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Physical Location and Control of Inventory



B. Fixed (Dedicated) Location Systems

  • Pros

    • Immediate knowledge of where all items are located

    • Simplifies both receiving and stock replenishment

    • Allows for controlled routing of order fillers.

    • Allows product to be aligned sequentially (SKU001,SKU002..)

    • Allows for control of individual lots, facilitating first in first out (“FIFO”) control, if that is desired.

    • Allows product to be positioned close to its ultimate point-of-use.

    • Allows product to be placed in a location most suitable to an SKU’s size, weight, toxic nature, flammability, or other similar characteristics.

  • Cons

    • Contributes to honeycombing within storage areas.

    • Space planning must allow for the largest quantity of an item that will be in the facility at one time

    • Inflexible: to add a sub-part or delete a numbered SKU, you must move all products to allow for the add-in or collapse out locations to fill-in the gap.

The honeycombing ratio

No of Locations


Total  Cu Ft

Empty Locations




















490   16,000 93

The honeycombing ratio on location basis is:

The honeycombing ratio on Ft3 basis is:

Controlling Order Filling Operations Through Specific Item Placement

a typical order run, where product was located in positions 1, 5, 10, 11, 15, and 20 may look like this:

10 Heavy Item     Light Item 11
9 12
8 13
7 14
6 Light Item 15
5 Heavy Item 16
4 17
3 18
2 19

1 Heavy Item




Light Item 20

Start   Finish  


If product was placed into assigned positions with the heaviest items appearing first, and the pick ticket routed the filler sequentially, then the pull would look more like this:

10 Heavy Item     Light Item 11
9   12
8   13
7   14
6   Light Item 15
5 Heavy Item   16
4   17
3   18
2   19

1 Heavy Item




Light Item 20

Start   Finish  


C. Zoning Systems

  • Basic Concept

    • An SKU’s characteristics would cause the item to be placed within a certain area of the stockroom or at a particular level within a section of shelving or rack section.

    • Irregular shaped SKUs might be placed in lower levels to ease handling,

    • or all items requiring the use of a forklift for put away or retrieval might be located in a specific area and on pallets

  • Pros

    • Allows for the isolation of SKUs according to such characteristics

    • Allows for flexibility moving items from one zone to another quickly or in creating different zones efficiently.

    • Allows for the addition of SKUs within a zone (unlike a fixed system) without having to move significant amounts of product

    • Allows for flexibility in planning: there is no need to plan around 100% of any given item’s cubic requirements

  • Cons

    • You may be adding needless administrative complexity by utilizing zoning.

    • Zoning may contribute to honeycombing.

    • Zoning requires updating of stock movement information.


D. Random Location Systems

  • Basic Concept

    • An item can be placed anywhere so long as its location is accurately noted in a computer database or a manually maintained paper based card file system.

    • When the item moves, it is deleted from that location.

    • Provides us with the best use of space and maximum flexibility while still allowing control over where an item can be found.

    • Planning space is generally based on the cubic space required for the average number of SKUs on-hand at any one time.

    • In planning space requirements, you need to discern from our inventory records what our average inventory levels are and what products are generally present within that average.

    • By multiplying the cubic footage of each of those items by the quantity of each usually on-hand, you can determine our space required.





Volume Cub ft

Fixed System

Random System

Max Expected at one time

Total Volume Required Cub ft

Average Expected at one time

Total Volume Required Cub ft

12345 Gidgit Box 2’x3’x1’ 6 50 300 15 90
54321 Whazzit Carto• 4’x4’x4’ 64 100 6,400 30 1,920
67890 Whozzit Case 3’x4’x2’ 24 25 600 10 240
98760 Doodad Box 2’x3’x1’ 6 50 300 15 90
          Total 7600   2340

Random System/ Fixed System = 2340/ 7600 = 31%

  • Pros

    • Maximization of space.

    • Control of where all items are at any given time.

  • Cons

    • Constant updating of information is necessary to track where each item is at any given time.

    • Updating must be accomplished through manual paper-based recording bar code scanning, or data entry intensive updating.

    • May be unnecessarily complicated if your organization has a small number of SKUs.


E. Combination Systems

  • Basic Concept

  • The fixed system is used for some selected items and the random system for everything else.

  • Very few systems are purely fixed or purely random.

  • You only have to plan around the maximum space required by the selected items

  • For other items you plan around the average quantities you expect to have on a daily, ongoing basis.

