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 Safety Stock. I’ve said this but have not convinced the other person.
Do others agree or disagree with me? What can I say to make explanation more clear?
