Optimal storage utilization helps enforce healthy inventory management. In our early work with Honda their warehouse space utilization was in excess of 98%. 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 they delay implementation and reset the storage utilization capacities to 85% – what it should be for most warehouses. They asked me what they would do with their excess inventory. I half-jokingly suggested they rent a warehouse in a remote location where space was especially cheap. Any product occupying space over and above 85% should be shipped to that remote location. When the 85% occupancy had been established, they could install the WMS.
I was a bit surprised to learn later that they had accepted my recommendation. The remote warehouse occupied more than 500,000 square feet. The Japanese president received the monthly bill and dispatched an associate to look at the remote operation. It turned out the material was essentially excess safety stock generated by their forecasting system. The excess had previously been stuffed into their facing distribution centers. Pulling the material out of the forward DCs helped them see and experience just how much excess safety stock their inventory plan was producing. The visualization and the bill from the third-party helped to motivate a highly successful makeover of their forecasting process and system.