Supply Chain Space Optimization

In our early work with Honda, the company’s warehouse space utilization was in excess of 98 percent. When it came time to implement a new warehouse management system, the warehouses were so full that there was no room to move product to create the space needed to re-label and reconfigure racking to accommodate the new system.

I suggested that the company delay implementation and reset the storage utilization capacities to 85 percent (what it should be for most warehouses). The managers asked me what they would do with their excess inventory. I half-jokingly suggested that they rent a warehouse in a remote location where space was especially cheap. Any product occupying space over and above 85 percent should be shipped to that remote location. When the 85 percent occupancy had been established, the company could install the warehouse management system.

I was a bit surprised to learn later that the company had accepted my recommendation. The remote warehouse occupied more than 500,000 square feet. The company president received the monthly bill and dispatched an associate to look at the operation. It turned out that the stored material was essentially excess safety stock generated by the company’s forecasting system. Previously, the excess had been stuffed into the company’s facing distribution centers. Pulling the material out of the forward distribution centers helped the company to see and experience just how much excess safety stock its inventory plan was producing. The visualization and the bill from the third-party warehouse helped to motivate a highly successful makeover of the forecasting process and system.