One of the most miscalculated and underestimated requirements when it comes to e-commerce is space utilization within a warehouse.
The challenge is to balance between maximizing the storage of items per cubic foot vs accessibility to items for efficient and cost effective order picking.
Get this wrong and it could be the end of your e-commerce business.
At the end of the day, your cost of goods could be extraordinarily low, you could have an extremely high demand for your product and yet you find that your margins are not what you thought they would be. Worse is that the busier you get the worse your bottom line gets, and yet your gross margin per unit is extremely healthy. That’s because you are spending too much time getting to the items that your clients are ordering from you and paying for storage space that you are not using efficiently.
This does not mean that it’s not doable, it just means that it requires a lot of analysis and homework before setting up your warehouse. Each SKU or item needs to be analyzed, from its size in how many fit per cubic foot, right down to how popular an item it is on your website before deciding where in the warehouse it should go and what type of storage unit it should be held in.
One of the biggest mistakes is to over buy items because there was a good deal to be had on a large lot. That good deal could quickly cost a fortune in storage and inefficiency costs if the item does not sell quickly enough.
Once you have determined what SKUs are worth carrying, how much space they would occupy based on volumetric size of each unit or carton, you can now determine how and where within the warehouse they should be stored; skid locations, quick bin buckets, shelving, case flows, etc.
Of course all this is easier said than done. To make matters worse some items are just not conducive to be stored efficiently. For example they are not stackable, bulky or odd shaped. Perhaps they have multiple variations of the same item (color, size, dosage, etc) making it difficult to have every version available for easy picking.
If you get everything right you can expect to utilize a maximum of 80% of your warehouse. Get it completely wrong and that number drops to 40%. With today’s real estate prices you better get it right if you want to stay in business.