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Designing Your Warehouse for Efficiency:
A Guide to Best Practices
By Rama Ramaswami

Warehouses do not adhere to a molded one-size-fits all model. We unearth a comprenhensive study of the best warehousing practices, as revealed by distribution experts in the industry.

Warehouses have always been specialized. There is no such thing as a one-size-fits-all facility, despite the efforts of budget-conscious companies to “standardize” warehouse design and configuration. More than two thousand years ago, the port city of Ostia Antica, located outside Rome at the mouth of the Tiber, served as a major warehousing center. Today, you can still see the ruins of the large buildings (called magazzini repubblicani, or republican warehouses) used for this purpose as you walk along the main street of Ostia. The goods that entered the port, such as grain from Sicily, Egypt, and all of North Africa, were processed and stored in these warehouses before being consumed by Rome.

What made these structures distinctive, though, was their careful customization for the products they housed. Some had raised floors, for instance, to protect the grain from damp and overheating. There was also a special category of buildings that contained huge, buried jars, in which wine or olive oil was stored.

Warehouses have come a long way since their predecessors in Ostia, but they still essentially store and transport goods, as well as earn distinction through small, incremental changes that make them uniquely suitable for the products they handle. It follows, then, that there are no specific configurations recommended for coffee, tea or other commodity warehousing. The distribution experts interviewed for this article invariably advise using widely accepted guidelines for facility selection, and then tweaking the facility as appropriate. What follows are some of the best practices they recommend.

Evaluate Facility Performance
Coffees packaged in sizes ranging from
one half ounce to 35 lb. bags.
The ideal facility is one that you build yourself, taking into account various factors, such as location and availability of labor and tax incentives (see page 32, “Warehouse Site Selection Factors”). Since few companies can readily avail themselves of this option, the next best alternative is to lease a facility that can be easily adapted to your requirements. Warehouses come in all shapes and sizes, but the most efficient ones have certain factors in common. A recent study conducted by logistics guru, Dr. Edward H. Frazelle, and The Logistics Institute at Georgia Tech, compares the performance of 212 warehouses in a variety of industries, highlighting the leaders in productivity, accuracy, cycle times, use of technology and quality. The average facility in the study measures 239,985-sq. ft., stores 57,735 SKUs, and ships 544,345 orders a year. About 77% of the respondents use a warehouse management system.

The Survey’s Key Findings:
Due to their efficiency and manageability, small warehouses perform better than large ones. Of the top 10 performers, only one comes in at more than 300,000-sq. ft.

The greater the number of measurements used, the better the facility’s performance. From the warehouses that use 11 to 15 measures, 66.9% are high performers. By contrast, 87% of the facilities with one to five measures are poor performers, and 74.6% of the warehouses with six to ten measures are just average in terms of performance.

Good people and management are also vital to performance. Low turnover yields high quality. Facilities scoring high on Dr. Frazelle’s warehouse quality index (shipping accuracy multiplied by inventory accuracy) have a turnover rate of less than 5%; the lowest scorers on the WQI have turnover rates of 25% or more.

More SKU movement equals more productivity. The average survey respondent has 78.2% active SKUs; the median number is 85.1%. Dr. Frazelle urges facilities to purge all dead SKUs frequently. “The average U.S. company goes five years without pruning.”

The operator-to-supervisor ratio should also be low. The best ratios are 12:1 for productivity and 8:1 for quality.

When combining all of the survey’s findings, the perfect warehouse would be 671-ft. long, 447-ft. wide, 30-ft. clear, 300,000-sq. ft. in size, and located inside a free trade zone with 24-hour delivery to U.S. zip codes. It would have 80% normal occupancy and 90% peak occupancy, boast a fully cross-trained workforce, maintain an operator-to-supervisor ratio of 12:1, and get more than 1,000 hits a year for its SKUs.

Monitor Consumer Tastes
The Munson Tea System has the capacity to blend
22 million lbs. of tea annually.
Most small and midsized producers of coffee do not have the resources to operate warehouses that come anywhere near this “norm,” in terms of size or sophistication. But an important factor in successful warehousing is keeping pace with changing consumer preferences, and this is something that all companies of all sizes can and should do, says Stephen Harris, principal of Harris & Harris Consulting, a Lincoln, Vermont-based firm whose projects include designing distribution centers for several coffee manufacturers. As the distinctions between coffee manufacturers and retailers blur, Harris says, the rules for product display, storage and warehousing are breaking down. “Coffee manufacturers are now vertically integrated, and are responsible for their own point-of-sale presentation,” he stated. “Producers and distributors are doing POS displays. Manufacturers and retailers are not really separate entities any more,” Harris added.

