Author: Reon Eloff
Picture the following scenario: You receive a next-day delivery order from one of your biggest clients, however, due to a poor track record of not delivering the client’s historic orders on-time, you run the risk of losing the client’s business.
You reflect that on-time delivery had not always been a problem for your company, but as the business expanded it became increasingly more difficult to meet order lead times. Determined to meet the client’s current order without delays, you confirm the stock’s availability on the Warehouse Management System and go to the warehouse to prioritise the order with the Warehouse Manager.
Upon entering the warehouse, you are met with a shocking scene. The stock has literally been placed everywhere: between the racking aisles, in between the receiving areas and staging areas, as well as on any floor space that was available. This confuses you, as the warehouse’s utilisation was reported at 95% the previous day.
Nevertheless, it also explains why orders have not been met on-time; how is anyone supposed to find the stock they are looking for, or even reach it once found? Since you know that there are no abnormalities in the demand and that there have been no transportation problems out of the facility, you conclude that this is where the on-time delivery problem stems from: a constrained warehouse.
The above scenario depicts what various operations within distribution centres, cross-dock facilities, warehouse depot’s, satellite sites and manufacturing warehouses could experience when faced with a constrained warehouse. This phenomenon not only deters business growth but may also lead to operational inefficiencies, low morale as well as inferior service and product quality.
To overturn a constrained warehouse and ensure that your business can enjoy sustainable, long-term growth, it is critical to expand your operations and increase the facility’s capacity. You can achieve this through one or more of the following considerations:
- Improving your current operations
Improving your current operations should be your first consideration for increasing capacity. This can be done by either running more shifts or by acquiring more efficient equipment and systems, which will maximise capacity and storage space. It should be noted, however, that the resulting increase in capacity from deploying these options may result in a requirement of additional storage space or floor area, thus limiting this application in a continuous cycle.
- Outsourcing a portion of your operations
Outsourcing a portion of your operations could be considered as a solution to temporarily increase the capacity of your warehouse, however, if this strategy is executed in the long term, your business could suffer from inefficiencies, an increase in costs, loss of control as well as a reduction in quality of your provided services and products.
- Leasing a nearby facility
Leasing a nearby facility and running both facilities in parallel may not satisfy your business’ needs. Not only would your business’ costs increase, but other factors such as additional logistics, double handling and having a double staff complement to manage both sites, will need to be considered.
- Expanding your current facility (Brownfield’s expansion)
For many businesses, the only sustainable long-term options are to expand, relocate, or build a new warehouse. If there is sufficient unoccupied space on your business’s premises which is conducive to the business’s needs, you could look at expanding the current facility (also known as Brownfield’s expansion). In order to circumvent major inefficiencies down the line in future, it is critical to plan a warehouse expansion with a long-term vision. You need to account for your business’ potential future growth as well as the expanded facility’s impact on your operations.
- Relocating to another existing facility (Brownfield’s investment)
Another cost-effective option to increase your facility’s capacity is to relocate to another existing facility (this is also known as a Brownfield’s investment). Not only will this option save you time, but the site may also have the benefit of requiring little to no construction to meet your business’ requirements. Conversely, you may not find a facility that meets your business’ exact requirements. Should your business find a site that meets 90% of your requirements but costs 10% less than the alternative (while meeting the feasible capital requirements), you could have the opportunity to adapt your business for the better through innovative decision making.
- Building a new facility on a vacant site (Greenfields’s investment)
The final consideration for increasing a facility’s capacity is building a new facility on a vacant site (also known as a Greenfields investment). This option is often regarded as the last-resort-option due to the large capital investment that is required to build a new facility. It should be noted, however, that if you could lease a facility back from a developer who custom builds the facility to exact specifications, that this option should in fact, be considered from the beginning, as it provides your business with a unique opportunity to innovate as well as put certain technologies in place which may not be possible at an existing site.
No matter which route you may find yourself on to increase your facility’s capacity, your first order of business should be to do a thorough requirements analysis. This analysis will ensure that all your design requirements and specifications to meet short- and long-term operational needs in terms of labour, machinery, equipment and building; are established and planned for.
The requirements analysis should be followed by a capacity scenario analysis which, together with facility design and simulation modelling, aims to determine the expected capacity and throughput of each option you are considering. These outputs are then compared with the previously determined requirements to select the best option. Furthermore, each option can also be expanded to consider multiple scenarios, and each scenario can be quantified in terms of the expected capital (CAPEX) and operational (OPEX) expenditures, providing you with all the details to make an informed decision.
