header_wharehouse Advanced Logistics Group

Designing Efficiency for Warehouses: Key Considerations, Challenges, and Methodology

Historical overview

Up until 90’s, warehouses had served as a mean of storage to protect products and stock goods for future use. However, the recent globalisation and internet evolution era has been pressuring companies to further evolve their customer response times while improving on their cost-to-serve in order to stay competitive.

To support the goal of reaching customers faster and cheaper, warehouse core functions (receiving, shipping, picking, inventory management, etc.) have expanded to additional value-added services such as tagging, postponement, product customization, kitting, packaging, and many other services. As the complexity of warehouse operations has risen, warehouse design has become a critical factor for success of businesses. Companies have realized that efficiency in warehouse operations is a critical factor to keep up with the evolving market trends of reaching customers faster and cheaper.

Consequently, companies seeking competitive advantage realised that efficiency in warehouse operations can be only achieved on the basis of an appropriate warehouse design.

Warehouses play a critical role in customer service levels and profitability margins of businesses

Elements of an Efficient Warehouse

The pursuit for increased efficiency and optimization in warehouse operations has led companies to recognize the complexity of designing efficient warehouses. Businesses understood that there is not a “single solution that fits all” approach in warehouse optimization.

Companies have realised that designing efficient warehouses can only be achieved by establishing right balance between critical elements such as warehouse layout, infrastructure, systems, process and people. These elements should be tailored specifically and accurately based on products and operational requirements.

Achieving right balance between warehouse layout, infrastructure, systems, processes and people results in efficiency

Warehouse Layout Design

Warehouse layout design encompasses the physical layout and related attributes of the infrastructure.

Without the proper layout and design, no matter the square footage size, there will be capacity issues, decrease in productivity, and storage inadequacies. The layout design lays foundations to ensure that the space is efficiently utilized, no bottlenecks in the operations occur, and that the safety and security risks are at the minimum.

Designing the right layout targets ensures proper display of products, efficient utilisation of space and equipment, reduction of workplace hazards, decrease in travel distances, improvement in stock rotation, and elimination of unnecessary movements.

Wharehouse Design_01
Typical Distribution of an Order Picker’s Time

Warehouse Slotting

Slotting is the shorthand term for the process of allocating products (SKU’s) to locations in the warehouse according to business rules, requirements and product characteristics.

Slotting directly impacts travel and search times, which account for a significant portion of the manual picking process costs in warehouse (see figure 1). As picking represents majority of the operational costs (see figure 2), accurate slotting becomes critical factor in reducing costs as well as time-to-serve.

Wharehouse Design_02
Warehouse Labour Expenses Distribution on Operational Activities

Allocation of SKUs to locations directly impacts warehouse operational costs

Proper warehouse slotting and its execution would minimize the travel and search times spent by the pickers and possibly reduce labour requirements.

Warehouse slotting should reduce unnecessary movements and time spent between picks; improve space utilisation, thus yielding a positive impact on the warehouse operational cost. Determining the optimal location for every SKU in the warehouse should never be taken lightly.

Warehouse Operations

Warehouse operations entail every process (receiving, shipping, re-allocating, picking, packing, issuing, etc.) completed within the domain.

Warehouse operations optimization must always look into every single action and activity performed in the warehouse (from the core activities to inventory management, maintenance, and value-added services).

Optimisation of warehouse operations is about achieving lean and disciplined processes to ship and receive vital stock in time for replenishment on store shelves, delivery to customers or supporting manufacturing facilities.

When operations are optimized, firms are able to save time, space, and resources while reducing inefficiencies and errors. Other benefits include improving flexibility, communication, management as well as customer satisfaction.

Warehouse ICT systems

Warehouse systems are software applications that support the day-to-day operations in the warehouse.

Such applications enable the standardized and centralized management of tasks such as receiving shipments, shipping products, allocating items, and finding stock locations.

Warehouse systems present improvement in stock rotations, labour management, productivities, efficiencies, and operational costs by delivering data availability and providing quick decision-making capabilities.

