Reader Question


What is the best way to calculate the maximum throughput of a given warehouse or distribution center?

We are looking to see what percentage of capacity we are currently sitting at and how much more we can take before we split at the seams.

John Bennett
DC Manager - Pretoria West
Supply Chain
A division of Massmart Holdings Limited

Category: Distribution Management
 
 
 

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Expert Panelist Response: Dan Gilmore, Editor, Supply Chain Digest 


OK, we are having a bit of a tough time with this one.

See some additional responses below, but here is my take. We welcome additional thoughts on this question from our readers.

There are, of course, many factors that impact DC “capacity,” especially throughput. Storage capacity is quite a bit more straight forward to consider, but then the question becomes one of “turns.”

The answer, in the end, is that “it depends,” but I would structure my thinking like this:

1. What is my current level of utilization of space and workers? Clearly, to the extent that either is not fully utilized, there is excess capacity that could be captured.

2. In measuring the potential throughput of a given building, it makes sense to me to assume that you could add more of what you have now. Meaning, if you have 5 operators picking orders on pallet jacks, you could add more of these. Similar with the number of workers doing putaway using fork trucks – I would assume you could add more of these. For most companies, adding more of these inputs for awhile has a fairly linear impact on throughput. If I have 5 and add 1 more, throughput potential goes up around 20%.

The problem is that at some level, you reach a point of diminishing returns, and the relationship changes. Each additional operator adds less new value than proportional value and, at some point, may even decrease throughput as workers climb over each other to get the work done. I know of no way to really scientifically determine those points, but I think it would not be hard to make some pretty good guestimates about how many workers could be productively added, and the impact on throughput potential.

3. Obviously, there are opportunities to add to the work week. If you are running a one-shift operation, whenever that shift is maxed out, a second or third shift can be added, substantially increasing potential throughput, though increasing management complexity. Adding shifts may also not be consistent with the way orders flow through the system (i.e., one time daily download, need to hit carrier cut-off times, etc.).

4. Dock doors capacity may be the real limiter. In theory, at least, inventory in DC storage could turn faster, enabling a company to expand throughput even with a fixed storage capacity. But dock doors are different. Doors can only be turned on the inbound and outbound side at a given pace, even with lots of technology. So, (while considering the potential of expanding to 2-3 shift operation with dropped trailers) the maximum inbound and outbound trailers that can be handled may really define the capacity limits. Ditto with the related constraint of yard space.

5. Having said that, improvements in DC processes and layout may enable greater throughput (quick pick lines, lean principles, etc., etc.). I would make some estimates there, with consultant help as needed.

6. Finally, obviously at a cost, technology can be deployed to improve productivity (warehouse management systems, voice, automated material handling, etc.) and also storage capacity (very narrow aisle storage, AS/RS, etc.)

As our Material Handling Editor Cliff Holste has reported, there are options now that weren’t available a few years ago to extend DC capacity. That includes the ability to grind areas of the floor to make them super flat and support VNA storage, and also the ability to literally “raise the roof” to add to the building height.

So, it seems to me that in most DCs, there is still quite a bit of throughput still available when looking at all those factors - even though most of us would love a nice new facility!


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Other Responses

Here is a quick rough draft on my thoughts about throughput capacity.

Figuring out the best way to measure a distribution center in throughput capacity is like defining a beautiful woman; the definition is in the eye of the beholder. 

When defining capacity, the 1st place where people get wrapped around the axle is defining the unit of measure used to express the capacity. Do you use units, weight, cube, cases, loads, pallets, dollars at cost, dollars at retail, or something else altogether. Each one of these units of measure is valid depending on what it is that you are distributing through the operation and how you look at the operation. But some are better than others; or more appropriately, are more accurate than others. 

Financial management and general management people will typically use dollars (either at cost of goods or retail) to define the capacity of a distribution operation. Dollars are fine when your product mix never changes and/or the value of money never changes (installation or deflationary impacts).  But if your product mix is dynamic, is subject to variations of currency change rates or inflationary pressures, your capacity could change as reported, but the truth is that throughput hasn't.

Imagine pallets of one hundred dollar bills passing through a distribution center.  (Nice picture, eh?)  Let's say on a given day my distribution center can process 5,000 pallets. I can put 5,000 – 100 note bundles on the pallet, or 500,000 notes per pallet.  My product mix is $100 notes, so my throughput is $50 million per day.  Now instead of distributing $100 bills, we are now distributing $5 bills, so the throughput capacity drops to $2.5 million. I still push through 5,000 pallets, but because the value of the goods changed, the value of my throughput changed as expressed in the dollar value of the product. 

