations to shrink inventory while continuing to serve the customer at the same or a higher standard.

Accounting for Variation in Production Volume

 The annual budgeting process usually is based on a projected average production volume, whereas the actual daily, weekly and monthly production volumes will vary considerably. Perhaps the management team has been planning to have available 80,000 square feet of warehouse space to meet 10 days of finished goods inventory to serve customers.

In reality, only one-quarter of the total stock transitions in that time period, while three-quarters of the warehouse stock never transitions in the planned, timely manner. Instead, three-quarters of the stock is warehoused to provide a perceived extra margin to meet potential demand.

In fact, the average inventory strategy does not take into account the actual variation in production, and there is a much better way to plan for this. In our example, 80,000 square feet is the right-sized warehouse for an average production volume.

However, the actual requirement ranges from 40,000 to 120,000 square feet based on variations in actual production volume throughout the year, according to an analysis of historic data over one to two years.

Without spending a dollar on additional warehouse space, the inventory changeover and production strategy can be modified accordingly — that is, increasing changeovers, adjusting shift and work-hour strategies, utilizing unique storage approaches to make the most of cube space, all of which reduce inventory during peak production, when the warehouse otherwise would have insufficient space.

In this solution, warehouse space relative to demand drives the inventory changeover and production strategy. This avoids the costly, inefficient alternative: building, operating and maintaining 120,000 square feet of warehouse space when it is not needed throughout the whole year.

Analyzing Customer Demand vs. Production Volume

An analysis of the data may show that customer demand is very different from production volume. This may not be apparent because of the differing focus on each side of the house. The plant is focused on volume and efficiency of production, while corporate management is focused on customer service, even though both sides agree on the forecast.

When they look at the data together, the team realizes that they can adjust their changeover and production strategy to reduce their excess inventory and provide better service for their customers’ ever-changing demands.

Collaboration yields a win-win for facilities and processes.

Identifying and Managing Pinch Points

Much of the capital investment in the production process is intended to relieve pinch points so that future production requirements can be met. In reality, pinch points tend to shift based on variations in product mix, batch or run sizes, routine maintenance activities (e.g., sanitation, preventive maintenance, etc.) and unplanned mechanical and electrical repairs.

Understanding this moving target can enable the team to focus resources where they will have the most impact. For example, the team may be considering a capital investment in blending and/or packaging to relieve common pinch points. However, a more effective strategy may be to first change production scheduling to move the pinch point consistently to packaging, and then to use this new paradigm to focus capital investment.

This spaghetti diagram shows volume and flow of material. This example includes flow out of the facility.  Credit: SSOE Group

Balancing Product Inventory

Returning to the warehouse space issue, suppose the warehouse is full, but the company needs a wide range of products to meet customer demand in January and February, and the current inventory of some products is too high, while other product inventory is too low to meet this demand. This will require a number of small production runs to balance the inventory, along with associated maintenance and changeover activities. As a result, the total number of production hours will drop.

Here again, the team will need to consider alternative strategies — for example, a capital investment in additional production capacity or improving the sanitation process to make more production hours available.

Using Computer Modeling

As part of the master planning process, a computer model can be used to analyze literally hundreds of thousands of lines of historical data to show pinch points and other inefficiencies in the process, which may guide the team toward a different capital investment decision than they initially considered, or toward changes in production scheduling or processes to achieve the same goal.

Planners also use the Lean Six Sigma strategy to analyze and improve the outcomes of management and operational processes. However, all analyses must be integrated with a real-world engineering solution that meets customer-service requirements without straining the plant’s profitability. A profitable balance of direct and indirect labor, realistic asset utilization, flexible space and inventory requirements are the important variables that must be optimized across varied customer demands.

Analyzing Multiple Plants/Sites as a Single System

Because most manufacturing organizations are structured such that the plants operate relatively independently, often with a culture of friendly competition, the master planning process must optimize both individual site efficiency and the overall effectiveness of the system. If the planning process considers multiple sites as a system, it may be possible to foster a stronger team effort among plants that supply product to one another at the same time that they must compete in the marketplace.

Using this approach, the planning team may be better able to identify the optimal place, timing or type of capital investments to optimize system effectiveness. In some cases, the team may decide that optimizing the system requires a reduction in the total number of plants.

Sharing the Pain vs. the Single-system Approach

A current issue for large organizations with multiple sites that make different products using similar processes is how to respond to the market requirement to increase the range of products to make the same volume they made 10 years ago. A common philosophy is to “share the pain” of producing the challenging, low-volume products. These might include 20 to 30 low-volume dessert mix products or SKUs, or a mix of low-volume specialty products used only in a doctor’s office with a near-constant, unchanging demand.

