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Posted by Stephanie on April 15, 2024

Warehouse profitability and efficiency depend on how well the space is utilized. If you use the space well, you can store more inventory and list more items for sale. Your personnel should also find performing their loading and unloading duties easier. 

Because space utilization is crucial for warehouses of all shapes and sizes, you must know how to perform this calculation for your facility. By accurately calculating your warehouse space utilization, you’ll be able to reduce costs and enhance productivity. The following guide delves into warehouse space utilization and how to calculate it. You’ll also learn how to improve your facility’s layout.

Warehouse before Installation

Factors Affecting Warehouse Space Requirements

Every warehouse has different storage needs, which is why there are numerous factors you must consider when estimating your space requirements. For example, consider the standard pallet size your warehouse requires. Pallets are available in many sizes, the most common of which is 48 x 40 inches. You can also purchase square pallets for your facility. The length of your preferred pallet determines the room your inventory requires on your shelves.

You’ll also need to consider the number of pallets your warehouse requires. These pallets need to be appropriately situated throughout your warehouse. If you’ve noticed that your space could be more efficient, this issue might be caused by having too many pallets.

Consider stacking height as well. It’s possible to stack pallets to make better use of vertical space. However, stacks can eventually become too tall, making them more likely to topple. The Occupational Safety and Health Administration provides guidelines about the ideal stacking height. Several factors determine the maximum stacking height, including the pallet weight and the types of materials being stored.

Warehouse space utilization is also an important consideration. Your inventory’s layout can factor into how much space you require. However, warehouse space utilization can be affected by factors that you cannot control, such as the size and shape of your existing inventory.

Understanding Warehouse Space Utilization

Warehouse space utilization measures the amount of space you use compared to the facility’s storage capacity. A ratio can be displayed as a percentage or decimal number. You can learn more about the performance of your warehouse by doing this calculation. The efficient use of space plays a role in operational efficiency and profitability.

If this ratio is high, you’re getting the most out of your warehouse capacity. In this situation, wasted space is kept to a minimum. However, a low ratio means your warehouse capacity needs to be correctly used. When you waste space in this manner, you’re effectively paying for a portion of the warehouse you’re not using.

Even if your ratio is decent, optimizing your warehouse space utilization is still highly recommended. Improving how well your space is utilized is necessary to bolster performance. Once you’ve optimized the space, you’ll benefit from speedier order fulfillment. A more efficient inventory shelving system leads to higher visibility, which makes it easier for your picking staff to find and retrieve items. If your personnel move effortlessly between aisles, their transit time can be reduced significantly.

You’ll also benefit from lower warehousing costs. A high utilization ratio means that overhead costs related to inventory storage should be low. If you have a considerable amount of inventory space, you should be able to store more varied products, which can boost customer satisfaction. Better utilization can also increase your revenue by allowing you to provide more stock during high-traffic sales.

Warehouse with Pallet Racking and Boltless Shelving
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Ideal Warehouse Space Utilization Ratios

Calculating warehouse space utilization gives you a better idea of how well the storage area in your warehouse is being used. If the ratio is 100%, the facility will be filled. The best warehouse space utilization ratio is different for every warehouse. Some of the factors that determine which ratio is best for you include the following:

  • Expiration dates for inventory
  • Total number of products you have
  • The ability for items to stack
  • Shape of your inventory

At a 40% utilization ratio, you likely have products that can’t stack properly or come in odd shapes that take up a lot of space. If a high percentage of your inventory consists of large and unusual items, it may be challenging for you to use the space better.

A 50% utilization ratio is best for companies that sell products with expiration dates. If you store food or cosmetics that eventually expire, you can improve space utilization by placing older products at the front of your inventory to be picked first. At 50%, you should be able to get around your inventory without too many problems. A lower ratio may be required if your products don’t stack properly.

If you have products with high turnover but no expiration dates, a 60% ratio may be ideal. The same applies to warehouses that store multiple product types and as many as 100 SKUs. If your inventory doesn’t have expiration dates and only turns up to six times yearly, you can safely use around 70% of your facility’s space.

The highest space utilization ratio a warehouse should have is 80%. This ratio works best for companies that store a small number of SKUs that don’t have expiration dates. Ensure your warehouse has minimal turnover before choosing this utilization ratio. The ratio should always stay within 100%. When this happens, it will be more difficult for your personnel to maneuver around your warehouse and obtain products.

Calculating Warehouse Space Requirements

It’s highly recommended that you use a warehouse space calculator to calculate your space requirements. You can find this software online. Once you input information about the size of your pallets and how many you keep in your facility, the calculator will do the math and determine how much storage space you need. If you’d instead perform this calculation yourself, follow the steps listed below:

  • Identify and add up the total number of pallets in your warehouse.
  • Divide the number of pallets by their current stacking height. If you intend to stack three pallets, divide them by three. When you’re unable to stack pallets, divide the number by one.
  • Calculate the total square footage of your pallets. Most pallets are around 48 x 40 inches. A single pallet is 13.33 square feet.
  • Multiply the overall stacking height by the total square footage. If you have 20 pallets that measure 48 x 40 inches with a stacking height of two, multiply 10 by 13.33 to obtain 133.33.
  • Divide this number by your preferred warehouse utilization ratio. Let’s say you want a ratio of 50%. Divide 133.33 by 50% to reach 267 square feet.
Guard Rail

Importance of Future Growth Consideration

Warehouse space planning requires flexibility. The amount of space currently suitable for your company may need to be more manageable. Make sure you have enough room to scale up if your company grows in the coming years. If you intend to store additional inventory or sell other product types soon, consider using more pallets in your calculation.

These calculations aren’t meant to be fixed. You need to be able to adjust them for increased inventory and future expansion. If your warehouse space utilization currently needs to be higher than you’d like, you can improve it by optimizing your layout with different storage systems. For example, adding mezzanines and other shelving types can help you better use your space. You could also adjust the widths of your aisles.

Consider consolidating your existing inventory using lean management techniques, including everything from cycle counting to just-in-time. Both tools allow you to free up storage space and limit excess inventory. Ensure your inventory is organized by frequency of use, weight, size, or shape for better picking efficiency.

If you expect your facility’s needs to change regularly, it’s crucial that you consistently monitor your warehouse space utilization. You can keep track of this metric with a Warehouse Management System (WMS). This type of system delivers real-time reports and information on cube utilization, occupancy rate, and fill rate. You can also measure the facility’s performance with KPIs, which include order fulfillment rate, storage cost per unit, and inventory turnover rate.

Conclusion

Calculating warehouse space utilization is necessary to maintain an efficient and productive facility. Once you identify the ideal utilization ratio, you can start optimizing your space and ensuring that personnel can perform their tasks without delay. Faster picking times often result in quicker deliveries.

Whether you use online software or manually perform the calculation, accurately assessing your warehouse space utilization can help you improve operational efficiency. If you need assistance determining your warehouse space needs, use this calculator. Once you input the number of pallets, their size, your preferred utilization ratio, and how high your products can stack, you’ll find out how much storage space you need.

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