Warehouse Size calculation

To calculate the needed size of a warehouse, we need to know the average volume of
inventory that will be stored in the warehouse. We can do a rough calculation as below:

 Assume that the average unit of inventory will look like a box of HappyTeeth
toothpastes measuring 24” (length) X20” (width) X12” (height).
 Assume that they are stacked in 5 rows of 4 boxes each on standard pallets of
48”X40” size, that is, each pallet can be loaded with 20 boxes, and the height of
each pallet load will be 12” X 5 = 60”
 Assuming that we can stack up the pallets on top of each other up to a maximum
height of 200”, this would mean that we can, at most stack 3 pallet loads on top of
each other, which would add up to a height of 60” X 3 = 180”
 The floor area covered by each pallet is 48”X40” = 1920 square inches = 13.33
square feet.
 Allowing for some space around each pallet, we can say that each pallet requires
around 15 square feet of space.
 Since 3 pallet loads with 20 X 3 =60 boxes can be stacked on top of each other,
this means that we need 15 square feet of space to store 60 boxes.
 However, some space (typically around 20%) will be lost due to honeycombing,
making only around 80% usable for storage. Honeycombing is warehouse space
lost because of the fact that we cannot store different types of items with each
other. For example, if there are only 15 boxes of HappyTeeth toothpaste on a pallet
instead of 20, we cannot fill up the remaining space with boxes of kitchen knives.
That space will need to remain empty. So the amount of storage space we will
need for each stack of 60 boxes is effectively 15/0.8 = 18.75 square feet or
around 19 square feet.
 Now to calculate how big a warehouse we will need, we just need to estimate how
many boxes we will need to store at any given time. This depends on the customer
demand of products stored in the warehouse. Slinger’s can look at two of its other
warehouses for guidance. The demand for goods (in number of boxes of
24X”20”X12” size) in the Slinger’s New Jersey warehouse is as below:
And the demand in the Dallas warehouse looks like below:

Depending on whether the demand in the Chicago warehouse will look like the New
Jersey warehouse or the Dallas warehouse, very different approaches will be required.

 In the New Jersey Warehouse, we can see that the peak demand, at 33000
boxes, is much higher than the average demand of 12,375. If our demand in
Chicago looks like the New Jersey warehouse, we would need to have enough
space to account for the peak demand of 33,000, since not having enough space
to hold products to meet the peak demand is not an option. However, the peak
demand only occurs in one month during the year, and the demand is much closer
 to the average demand for the rest of the year. This would mean that warehouse
would be extremely under-utilized for most of the year. So in this case, it would
make sense to have a smaller warehouse that account for the average demand
plus a small extra, and arrange for separate temporary storage during periods of
peak demand.
 On the other hand, the peak demand in the Dallas warehouse is not much higher
than the average demand. The demand also stays close to the peak demand for
a longer period (3 months). So if the demand looks like the Dallas warehouse, it
would make sense to have a warehouse big enough to account for the peak
demand.
 The reason why the demand profile of the New Jersey warehouse looks the way it
does is because a major portion of products sold from that warehouse have strong
seasonal demand during the holiday season, but sales stay fairly constant at a
lower level during the rest of the year. These are products like toys and electronic
gadgets, which have a strong surge in sales during the holidays. On the other
hand, the products sold from the Dallas warehouse are mainly groceries like
toothpaste, soap, meat and milk. The sales of these products don’t increase greatly
during the holiday season, but sales are somewhat higher than average during the
summer months due to extra sales of refrigerated products like ice cream and soft
drinks.
 As it turns out, the kind of products expected to be sold from Chicago resemble
the Dallas warehouse much more closely than the New Jersey warehouse.
However, the size of the market served by Chicago will be twice that of Dallas. So
we can expect the demand to be roughly twice that of Dallas with a similar
profile. This means that we will need a warehouse big enough to account for a
peak demand of 15000 X 2 = 30,000 boxes per month.
 Let’s say we will need to keep inventory worth 60 days of supply (DOS) in the
warehouse, which is the average inventory in Slinger’s warehouses. This means
we will need enough space in the warehouse to hold 60,000 boxes at a time.
 But storage space accounts for only around 60% of the space in the warehouse,
with the remaining being required for aisles, receiving areas, staging areas,
shipping areas etc. So effectively the amount of warehouse space we will require
to store 60 boxes is 19/0.6 = 31.67 square feet or around 32 square feet. So for
every box, we will require around 32/60 = 0.53 square feet of space in the
warehouse.
 So to hold 60,000 boxes, we will need a warehouse 60,000 X 0.53 = 31,800 sq.
ft. Add to this, space needed for parking, pavements outside the warehouse,
employee cafeteria, office space, space needed for rework etc. and we can round
it off to 40,000 sq. ft. for the new Chicago warehouse.