CHAPTER 5

Warehouse Sizing and

Storage Distribution
Supply Chain I

Mtro. William Delano Frier

CHAPTER OULTINE

1. DESIGN
2. SIZING METHODOLOGY
1. STANDARD REQUIRED SPACE
2. EXPECTED SERVICE LEVEL
3. COST
3. WAREHOUSE PRODUCTIVITY

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 Design
• The objective of the design consists of answering
the following:
• Warehouse space required?
• Stocking space determination?
• Stocking location?

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 Design
• Models

• Discrete Models
• The materials are considered static.
• Pallets, bags, containers.
• Continuous Models
• Materials are constantly being consumed.
• Silos, tanks.

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 Design
• Stocking location is assigned by two
methods:
• Sequentially
• Benefits
• Simple to use.
• Product is stored sequentially by item numbers.
• Disadvantages
• Doesn´t consider the transaction volume.
• Products with high turnover can be stored in far
away locations.
• Transaction Flows
• Considers:
• Activity Level.
• Volume to be stored.
• It is preferred over the sequential method.

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 Methodolology
• Methodology
1. Sizing
1. Standard Required Space
2. Expected Service Level
3. Costs
2. Warehouse Productivity

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 Standard Required Space

• The number of spaces assigned to a certain product

must be enough to store the maximum expected
volume.

DAILY RE ORDER
DEMAND SUPPLY
PRODUCT (PALLETS) (PALLETS)
1 2 8
2 5 40
3 2 12
4 1 12

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 Required Space
• Simulation….
DEMAND 2 5 2 1
SUPPLY 8 40 12 12
INITIAL INV 8 40 12 12 TOTAL
1 6 35 10 11 62
2 4 30 8 10 52
3 2 25 6 9 42
4 0 20 4 8 32
5 6 15 2 7 30
6 4 10 0 6 20
7 2 5 10 5 22
8 0 0 8 4 12
9 6 35 6 3 50
10 4 30 4 2 40
11 2 25 2 1 30
12 0 20 0 0 20
13 6 15 10 11 42
14 4 10 8 10 32
15 2 5 6 9 22
16 0 0 4 8 12
17 6 35 2 7 50
18 4 30 0 6 40
19 2 25 10 5 42
20 0 20 8 4 32
21 6 15 6 3 30
22 4 10 4 2 20
23 2 5 2 1 10
24 0 0 0 0 0
25 6 35 10 11 62
26 4 30 8 10 52
27 2 25 6 9 42
28 0 20 4 8 32
29 6 15 2 7 30
30 4 10 0 6 20

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 Required Space
• Analysis…. 62 42
SHORT EXCESS SHORT EXCESS
0 0 20 0
0 10 10 0
TYPE AMOUNT FREQUENCY 0 20 0 0
0 30 0 10
MAX 62 2 0 32 0 12
MIN 0 1 0 42 0 22
MODE 42 4 0 40 0 20
0 50 0 30
0 12 8 0
0 22 0 2
0 32 0 12
0 42 0 22
0 20 0 0
0 30 0 10
0 40 0 20
0 50 0 30
0 12 8 0
0 22 0 2
0 20 0 0
0 30 0 10
0 32 0 12
0 42 0 22
0 52 0 32
0 62 0 42
0 0 20 0
0 10 10 0
0 20 0 0
0 30 0 10
0 32 0 12
0 42 0 22
0 878 76 354

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 Expected Service Levels

• Warehousing Capacity based on the probability of

space shortage.
n
Pr(faltantes = 0) =  Pr(faltantes = 0 para Pj)
j=1

( )
n
Pr(faltantes = 0) =  Fj Q j
j =1

Pr(faltantes  1) = 1 − ( )
n
 Fj Q j
j =1
• where:
• Qj = Assigned storage for product j
• Fj(Qj) = Cumulative Distribution Function
• The cumulative distribution function (also called the distribution function) gives you the cumulative (additive)
probability associated with a function

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 Expected Service Level..