Distribution and logistics folks tend to measure capacity in handling units.  The number of cases or the number of pallets pushed in and out is easy to measure and tends to be easily understood. But defining the capacity of the operation in comparison to other operations may be difficult because of the type of work that has to be performed in the distribution operation. I have seen manual distribution centers that had few value-added processes be able to outperform in raw cubic or case throughput highly-automated and mechanized distribution centers. If all you were doing in the distribution operation is unloading sea containers onto pallets and then loading those pallets on outbound trucks, your operation could have a higher throughput level than an operation that unloads to conveyor, sorts and then conveyor to load into the outbound truck. But if you are sorting one case off the conveyor to over 200 outbound loads, the conveyor will win out.  The mission of the work, and the content of the work will dictate the capacity measure that you use. 

Typically when people talk about warehouse capacity, they're speaking of the storage capacity of the facility. There've been arguments made that storage capacity and throughput capacity are independent. NOT TRUE; they are closely interrelated. Having operated distribution centers that were close to maximum capacity, I can assure you that the closer the facility got to being storage full, the lower the throughput went. In a classic distribution center where product is received, then put away into storage, then dropped to the forward pick for selection and finally shipped, the operation needs a certain amount of open capacity to allow for smooth flow of product from inbound and outbound. If storage capacity is tight, the receiving dock backs up. That backup tends to slow down the receiving operation, kicking throughput in the chin.  

Pick line capacity, typically considered a storage capacity measure, also has an incredible impact on the throughput of the facility. If you don't have enough “right sized” pick locations to service your product mix, your operation will have a higher level of replenishment activity. Higher frequency replenishment puts more traffic in the pick aisles. The higher the level of replenishment activity, the higher the probability that a picker will end up going to a location to find it empty, and thereby have to wait to be able to fulfill the order. Some operations that are stressed for pick line capacity will convert higher levels of reserve storage into pick locations and utilize a man-up picker machine to facilitate the selection process. A man-up order picker is nowhere near as fast to operate as a man on foot picking out of shelving or utilizing an electric pallet truck. Some operations will adjust by making their pick locations smaller, which increases the frequency of replenishment. That also means that there are more trips being made to the reserve location to pull fewer cases, and unless the operation uses a man-up order picker truck for that replenishment pull, the replenishment pallet makes two trips, one to the pick and one back to reserve. 

Other issues outside of the four walls of the facility will have an impact on your throughput, and because of those issues, you may want to express your throughput using the unit of measure for the yard. I know of a facility that had limited truck parking space at the building.  At that facility, the trailer parking yard was 2 miles away, but sometimes what would throttle the capacity of that distribution center was the number of jockey drivers available to move trailers in and out of the operation. At key points in their shipping cycle, there were more jockey operators working than forklift drivers. If one or two of those jockey drivers called in sick, the warehouse shipping dock would have automatic overtime, independent of the actual shipping volume being loaded onto the trailers. 

The bottom line to measuring throughput capacity falls to this question; “Where is you were Herbie?"  In other words: What bottlenecks your operation?  Where is the throat that gets choked?  Find your bottlenecks and then look at the easiest unit of measure to define the flowthrough of those bottlenecks. That is how you defined your throughput capacity. Because the real reason that you are measuring capacity is so you can improve your performance. 

David K. Schneider
President
David K Schneider & Company, LLC

To build on Dan & Cliff's comments, a highly recommended approach to understanding throughput is to apply the theory of constraints. In all material handling problems, flowcharting is a valuable way to identify activity constraints that will bottleneck the operation. For closed-loop automation systems such as conveyors & sorters, this is especially true and very predictable. If you can answer the questions regarding storage capacities as adequate or not, and information capacity, such as adequate speed in WMS transactions, then flowcharting the operation and applying where and what chokepoints exist, even in a fully manual operation, you may better understand your cumulative flow for the DC. From that, you may be able to brainstorm some solutions. Best of Luck!

Len DeWeerdt
LW Consullting LLC


Hi John, Len is right, maximum throughput is given by your biggest constraint. But even after you identify the constraint and increase its throughput, you will found out that other constraints will strangle your flow, requiring more expediting. To solve this neverending story, start applying Lean principle: Identify/Define value desired by the customer. Identify the value stream (flow) for each product family and eliminate waste. Make the product flow continuously through new designed flow. Introduce pull between all steps where continuous flow is impossible. Manage toward perfection. Managing these steps, time and information required to respond to the customer need continually falls increasing throughput. Base for this is accurate operations forecast and planning and technology support.

Cristian Ofiteru

SteelGado Consulting

Given all the aspects - like storage capacity, unit of measure, processes, automation, etc., I think it is most critical to identify the bottleneck and determine how this bottleneck limits the throughput. The fine tuning of this bottleneck and fine tuning other associated/dependent processes' throughput will eventually help in maximizing the throughput, overall. Obviously, theoretically, given a DC with given storage capacity, given a det of resources, set of automation, and processes, there is an upper limit. But, I am not sure if most of the DCs know what this upper limit is. Knowing this upper limit is important if someone is not operating at the maximum throughput. Assuming a statistical upper limit ( monitored over a period of time) would also be a good starting point.

Ram Swaminathan
Director, Founder,

ACIES Technology Solutions Pvt Limited. Bangalore, India