Calculating Warehouse Utilization
For the Network Optimization project on which I am working, the decision makers want to measure “Warehouse Utilization”, i.e. how full are the warehouses. Assume Utilization = cubic feet of inventory / cubic feet of warehouse space.However, Network Optimization measures throughput flow, not [static] inventory space used, so flow has to be converted to space somehow. We could use a conversion factor like the following: Space to Flow ratio = Average Inventory / Total Throughput.The ratio could be calculated on a monthly (or annual) basis using Total Throughput = Sales and Average Inventory = (Starting Inventory + Ending Inventory) / 2. (Inventory snapshots would be pulled from the company’s warehouse management system.)Someone else on the project team thinks we could (with a multiperiod model) calculate the following: Utilization = Ending Cubic Inventory / Warehouse Cubic Space. I think this is wrong because this ending inventory is just Prebuild Inventory, ignoring Cycle Stock and Safet