  • Apply fixed system for primary product or raw materials that must be placed as close as possible to a packing/shipping area or to a manufacturing work station

Case Study

  • Barash Foods decided to speed up its order filling efforts by changing where product was located in relationship to the shipping dock.

  • First it determined which 15 percent–20 percent of its product lines showed up on 80percent of its orders. (80/20 Pareto’s Law concept.)

  • These items would be assigned to fixed positions close to the point-of-use (shipping dock),

  • Items found in only 20 percent of the orders would be randomly stored.

  • The company decided it could not devote that much space per product (100 percent of the cubic space to house a product if the maximum quantity of it was in the facility at one time during the year).

  • It therefore decided to allow for 100 percent of the space needed for one week’s worth of product movement for the fixed location SKUs.

  • It controlled the space and quantity by shortening the time frame.

  • Random items were stored in accordance with around the average quantity expected in an area during a defined time period.

  • In this case the time period was one year.

  • Inventory stratification consists of two parts:

    • A-B-C categorization of SKUs.

    • Utilizing an SKU’s unloading/loading ratio.

Unloading/Loading Ratio Time Savings

  • The unloading/loading ratio reflects the number of trips necessary to bring an item to a storage location compared with the number of trips required to transport it from a storage point to a point-of-use.

  • If one trip was required to bring in and store a case of product, but 10 trips were required to actually take its contents to a point-of-use, the unloading/loading ratio would be 1 to 10 (1:10).

  • Substantial reductions in handling times can be achieved through application of this principle.

  • The more the ratio increases, the more critical it is to place an item closer to its point-of-use.

Case Study

  • Assumptions:

    • One case of photocopying paper brought in and stored

    • Case holds 10 reams

    • Only using one ream of a paper at a time


10 items x 1 trip x 1 min = 10 min

10 items x 10 trips x 5 min = 500 min
                                           510 min


10 items x 1 trip x 3 min = 30 min

10 items x 10 trips x 3 min =300 min
                                          330 min

180 min saved over Point A

180/60 = 3 hours saved



10 items x 1 trip x 5 min = 50 min

10 items x 10 trips x 1 min = 100 min
                                          150 min

360 min saved over Point A

360/60 = 6 hours saved


B. Family Grouping

  • Groupings can be based on:

    • Like characteristics—widgits with widgits, gidgits with gidgits, gadgits with gadgits.

    • Items that are regularly sold together—parts needed to tune-up a car.

    • Items that are regularly used together—strap with sports goggles.

  • Pros

    • Ease of storage and retrieval using similar techniques and equipment.

    • Ease of recognition of product groupings.

    • Ease of using zoning location systems.

  • Cons

    • Some items are substituted one for the other such as electronics parts.

    • Danger of properly positioning an active item close to its point-of-use but consuming valuable space close to that area

    • Danger of housing an active product with its inactive relatives far from the popular SKU’s point-of-use, all for the sake of keeping like items together.

    • An item can be used in more than one family


C. Using Inventory Stratification and Family Grouping Together

  • Assume that there are 12 brands of Gidgits that are all stored in the same area for purposes of family grouping

  • According to Pareto’s Law the most popular Gidgit brands are positioned closer to the main travel aisle and the least popular furthest from it.


D. Special Considerations

  • A product’s characteristics may force us to receive/store/pick/ship it in a particular manner.

  • The product may be extremely heavy or light, toxic or flammable, frozen, odd in shape,..

  • Even with items requiring special handling or storage such as frozen food stored in a freezer, the inventory stratification and family grouping concepts can and should be employed to ensure efficient inventory layout.

  • You cannot control what you can’t find.

  • Major contributing factors to the success of inventory systems are:

    1. Adequate, appropriate identification markings on SKUs, including: SKU number and unit of measure. This ease of recognition reduces errors and the time required for either stock selection or put-away.

    2. Adequate, appropriate identification markings on bin/slot/floor/rack/drawer/shelf locations (Just like the address on a house)

    3. Procedures tying any given SKU to the location it is in at any given time, and if it moves where to.

    4. Procedures tying a single SKU to multiple locations in which it is stored.

    5. A system for tracking items, on a timely basis, as they change locations.

    6. Package advertising that does not obscure SKU identifier codes.

    7. Use of simple marking systems that are easy to read and understand.

  • If you incorporate these elements into your inventory systems, you can expect:

    • Decrease search time for product specially when product is located in multiple unspecified locations.

