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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?

@Jonathan Smith Interesting topic.  I think safety stock should be in the calculation as you suggest, you could include that in the model as a target stock for example.  The risk of using historical data is that it might not be the optimum safety stock and might be skewed for operational reasons not clear from the data.

Hi @Jonathan Smith 
Do you think that the average transit time of the throughput in the warehouse can play a role in your case?

For example. 

  • If on average an each spends 5 days in the warehouse  (Av. Throughtput Transit Time) from the day is received until the day is dispatch. 
  • Throughput that month= 10.000
  • Space to Flow ratio= Throughput * (Av. Throughtput Transit Time/ Days of the month)= 10000*(5/30)= 1666.

That would mean that each day you have on average 1666 eaches on your warehouse.

You could add that factor as a custom objective an combine it with Warehouse variable cost to get the calculation done in your model.

*The longer the Av. Throughtput Transit Time, the bigger the amount of volume you will have each day on you warehouse caused by that throughput. and vice versa

 

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