Every cubic foot in every warehouse has an associated cost. This can vary dramatically based on the type of facility, location, management and many other factors. Each cubic foot also offers the opportunity for an associated profit, related to the goods being stored.
Every SKU stored in a warehouse has a related gross margin and requires an amount of storage space defined in cubic feet (or meters.) Simply, small volume products with high gross margins, at a very basic level, are always preferred over high bulk, low margin products.
Product Cube Gross Margin Analysis
(Upper Right Quadrant is Preferred Position)
Source: The Distributor Board
Other factors come into play, such as SKU turn rate; overall volume and associated total dollar margin contribution to the enterprise; purchase quantity requirements; specific customer demands; and other factors.
Every business is different; however, looking at the utilization and profitability of every warehouse cube across the company can be handled and analyzed in a similar manner. Ranking and evaluating SKUs by their profitability per cube can potentially help management make informed decisions about which products to retain and which to phase out, which to expand space and which to reduce, which to look for faster turn less space, which can justify slower turn and more space; how to move goods between multiple warehouses, which have different cost structures; which products to carry in the first place and which to reject.
A specific output of Cube Space Profitability Analysis (CSPA) is a warehouse map using CSPA as a criteria. This mapping can even be 3-dimensional and color schemed to quickly identity hot, red, spots where serious profit problems exist.
Warehouse Mapping Using CSPA
Source: The Distributor Board
Further, interactive graphical modeling can be developed, whereby expansion or contraction of space for any given SKU or group of SKUs can yield different overall profitability results for the warehouse.
CSPA can be enhanced by the use of RFID tagging in a facility. The utilization of this real time any time data can improve the speed of analysis, decision making and thereby rapid modification of mix.
Cube Space Profitability Analysis can be applied in any industry and any size facility. CSPA is a real time model that can show at any given time the cost profitability mix across the warehouse. Similarly, when applied across all company warehouses can determine the cost profitability mix across the enterprise.