Warehouse systems deliver efficiency through standardized processes, data availability and quick decision-making capability

Warehouse Labelling

Warehouse labels are essential for efficient inventory management and the picking process. Warehouse labelling would generally include location labels, aisle signs, and safety and traffic signs.

The use of warehouse labelling increases picking efficiency, and decreases picking errors as well as required time. Furthermore, warehouse labelling provides a reliable structure for inventory control and navigation. It also enriches the warehouse’s visual appeal while enabling the staff to identify products by locations using technology (barcode scanner, voice technology…).

Proper warehouse labelling supports the efficiency and optimization of the other elements

Labour Optimization

Possessing right skillset and capabilities within the warehouse team plays a critical part on the operational efficiency.

Firms should understand the current labour capabilities and opportunities for improvements in order to make best use their warehouse team.

Effective labour force should have right number of team members as well as right combination of skillset to achieve efficiency in warehouse operation.

Establishing efficiency in warehouse operations can only be achieved by incorporating the right combination of all the critical elements into design which can only be delivered by considering key design factors.

Key design factors to consider when designing a warehouse

There are multiple different factors impacting critical elements of efficient warehouses and should be considered when selecting the most efficient warehouse design.

Operational Requirements

The operational requirements such as the core processes, inventory management, maintenance, and value-added services should be addressed. Knowing what will the warehouse be used for, and how it will be required to operate is an integral part for the design. For instance, if a firm has kitting and assembly operations, appropriate space should be allocated for the operation.

The flow of products and travel distances in the warehouses should be in mind throughout the whole design phase. This will help in eliminating any bottlenecks that might arise due to layout or operational design inefficiencies.

Product Characteristics

Another integral factor to consider is also projected SKU profile in the warehouse. Temperature and storage requirements, item’s stackability (how many products can be stacked without causing damage to the lower levels), storage method (palletized, cases, items…), item’s dimensions, and item’s value vary significantly between products.

Therefore, SKU profile has direct impact on design as requirements for different temperature controlled areas, secured valuable storage areas, racking system deployment, etc.

Understanding the details of the products to be stored is the most important factor to consider

Expected Throughput

Another significant consideration is consumption rate of products in the warehouse which is determined using an analysis of every product’s throughput. The analysis would include the days on hand planned for storage, the daily demand for the product, handling unit of measure (pieces, cases, pallets…) in every activity, storage unit of measures, batch sizes, and order frequencies. The collected data could help identify how many pick locations are required, where each item should be placed in the warehouse and the required number of positions in the suitable storage system. The study would also reveal the warehouse’s docking and apron requirements.

Geographical & Legal Factors

The designed warehouse and processes should be compliant with local rules and regulations of the warehouse’s geographical location. Such constraints could be fire clearances, warehouse height limits, noise or energy level requirements, automation requirements, and other. Thus, an awareness of all the legal and geographical constraints is necessary to achieve a feasible optimized warehouse.

Safety and Security

When designing the warehouse, the safety and security factors and hazards should not be neglected. The general safety considerations and the hazards related to the type of products stored should be considered carefully. Such factors include but are not limited to: blind spots, washing stations, spill possibility, flammable product segregation, chemical product segregation, high grounds without barriers, fire exit doors, firefighting system/extinguishers, etc.

Storage Systems and MHEs

With all the different options in the market, and the investment required for storage systems, it is important to know the pros and cons, costs, aisle size requirements, support availability, and implementation feasibility of each system. In addition, a proper assessment of whether or not a firm should go for automation should also be considered based on a cost-benefit analysis.

Once the storage system is determined, the size of the storage area and the cost associated with the required selected storage systems and MHEs could be calculated.


The infrastructural aspects of construction should be included in the analysis. Such aspects include floor level, warehouse height, column grid locations, floor point loads, and others.

Ancillary Locations

Additionally, other locations such as offices, MHE charging room, bathrooms, prayer rooms, meeting rooms, driver waiting rooms, empty pallet storage areas, and other areas should also be accounted for based on the requirements.

Understanding the details of the products to be stored is the most important factor to consider

Approach for an optimal design

The approach followed by the ALG consulting team entails a 5 step methodology to ensure that all the above considerations are taken into account and that the solution is tailor-fit to be the best solution for the client.