Although this trend affords manufacturers considerable flexibility, it also means that they need to keep a sharp eye on customer expectations, adds Harris. “A lot of facilities have gone to ruin because the management hasn’t kept pace with changing demands.”

Here’s where some old-fashioned common sense can come in handy. “One of the rules of the commodity markets is that the smaller it is, the more it can be marked up,” says Harris. “The layout for a boutique shop is different from that of Starbucks and from the plant that supplies 4,000 customers.” Accordingly, the warehouses or storage areas for each of these entities would be quite different from one another. For small producers and those just starting out, the process of setting up a warehousing operation can seem daunting. Harris offers the following tips for the uninitiated:

Consider the weight of the product. “Coffee beans are sold in burlap sacks weighing 90 to 100 lbs. and are very hard to handle,” he says. “There are only a few efficient ways to pick them up.” Since backbreaking manual labor is hardly the ideal solution, entrepreneurs would be well advised to invest in a claw lifter, suggests Harris. “But the barrier to entry is the price tag of one of these lifters — roughly $30,000. For a coffee company making $1 million, with a return of 8%, that machine is very expensive.” A pallet jack is another costly but essential investment.

Make sure your loading dock is adequate. To enable a partial truckload trailer to back up, the dock needs to be at least 48 inches above the ground, have a leveler plate, receive multiple beds, and face a maneuvering area that is a minimum of 150–ft. deep. “Those are precious commodities in the world of the small-time entrepreneur,” concedes Harris. “But the dock is the first thing to have in the works.”

Incorporate quality control into the receiving process. Bad coffee, for example, needs to be quarantined. Since it cannot be thrown away, it needs a separate area (preferably a section of the receiving area) in which it can be stored until the supplier comes to remove it. Isolating quality problems before the product ever gets to the warehouse can save a warehouse manager many headaches later on.

Invest in roasting equipment with a reasonably high capacity. “You need a roaster of sufficient size to handle a week’s worth of inventory and a day’s worth of roasting,” says Harris. “If you have only five employees, the one who does the roasting one day will be performing marketing, sales, and other functions the other days of the week.”

Designate a place to store your finished product. Although space might be cramped, don’t yield to the temptation of sharing this area with other departments or activities. Store your coffee in a sanitary, clean and environmentally controlled location. And, cautions Harris, “never ship anything that’s more than five or six days old.”

Climate Control Conditions
Roaster operator controls four coffee roasters with a capacity exceeding 100 million pounds annually.
Climate control is a critical issue that food warehousing experts cite time and time again. “The worst thing possible is varying extremes from hot to cold and back,” points out Debra Ellis, a distribution center consultant who heads up Wilson & Ellis Consulting in Barnardsville, North Carolina, and who has advised tea producer Celestial Seasonings on its warehouse layout. “If the coffee or tea is stored in extreme conditions of high humidity and temperature, the taste will be altered. I found the tea issues to be very similar to those of other food products. I had a challenge finding the optimal conditions, so we maintained a mid-range climate that was comfortable for the workers.”

The entire warehousing environment has to be as balanced as possible, Ellis says. “The shelf life for coffee and tea varies based on the product, processing stage and packages. The movement through the warehouse has to include the shelf-life factor to ensure that the best-quality product is shipped to customers,” Ellis added.

Ellis notes that other mandatory requirements are absolute cleanliness — of everything from equipment to air to personnel — and effective pest control. Also, to reinforce the argument for finding a separate area for storage, she point outs that “proximity to other products must be managed because coffee and tea can absorb odors.”

Control Your Inventory
Old inventory is problematic no matter what product you sell, but in the case of coffee, it is downright disastrous. Industry experts emphasize that inventory control is one area, where spending time and money really does pay off. In addition to using every available inch of space in your warehouse, you should have the people and processes in place to track, organize and update your stocks constantly. If a perceived lack of warehouse storage space overwhelms you, consider this: Are you measuring it the right way? The newsletter, Distribution Digest gives this example: A company that sells rugs was having storage difficulties. To measure the space that the rugs occupied, the company calculated cubic requirements by measuring the rugs’ length, width and thickness. The firm then used that data to determine storage needs and put-away activity.

