Sahyadri Distributors: fitting a 35% festive peak into a 94%-full warehouse
Sahyadri Distributors runs a 6,000 sq ft FMCG warehouse at Bhiwandi for 4,200 SKUs, with 1,800 pallet positions. Average occupancy is 94%. Pick rate is 55 lines per hour against a target of 90; order fill rate is 91%; 6% of order lines are out of stock. Fourteen per cent of SKUs have had no movement in 180 days, yet they hold 11% of pallet positions and 48% of the ground-level pick faces. Rent is ₹28 per sq ft per month and the lease has 14 months to run. The October–November plan expects a 35% rise in outbound lines with the same SKU range, and inventory is expected to peak about 20% above today. Management has three proposals: (a) build a 1,200 sq ft mezzanine for ₹9 lakh plus ₹1.10 lakh per month extra rent, giving about 120 pallet positions; (b) take 1,500 sq ft of overflow space 9 km away at ₹42 per sq ft, with a second supervisor at ₹38,000 per month and two scheduled shuttles a day at ₹4,500 each, 26 days a month; (c) prune dead stock and re-slot. ABC shows A items are 12% of SKUs and 68% of value; C items are 65% of SKUs and 10% of value.
1. Quantify the peak space requirement and compare the three options on monthly cost.
Read the worked answer
Space arithmetic. Positions in use = 1,800 × 94% = 1,692. Dead stock holds 11% = 198 positions. Festive peak inventory ≈ 1,692 × 1.20 = 2,030 positions - 230 over the 1,800 limit.
After pruning dead stock: (1,692 − 198) × 1.20 = 1,494 × 1.20 = 1,793 positions - inside capacity with about 7 spare. On this assumption, option (c) alone can carry the season if pruning finishes before October.
Cost comparison, per month
| Option | Build-up | Monthly cost |
|---|---|---|
| Mezzanine | ₹9 lakh capex ≈ ₹25,000 amortised over 3 years + ₹1,10,000 | ≈ ₹1,35,000 for ~120 positions (≈ ₹1,125/position) |
| Overflow | ₹63,000 rent + ₹38,000 supervisor + 2 × ₹4,500 × 26 = ₹2,34,000 | ≈ ₹3,35,000 |
| Prune and re-slot | Write-down ₹6.2 lakh book less ₹1.1 lakh scrap = ₹5.1 lakh one-time, plus labour | One-time; cheaper than the mezzanine in under 4 months |
Overflow is not just costly, it is operationally wrong: it splits stock across two sites 9 km apart, doubles handling and breaks real-time stock visibility, which is exactly what produced the 91% fill rate. Test the 20% inventory assumption against the principal's festive allocation letters; if the peak is 30% rather than 20%, the pruned figure becomes 1,942 and the mezzanine becomes necessary.
2. Recommend a sequenced plan with a decision gate, and state the risks.
Read the worked answer
Step 1 (weeks 1–2): stop the leak. Freeze replenishment of every SKU with no movement in 180 days and obtain the principal's approval to return, liquidate or write off. Do not simply 'keep it for later' - it is occupying prime pick faces.
Step 2 (weeks 2–4): re-slot at zero cost. Move A items to ground-level golden-zone faces; C items to upper levels and bulk racks. With 48% of ground faces holding C items earning 10% of value, this is the single biggest lever on the 55 lines/hour. Combine with system-directed pick paths and batch picking of multi-line orders.
Step 3 (week 4): count discipline. Daily cycle counts on A items, monthly on B, quarterly on C. The 6% stockout rate on a 4,200-SKU range usually comes from record error, not from shortage.
Decision gate (end of September): recount positions in use. If peak projection is still above 1,800, sanction the mezzanine - but only after verifying fire NOC, structural loading and landlord consent.
Risks: the principal may refuse returns and demand a write-off approval from the CFO; the mezzanine may need 8–10 weeks for approvals, so the gate must be early; pruning must not touch SKUs that are seasonal but legitimate (check the last two festive seasons, not just 180 days).
3. Set the KPIs you would report monthly to justify the spend and catch a repeat of the problem.
Read the worked answer
Report a small balanced set, each with a target and a baseline:
- Pick lines per hour: 55 → 75 within one season. Measures the re-slotting payoff directly.
- Order fill rate: 91% → 97%. The customer-facing number.
- Pallet occupancy: 94% → ≤88% steady state, with the festive peak allowed to touch 99%.
- Dead stock: 14% of SKUs → ≤3%, measured as no movement in 180 days.
- Inventory record accuracy: ≥99% for A items, from cycle counts.
- Cost per order line handled: total warehouse cost ÷ lines shipped, so the mezzanine or pruning cost is tracked rather than sunk.
- Dock-to-stock time: ≤8 hours, which protects the fill rate when festive receipts arrive in bursts.
Add one guardrail: percentage of C-class SKUs occupying ground-level pick faces, target under 15%. That single metric prevents the slow drift back to today's layout, and it is the one the operations head can act on weekly without waiting for the monthly pack.