Question

Your company currently pays $200,000 per month to lease and operate a single warehouse in your transportation network. Average space utilization in this warehouse is 75%. A major new product launch will be occurring next month that is expected to push network inventory to a level that will utilize 95% of the warehouse space. Management is concerned that exceeding 90% of warehouse space will increase damage to product and decrease customer service. Before investing in another warehouse, they are looking for suggestions on analysis that could be done to reduce inventory.

Answer 1

In this situation, before investing in another warehouse, I think that the company should follow some other strategy to reduce inventory. This would help the company to operate a single warehouse and at the same time would help to accommodate new products without utilizing the space as expected.

What I would suggest is:-

• The entity should be keen on reducing demand variability.
• Take the necessary steps for faster lead times. This not only reduces the cost of inventories but also would help by not holding inventories would long term. This would give the company an advantage to bring the new product in the warehouse while others have been already settled.
• If the company invests in a new warehouse, it would lead to more expenses. Thus, compared to this cost it would better to identify Obsolete inventory and reduce its supply to the warehouse.
• Another manner is to optimize the order size

I believe that these suggestions would help to manage the existing inventories even without investing in a new warehouse.