Four factors to reach optimal warehouse occupancy

The warehouse occupancy rate is crucial for any warehouse firm since it has a direct impact on the company's overall efficiency and flexibility. According to Tompkins' (1998) Warehouse Management Handbook, optimal occupancy rates for warehouses should range between 85 and 90%.

Utilization of a warehouse's available storage space is denoted by its occupancy rate. Utilized square footage is the standard unit of measurement. However, it is more reasonable to measure the cubic usage of the building. Other businesses will compare the amount of utilized pallet spots to the total number of available locations.

The effects of having a too high occupancy rate

Frazelle (2002) argues that when occupancy rates approach 86% utilization, productivity and safety decrease exponentially with each percentage point of occupancy rise. Workers and machinery must be able to move freely (ideally in a single direction) through the warehouse. Having an optimal utilization assures the efficacy of stock movements and decreases the likelihood of human injury and equipment damage. In the event that occupancy rates are excessively high, operations will be significantly slowed down, as put-away will be delayed when space is made available, for instance.

The optimal occupancy rates for warehouses should range between 85% and 90%

Depending on the accuracy of the warehouse management system and the knowledge of the warehouse staff, certain real-time-managed warehouses may be able to function at 90 percent capacity. As this is a cash stream for them and decreases travel time, third-party logistics businesses would seek to maximize capacity use. However, when space is at a premium, productivity drops dramatically. Pallets out and pallets in (in that sequence) must be coordinated perfectly to avoid any serious bottlenecks.

It goes without saying that when warehouse occupancy is too low, resources are wasted on empty space, utilities, equipment and manpower.

How to optimize your occupancy? Some key areas to focus on

Know your inventory

The science of inventory management entails the use of effective and risk-free procedures to ensure the adequate and timely management of supplies in a warehouse. These controls minimize inventory costs while preventing disruptions and maintaining a balanced stock level.

This entire process requires more data than ever before. It is becoming increasingly necessary to have high-quality inventory data in order to make the correct process decisions or to enable adoption of automation- or artificial intelligence-based tools.

Having a grip on your inventory also helps in preventing overstocks or understock. Up to 10% of inventory expenditures can be saved by reducing overstocks and stockouts. Avoiding inventory overstocks will save money on storage costs, depreciation and obsolescence charges, inefficient working capital spending, and economic recession costs. Avoiding inventory stockouts will save money on ordering fees, freight charges, missed customers and income, and other expenses associated with inefficient inventory management.

Up to 10% of inventory costs can be saved by preventing overstocking and understocking

A significant aspect in achieving under- or overstocking is the accurate tracking and forecasting of inventories. 56% of warehouse managers, according to Bain, aim to invest in demand forecasting and predictive planning in 2022. Nonetheless, it is crucial to have high-quality data, as "garbage in, garbage out" applies.

Design an optimal layout

Stock not moving swiftly through the warehouse can be a sign of a sub-optimal warehouse utilization. An example is honeycombing, which refers to the practice of picking inventory from the front or back of a stack, which results in the creation of unusable storage regions. Cubic utilization is also low when block stacking items where the warehouse's clear height is significantly higher than the stack itself.

Aisle widths are also significant in determining the amount of space that may be utilized within a warehouse. Redesigning the overall layout of your warehouse is a significant investment, but narrowing the aisles will quickly pay off by increasing storage space.

Warehouses utilize three different aisle systems:

Wide Aisle - This is the typical form of aisle with a width greater than 3.2 meters. A wide aisle is excellent for warehouses with a high order volume and does not necessitate any special equipment.

Narrow Aisle - Narrow aisles, which range in width from 2.6 to 3.2 meters, enable the storage of up to 20 percent more inventory than standard aisles and still enable access to individual pallets without restrictions.

Very narrow aisle - Very narrow aisles with a width of less than 1.8 meters allow warehouses to store 40–50% more merchandise than regular aisles. However, you should consider the potential for additional expenses, as this system requires specialized lift vehicles and possibly AGVs.

Use the proper type of storage

Choosing the optimal warehouse storage system maximizes available space and increases warehouse efficiency.

The appropriate storage strategy for your warehouse will depend on the warehouses’ size, type of inventory, and your warehouse operations. Among the most prevalent storage systems:

Floor stacking - This technique of storage is the most frequent since it is suited for warehouses with a rather modest ceiling height. In floor stacking, objects are packaged into unit loads and stacked on the floor.

Pallet-Flow Storage - For warehouses with FIFO (first-in, first-out) stock turnover and products that move quickly, pallet flow racking is the optimal solution. Pallets are loaded at the top of sloping lanes and transported downward by gravity when a product is withdrawn during the picking process.

This storage solution optimizes floor area use and requires only two aisles: a loading face and a picking face.

Push-Back Stacking - In contrast to pallet-flow shelving, push-back shelving is ideal for LIFO (last-in, first-out) inventory management. Utilizing structural steel rails, pallets automatically push back when a load is placed on them and advance when the load is removed.

Mezzanine Flooring - Investing in mezzanine flooring will generate a substantial quantity of additional space. It simply refers to building additional floors over existing lanes to maximize vertical space. Some mezzanines permit between two and three floors.

Have the right WMS

The proper WMS can support in maximizing labor productivity, space and equipment use, and accuracy.

Directed put-away is a specific WMS feature and an excellent method for optimizing space. With this capability, the WMS controls the storage of items at the optimal location, as opposed to the common put away rule: "place the pallet wherever you wish."


Although increasing space utilization is a vital objective for every warehouse, the key to increasing space and labor productivity is to establish the optimal balance between storage and handling efficiency.

Establish the optimal balance between storage and handling efficiency

As discussed above, having up-to-date and correct data about your warehouse inventory is crucial to achieve this. This calls for proper inbound- and outbound processes and frequent stocktakes and cycle counts. Powerhouse AI assists warehouses to get a better grip on their warehouse inventory in up to 40% less time and without human error. The app automatically counts and checks goods based on pictures and communicates with your WMS.

For more information on how Powerhouse AI can improve your warehouse space occupancy, get in touch.

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