By: Jacob Read

When an organization realizes that its operations are growing beyond the current usable space, they may decide to expand the existing facility. Often this is not necessary, and can cost the company in terms of expensive construction. Rather than expanding, better space utilization can provide more usable space in the current dimensions of the facility. Low space utilization is a result of a poor layout, which can be caused by inefficient operations and material flow.

One such operating inefficiency that causes low space utilization is inventory management. Storing too much product or the wrong product inflates the inventory level, which requires more storage space. Marketing and management departments like high inventory levels because it makes it easier to deal with fluctuations in customer demand and provide a high customer service level, economies of scale provide discounts to larger orders and production runs, and having a buffer stock helps prevent stock-outs that place a strain on other departments. However, high inventory levels not only come at a cost in terms of space, but also quality, obsolescence, opportunity cost, and damages. Not all inventory is bad, but excess inventory is. Eliminating the excess inventory will reduce storage space requirements, allowing more space for internal expansion.

Another operating inefficiency that can contribute to low space utilization is material handling. Transporting material throughout a facility is a non-value added activity, and therefore the space used to transport the material is wasted space. An example of usable space versus wasted space in storage is the space used for pallet rack versus the aisle space to provide access between each row. Since the aisles are only used for material handling purposes, they are wasted space. Implementing alternative storage strategies such as narrow-aisle or very-narrow aisle, double-deep, pushback, pallet flow, or mobile racking can minimize and even eliminate the need for aisle space. Since the ratio of storage space to aisle space is typically 1:1, the total space dedicated to storage can be reduced by up to half.

Finally, a common pitfall that leads organizations to have low space utilization is the focus on utilization of floor space in square feet. This does not account for the entire vertical cube of the building, which is measured in cubic feet, and underutilizes usable space such as the space above cross aisles, work and pick areas, docks, and incremental space above each load in the storage system. A quick way to gain usable space in a facility can be as easy as looking up.

Space utilization isn’t just important to those who are considering expanding. Over time, businesses grow, and with growth comes greater space requirements to meet daily operations. Maintaining efficient use of space early will prevent a scramble later when space becomes a scarcity and will lower operating costs through more efficient operations. Additionally, increased space utilization provides valuable floor space that can be used for several revenue-generating activities such as renting space to a third party, moving other company facilities into or creating new company facilities in the new space. The benefit of the function the new space provides should be considered against the cost required to create the new space (cost of alternative storage equipment, rearranging the inventory to create more head room, identifying and removing obsolete inventory from the system, etc.). In summary, space utilization is about driving down costs through efficient use of the entire facility.

Space Utilization
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