• Example.....
In the warehouse where 5 products are stored,
the Service Level should cover the Mean+2.25 s.
The probability that several spaces required on a
particular day can be approximated by the normal
distribution.spaces
PRODUCT MEAN STD DEV
1 30 8
2 40 10
3 50 15
4 50 12
5 40 12

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 Expected Service Level…
• Example...
• The number of spaces Q assigned to
product j is given by: Qj = Mj + zjsj
• where:
• Mj = Mean of required spaces per
day.
• zj = Safety Factor.
• sj = Standard Deviation for the
required spaces per day.

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• Example……
• Spaces
Service Levels
• Q1 = 30 + 2.25(8) = 48 spaces
• Q2 = 40 + 2.25(10) = 62.5 spaces
• Q3 = 50 + 2.25(15) = 83.75 spaces
• Q4 = 50 + 2.25(12) = 77 spaces
• Q5= 40 + 2.25(12) = 67spaces
Total = 339 spaces
• Service Level
• Fj = 0.5000 + Z2.25
• = 0.5000 + 0.4878(from Table or Excel) = 0.9878
• Probability of Zero space shortages
• FjQj = (0.9878)5 = 0.94047
• Probability of at least 1 space short per day
• 1- FjQj = 1-0.94047 = 0.05952
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 Costs

• Objective
• Minimize the Warehousing Cost

( )
n
 T
TC Q1 ,..., Q n =  C o Q j +  C
j =1 t =1
1, t
 ( , ) + C 2,t max(d t , j − Q j ,0)
min d t , j Q j

• Options to analyze:
• Warehousing owned storage space.
• Leased Space.

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 Costs

Where,

• Qj = Owned storage capacity for product j.

• T= Length of the planning horizon (periods).
• dt,j = Storage space for product j during period t.
• C0= Present worth cost per unit storage capacity owned
during the planning horizon T.
• C1,t = Present worth cost per unit stored in owned space
during period t.
• C2,t = Present worth cost per unit stored in leased space
during period t.

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 Costs

• To determine the optimal space.

1. Calculate C’ = C0 / (C2 - C1)

2. Sequence in decreasing order the
demand for space.
3. Sum the demand frequencies f.
4. When the partial sum of f is => C’ then
the optimum capacity equals that
demand level.

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 Costs
• Example...
• What is the optimal space needed to store 1 product
during 10 periods, considering the following
information: Co = $20
• C1,t = $1
• C2,t = $4
• The space requirements are 4,6,8,10,9,8,7,6,5,4
during the periods 1 to 10 respectively.

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 Costs

• C’ = 20/ (4-1) = 6.67

Espacio
Requerido Frecuencia Suma f
10 1 1
•Example...
9 1 2
8 2 4
7 1 5
Optimal Q =6
6 2 7
TC = $223
5 1 8
4 2 10

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 Warehouse Productivity

• Objectives
• Minimize the time required to store and supply products.
• Requirements
– Have enough slots available to “assign” one to each product
(SKU)maintain the selection criteria.

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 Objective Function

( pi , j t j ,k x j ,k )
T
minimizar f ( x) =
m n s j
  
i =1 j =1k =1
Sj

sujeto a :
= 1, k = 1,....., s
n
 x j ,k
j =1

= j = 1,....., n
s
 x j ,k S j,
k =1

x j ,k = (0,1) para j y k

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 Variables
• Definition

• s = # of spaces
• n = # of products to store
• m = # of receipt and supply points.
• Sj = # of spaces required for product j.
• Tj = # of transactions for product j.
• pi,j = % of transactions from j to the receipt and supply point i.
• ti,k = Travelled time from i to space k.
• xj,k= 1, if j is assigned to space k= 0, if not
• f(x)= Estimated time to satisfy the system demand.

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 Warehouse
Optimization
• Exercise

Tenemos los sig. Espacios:

1 2 3 4 5
P3 6 7 8 9 10
* 11 12 13 14 15
16 17 18 19 20
P2 21 22 23 24 25
* 26 27 28 29 30
31 32 33 34 35
P1 36 37 38 39 40
* 41 42 43 44 45
46 47 48 49 50

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 Warehouse
Optimization

• Exercise
• Access doors
• Probability of use P1= 10%, P2 = 40%, P3 = 50%

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