This solution didn’t work. Why? The rugs were measured flat, but they were rolled up to be stored! This procedure, of course, completely changed the amount of space needed. The invaluable lesson to be learned from this is to ensure that you calculate storage requirements based on how the item is actually stored, moved and picked in your warehouse. In the chaos of roasting coffee and hurrying to fill orders, it is easy to overlook the real sequence of work and how long it takes. What is the order picker’s path? Once at the SKU’s location, how long does he or she spend looking for the item?

Ideally, stock would move so fast that you would need to keep almost nothing on hand in your distribution center. Since few coffee producers can expect to get anywhere near that blissful state, the next best thing to do is manage inventory so well that you always know exactly what you have and where to find it in the warehouse.

AHN Corporation, a Burbank, California-based warehouse solutions provider, offers proven techniques to dramatically improve inventory control. Here are a few key steps:

Set goals. Determine what you want to achieve. For example, how many stock-outs do you have on a daily basis? And how many would you consider acceptable? Decide on that number, and work towards attaining it.

Develop and use stock check cards. Whether your system is automated or manual, you must establish a procedure for the warehouse staff to identify and report problems. Try a “Stock Check” form, which lists the order number, picker’s name, date, product code, and reason for filling out the form. If an item is back-ordered, for instance, a stock check form should accompany it.

Clean and organize your warehouse. Don’t underestimate the importance of this step. How can you count inventory, if your facility is in chaos? Create a simple aisle maintenance sheet — check it daily.

Throw out non-stocks and dead inventory. The only sensible thing to do with useless inventory is to get rid of it. No matter how much time and resources you allocated to processing that old coffee, just remember that it is worth less each day you keep it on the shelves!

Conduct an annual warehouse “physical.” This should be an organized, focused procedure; don’t suddenly hand your staff a pencil and a sheet of paper and tell them to begin counting. Set up count teams; assign them to specific zones; use only warehouse personnel to count; remove all distractions (no talking or music); audit the counts; and correct variances as soon as possible.

Assign someone to monitor reports all year long. That way, you won’t have to tackle them all the week before the annual physical. Keeping tabs on your inventory year-round is the best way to run your operation efficiently and minimize upheavals during the count.

For large manufacturers that operate a more complex supply chain, the Boston-based research firm Aberdeen Group Inc., offers some insightful inventory control strategies, based on a survey of 178 companies’ supply chain and inventory management practices. Not surprisingly, the responses revealed a serious disconnection between how the companies wanted to manage inventory and how they actually went about doing it. Aberdeen analysts’ recommendations, in the suggested order of implementation, are as follows:

Get help from your suppliers. Roughly 56% of distribution-intensive companies use supplier-managed inventory. If you can get your vendors to adopt “lean” principles and just-in-time delivery, you may be able to make them shoulder most of the burden of inventory management.

Try holding finished goods inventory at a central hub. This unconventional method frees up more working capital.

Become complex. Rid yourself of simplistic inventory management policies such as weeks of supply. Try to shoot for something as comprehensive as item-location level inventory management.

Make a single entity responsible for end-to-end inventory control. Local programs to reduce inventory aren’t always effective. Institute a consistent policy across the supply chain.

Investigate emerging methods of inventory control. Think postponement, merge-in-transit and risk pooling. Ask your third-party logistics provider for help.

Invest in collaborative technology. Work with your suppliers on information sharing and proactive exception management.

Take advantage of in-transit inventory. Use this “virtual” inventory to lower safety stock levels, reduce total delivered costs, and increase revenue.

Install programs that account for supply chain variations. These applications are particularly useful if yours is an intricate, multi-layered operation.

Incorporate inventory goals into product design. For example, a component-based design (such as reusable packaging parts) enhances inventory flexibility and efficiency.

Some of these techniques may drive up your inventory management costs, although they will result in greater accuracy and better organization. To keep those costs down, says logistics expert, Dr. James A. Tompkins of Tompkins Associates, it is essential to rationalize your SKUs. “Remove inappropriate items from your product line,” he says. “Don’t stock every SKU in every DC. Transfer inventory from one facility to another, instead of purchasing new stock. Consider liquidation if the price is right, and try a vendor-managed inventory system, whereby your suppliers take on responsibility for replenishing your inventory.”

About the Author: Rama Ramaswami is a freelance writer based in Wilton, Connecticut.


Tea & Coffee - February, 2007
Modern Process Equipment


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