While sharing the pain is an equitable philosophy, the single-system approach to master planning may be able to help the team identify a more effective, profitable way to manage this issue. For example, it might be more efficient for one plant to specialize in the low-volume products. Perhaps one plant team will even seek to take on that challenge. This low-volume, high-product-mix plant can drive a unique production philosophy utilizing simplified processes, less automation, flexible staffing and creative inventory strategies that can respond to these production challenges.

It’s another win-win for facilities and processes.

Maintaining Product Quality

Another current issue for corporations with flexible or seasonal variations in products is how to control and maintain product quality. For example, in the prepared food industry, owners and managers are using a system-wide approach to master planning to address the product quality process to improve food safety, in particular, prevention of microbial food contamination. Effective solutions can be identified through analysis of zones of contamination. In some cases, a solution may lie in rearranging the order of similar processes to avoid contamination.

Remembering the Human Factor

Strategic master planning must not forget the human element. Even heavily automated processes still have a connection with people and, unlike machines, their productivity comes from the elusive and harder-to-measure qualities of focus, health and engagement. Effective productivity planning remembers the workers.

The importance of how people interact with machines was learned the hard way by the military in the 1900s, where the success was the difference between life and death. Other lessons were not as dramatic, but from those a whole new area of study began, known as human factors.

Environmental Design is Key

The key component of human factors influencing master planning is the concept of environmental design. The basic lessons are simple: focus is improved by controlling distractions, healthy environments promote productivity and timely rest promotes accuracy.

Scientific studies of individual performance as it relates to “human factors” have expanded our knowledge and understanding, but the results are not formulaic.

For example, look at the body of work referenced and summarized by Dr. John Medina, a developmental molecular biologist and research consultant, in his book Brain Rules. In it he provides his interpretation of the core learning from a large number of research projects and presents them in an easy-to-understand way.

Others promoting the science of environmental design are finding the same things. The USGBC Research Program, which serves as a bridge between green building practices and applied research, connects us to a number of articles describing the health and productivity benefits realized by the occupants of green buildings. Such benefits include increased productivity resulting from improved indoor air quality, improved temperature control, high-performance lighting, lighting control, natural lighting and employee retention.

Cornell University researcher Alan Hedges, professor of ergonomics, has found that workers’ taking a break increases productivity and reduces repetitive stress injuries. The findings are diverse. Many of them relate to how people interact with their environment.

The good news is that in most countries, particularly the United States, environmental design forms a core part of an architect’s basic education. While having an architect as part of your master planning team is not an absolute, it is a great way to quickly tap into a wealth of environmental design factors to benefit your strategy.

Breaks Restore Concentration, Assuring Safety, Efficiency and Quality

The master planning team will consider that factory workers can remain fully engaged in the production line for only so long before they need to take a break to maintain a level of concentration that assures safety, efficiency and quality.

Enhance these periods of disengagement from the machine by planning good environmental design that will allow the break to be as refreshing as possible. One element of that would be to have the break area in a location remote, but not too remote, from the workstation. A walk will stimulate oxygen and nutrients flowing to the brain.

Also, have the break environment be significantly different from the workspace. The machine space, even if it is ergonomically designed, is still foreign to the human body. Consider creating a break area at a scale different from the machine space — at a more human scale. (Why do kids like to play in boxes? Scale.) Change the lighting, color, finish material textures and typical distance of focus to ease the eyes. Encourage the consumption of moderate amounts of healthy food.

Cost-effective Design Solutions

With these ideas in mind,leading companies also use the master planning process to address cost-effective ways to create break rooms that are designed to recharge their workers mentally and emotionally, as well as physically. A typical break area is often nothing more than a few picnic tables set out on the plant floor; but, designed for large production-line equipment, the space is often 20 to 30 feet high and cavernous in its volume.

A more effective break room is designed as a human-scale space, with a lower ceiling, as well as non-task lighting and warmer colors and finishes. Ideally, this space has views of the outdoors (preferably landscaped or natural areas). However, if this is not possible, the design can incorporate cost-effective tubular skylights to bring natural light into the space. This type of space can recharge workers, making them more alert when they re-engage with the production equipment.   

This is a significant value in the master planning process for the investment — a high ROI in terms of optimizing facility capital through improved productivity and healthier employees. And organizations of virtually any size can benefit from guidance by consultants experienced in facilities and industrial processes. Both bring a level of objectivity, consistency and expertise — sustainable over many years — that may be difficult to achieve otherwise.

Working Together to Win on Both Fronts

Those who have done it successfully know that working together yields “aha!” moments. When both sides of the house collaborate, digging deeply into a broad range of master planning issues, they can identify capital investment strategies that optimize both the facilities and the processes, therefore winning on both fronts.

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About the Author