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My Introspective

by Laurus Nobilis
My BrainCast

Supply Chain | Warehouse Design

Fixed and Variable Costs (E)

Warehouse DesignLogistics is very expensive function of every company. Warehouse is very expensive, often contributing 25% of total logistics. At same time warehouse need to provide sufficient service level to customer. Therefore, planning of warehouse design is crucial for effective and cost efficient service.


Posted: Dec 2013


We begin to look at the technology level assessment, and here we have a fairly simple graph of throughput on the x-axis, and warehousing costs up the y-axis. And here the most important aspect is if we follow say the automated warehousing line.

We can see the automated warehousing has a very high fixed cost and meets the y-axis very high up, but the variable cost as we increase throughput is relatively low, and generally if we are talking about high throughput levels, then automated warehousing comes into the road there and is worthy of consideration.

To the right hand side of this graph, where as if we are looking at lower throughput levels, then simpler mechanized warehousing may be more appropriate, and maybe the least cost solution. Some important points from here are what is the future level of throughput that is being considered, or being forecast, and just as importantly as that, what is the confidence of that forecast.

Fixed and Variable Costs

For example, if it is forecasted to be on the right hand side, but only 70 to 80% of the forecast is actually met, then we might be left with automated warehousing with a high fixed cost and therefore much higher cost solution than we could use, and we have very little we could do about that.


7 Steps of Warehouse Design
Planning Horizons
Planning Levels
Equipment resource Levels
Day in the Warehouse
Warehouse Zones
Case Picking Methods
Warehouse Equipment Selection
Fixed and Variable Costs
Relative Attributes of Warehouse Design
Suitability for SKU Throughput Ranges
Warehouse Equipment Attributes Matrix
Final Warehouse Equipment Selection Factors

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