    • Decrease searching for appropriate storage locations.

    • Elimination of the unnecessary purchase of items that are already in the facility but are undiscovered when needed.

    • Correct selection of SKUs during order filling.

    • Correct selection of pack size (s) during order fulfillment.

  • All of the above lead to more accurate inventory tracking, less wasted time to correct errors, and an increase in customer satisfaction.


B. Keys to Effectively Tying Together SKUs and Location Addresses

  1. Clearly mark items with an SKU identifier.

  2. Clearly mark items with a unit of measure such as pack size.

  3. Clearly mark location addresses on bins/slots/shelves/ racks/floor locations/drawers/and so on.

  4. Tie SKU numbers and location addresses together either in a manual card file system or within a computerized database.

  5. Update product moves on a real-time basis with bar coding coupled with radio frequency scanners

Clearly Mark Items with a SKU Identifier and a Unit of Measure

Exhibit 3—14 Marking SKUs

  • By Manufacturer

    Manufacturer prints or affixes plain, human readable label on the item and/or a bar code label with coding on the items, Manufacturer obtains labels or you provide them.

  • All vendor side

    Vendor from whom you obtain the product prints or affixes your plain, human readable label on the item and/or bar code label wild coding on the llama. Manufacturer obtains labels or you provide them.

  • All time receiving

    Everything comes through receiving—it is a natural node. That convergence you the opportunity to affix plain, human readable label on the item and/or a bar code label with coding on the items.

    You can have all product that turns even once during the year marked in this manner, with foster moving items (12 turns a year) all marked within a few weeks

Clearly Mark Location Addresses

0 9   = 10        
0   99   = 100     10 10 = 100  
0   999   = 1     10 1 0 10 = 1.000
A   Z   = 26        
AA   ZZ  = 676     26 26 = 676  



ZZZ  =




26 26 26 = 17.576




  • While alpha systems require fewer characters to hold the same number of variations, they are more error prone.

  • For example: Is that the number zero or the letter O? A “one” or the letter l? A two or the letter Z?

  • If you are only dealing with a computer system, then characters are “cheap,” and you could use only numerics to avoid confusion.

  • However, if part of your system will involve human readable labels, you might have to balance out the merits of shorter alpha-numeric systems against longer pure numeric systems.



Address: A02C = A 2 C
    Aisle Cross Aisle Tier













1 2 3 4 5 6 7 8  
A               A
B                 B
C     C03           C
D                 D
E         E05       E
F                 F
G                 G
H                 H
I                 I
1 2 3 4 5 6 7 8  


  NW     NE  
  SW     SE  


Quadrant address are read right to left—the Northeast

Quadrant of the Southeast Quadrant is written as “SENE.”

Update Product Moves

  • The best generally available approach for real-time tracking of items as they move is using bar coding mobile scanners with radio frequency (RF) capability.

  • If this is not available, then updating can be accomplished through manually captured, paper-based information entered into the database through keying (data entry by a human being).

Manually Update Product Moves

  SKU 3 135 LOC 1
    87 LOC 2
    965 LOC 3
SKU 2 27 LOC 1  
  57 LOC 2  
SKU 1 1235 LOC 1    
  187 LOC 2    
  187 LOC 3    
  543 LOC 4    

Cards axe marked with all SKU numbers. Cards will he indexed in ascending number sequence—lowest SKU number in the front of the file box and the highest SKU number appearing bet. All locations and quantities for that specific item are noted. As SKUs are added-to or moved, card file information is updated as often as possible. Updates should occur at least twice daily, for example, during the lunch hour and at the end of the workday.

Clearly Mark Location Addresses



"Street Address"  3A02B02

03      Room   (City) A           Aisle     (Street) 02          Rack      (Building)     B           Tier       (Floor)

        02             Slot     (Apartment)


Although this is a lengthy address fan automated
storage and retrieval system (AS/RS) is used, then
detailed exact spot information is required for the
selector arm to find the desired load.

"Rack-Tier-Section-Bin" 030342 03      Rack  03   Section*   4                  Tier 2               Bin  
  *A rack section is that portion of the weight bearing
horizontal support between two upright supports.
Room/Bldg-Rack-Bin   AA001 A            Rm/Bldg

A              Rack

001               Bin    
         Rack-Bin          AA001 AA     Rack 001            Bin      

These last two systems are short, simple, and easy to
remember, but they do not provide tier information.