Oct. 2 2006 03:14 PM

The evaluation of your present space capabilities will lead you to one of three conclusions: First, youre out of space now. Second, youre going to be out of space very soon, or third, you have enough operating space now, but it could be improved. The Law of Diminishing Returns provides us with the insight that nothing lasts forever. The key to expecting diminishing returns over a period of time is established in the initial state.


Warehousing is a linear system and process. The box comes in, and the box goes out. Simple linear systems can exhibit unpredictable behavior due to any deviance from the initial planning parameters of the facility. Find those areas or processes that have been stretched beyond their limitations and youll find questionable production and customer service performance.


Dealing with space shortage is different for storage and processing functions. With pure storage, its a black and white issue: Either you have enough slots and spots, or you dont. You can always mix SKU product as well as store in the aisles, but the impact to labor costs and productivity results are obvious. With processing, you have something different. In addition to the impact of labor costs and productivity, you also have the added risk of customer service expectations. Did the order get out on time, and was the order processed correctly? Either way, you have some choices and options:


Do Nothing

If your choice, or the choice made by others is to do nothing until the meltdown, make sure at least you have calculated how much more demand it will take to reach that critical mass. Then all you can do is be on record as to the risks and results anticipated to productivity, costs and services.


Do Something

There is no perfect answer or option. Each facilitys demand and capability characteristics are unique. When developing your own list of options, keep this in mind: By knowing your present condition and established absolute operating limits (from test to destruction), any investment in upgrades can be quickly calculated to estimate the cost and value of that change or upgrade against your best guess timeline to catastrophic meltdown impacting customer service. The calculation and results dont have to be detailed. Common sense will dictate whether its worth it.


Start with internal upgrade opportunities. Addressing suspect inventory, including dead and obsolete materials. Old equipment, salesmens displays and even the presidents boat are fair game and mandatory. Beyond the inventory question are improvements such as re-layout when feasible, re-profiling storage units to match product, re-slotting, using the full ceiling height and serious programs of housekeeping and consolidation. More serious upgrades include a narrow aisle storage concept and carrousels for smaller items, mezzanines for process and office expansion, overhead conveyor delivery and takeaway, etc. Again, the only question is How long is it going to last?


Then there are the outside options: Facility expansion is a natural first thought, but be careful of the expansion configuration, as it might be counterproductive. Now let me work backwards. The ultimate option is to outsource. The only reason to outsource is if somebody can do it faster, cheaper and better than you. If you dont fall into that category, which most dont, then you must continue to deal with storage, processing and support areas. Intensive labor processing areas must be your highest priority. Theoretically, all inventory could be kept in an outside facility run by you or a 3PL firm that receives, stores and delivers to your main facility on a J.I.T. schedule. Office support areas are both tricky and political. But to sacrifice processing space for offices, etc. speeds up that facility lifetime decay even more. Ultimately, you have to address the final question: How long will the facility last with just the processing function?


The Law of Diminishing Returns is always in play because your business is adjusting to the changing market demands at all times. The answers lie in the understanding of your facility life cycle and trying to stay ahead of the curve. Your knowledge of the operation and familiarity with demands and capabilities positions you to anticipate the real risks better than anybody. The best analogy is that your home is a small warehouse. The exhibit refers to conditions that you might normally experience. But ask yourself these questions: What happens as the family grows? What happens when the relatives come for a visit? Would you make the same space decisions in your house as you would in your facility? Remember, nothing lasts forever.


Lynn A. Gross is a Supply Chain Consultant. He can be reached at lagross01@earthlink.net.