Wharehouse Design_003
ALG’s approach for the design of a warehouse

Staging areas, ancillary areas, and value service areas should be accounted for in the warehouse design

Business Understanding and Data Gathering

The first phase would entail ensuring that data required is available and can be utilised to consider the factors mentioned earlier. In addition, this phase would also encompass the understanding of the firm’s current operations, product portfolio, future business targets, etc.

Market Research

The next step would be looking into the details of the market and region in which the client operates. During this phase, new technologies present and best practices will be assessed in addition to having an understanding of the constraints posed by the client’s geographical location, and other factors.

Analysis and Model

The following phase would entail combining the results of the first two phases to develop decision model which aims at analysing the information and data gathered. Accordingly, products will be classified into different batch sizes based on the size of the receipts, into order sizes based on the quantity of the products ordered on average, and based on the frequency of orders.

Consequently, a model is developed for the optimization.

  • For warehouse layout designs, the model will target assigning each product to the best suited storage system and calculating the space and costs required. The calculations will also take into account the required MHEs to be purchased.
  • For warehouse slotting, the model will calculate the number of pick locations required, perform an ABC analysis, and assign each product to a location in the warehouse.

The market research phase ensures that the solution that will be delivered is the optimal solution within the possible constraints and that it provides competitive advantage

  • For location labelling, the model will provide a list of location labels, summary labels, and aisle and safety signs to be printed, based on the current facility layout and the operational requirements.
  • For operations optimization, this phase will aim at looking into the inefficiencies and bottlenecks and calculating the benefits of optimization through different scenarios
  • For systems, this phase will aim at the documentation of all the specifications required, in addition to calculating the financial benefits of every solution suggested.
  • For labour optimization, the model will simulate the impact of changes on the warehouse efficiency.

Alterations based on the different factors to be considered, mentioned earlier, are therefore done to adjust for any other constraints or considerations.

Once all the details and calculations are finalized, visual design of warehouse will be started.

The analysis phase will be detailed and tailored towards the area being analyzed


Data modelling results will be utilised to draft architectural drawing of the warehouse layout is drafted.

The drawing will include detailed warehouse layout design showing the selected racking systems, their vertical profile drawings and configurations, the different operational areas and processes, and the direction of operation. In addition, the design will include the delivery of the dock door drawings based on the calculations made. The designed storage systems and layout will meet the needs of the current and planned mix of products and will insure efficient smooth operational flows. Furthermore, the different ancillary locations, charging stations, pallet storage areas, prayer rooms, offices and toilets will all be placed in the warehouse design based on best practices and the current operational needs. The warehouse design deliverable does not stop at the inside of the warehouse, but extends to ensure that even the external traffic flow of truck is as efficient as possible with the inclusion of the yard and apron design based on scientific calculations.

Sample warehouse design and racking system profiles

In addition, a standard operating procedure document detailing all the warehouse operational aspects is developed to ensure that all of the optimized processes are in place.

The design includes recommendations on warehouse systems including recommended system specifications to support operations and achieve efficiency targets.

A summary of the number of labels and costs required to label the full warehouse is prepared in a presentation including a list of all the label names and types.

During this phase, the consultants will also draft the revised organizational structure in a report including the assessment and opportunities in labour management.

The final design should be a result of detailed cost – benefit analysis of all the available options, aiming to optimize operational efficiency

Implementation Plan

During this last phase, a timeline for the implementation is developed, highlighting the key activities, costs, and responsibilities to construct/ install/ procure and implement the required warehouse, racking, and MHEs.

The recommended solution does not stop at presenting a report. ALG can go further and accompany the clients into achieving efficiency through assistance in the implementation

The implementation plan could also include a mobilization plan which will allow the smooth transition of operations, with no, or minimal, impact on current operations.

Designing and implementing efficient warehouse operations can have a great impact on business performance via increased profitability and customer service levels. The best way to achieve desired results is to consider critical elements and key factors during designing.

About the authors
Pablo Ruiz del Real is MSc in Civil Engineering, Partner and Advisor at ALG
Koray Egeli is MBA in Supply Chain, Manager at ALG
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