Cubic velocity calculation is used for storage equipment selection. The formula consisting of the average quantity ordered, the product’s dimensions, the desired pick location, the number of days on hand, and the pick unit of measure (full case or piece).

Multiply the average quantity ordered by the product’s cubic dimension to calculate the cubic velocity per day.

Then, to define the equipment location size required, multiply the days-on-hand inventory target by the cubic velocity per day.

Based on the resulting cubic velocity needed to support the days on hand in the picking area, you can identify the equipment required. Equipment types include modular drawers, bin shelving, standard shelving, carton flow racks, decked racks, pallet racks, and pallet flow racks, floor stack, etc. Once you match the cubic velocity with the equipment type, you can organize the equipment within the layout in zones for efficient picking.

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Very nice, but I need to know how to calcultade the days-on-hand inventory target for my “A” products.

Inventory target is usually cycle stock + safety stock. Cycle Stock is average demand during the replenishment period. To calculate this you take recent history or near term forecast or a combination of both and determine the average daily demand. Then decide how long the Replenishment Period is, that is how often to resupply – daily, weekly, monthly, every 16.2 days, whatever. Now Average Daily Demand * # Replenishment Days = Cycle Stock.

Next comes Safety Stock – just in case demand is higher than expected or the supplier is late or inventory accuracy problems. See

http://www.resourcesystemsconsulting.com/blog/archives/90 for the math on calculating Safety Stock.

Now take the (Cycle Stock + Safety Stock) and divide by the Average Daily Demand and you have Days of Supply. This would be the maximum inventory the day the new supply arrived assuming you didn’t dip into the safety stock and you sold what you expected since the previous receipt.

Average inventory would be (0.5 * Cycle Stock) + Safety Stock.

When to reorder? Well that’s another discussion.

Lawrence – doesn’t safety stock refer more to an overall build point of view, rather than picking area target levels (at least the safety stock in the provided link does..)? Wouldn’t it be simpler to just add in a buffer to the target level, like say an amount of days, or 10-15% of the cycle stock, rather than worry about safety stock calculations?

Also, one thing I’ve found when determining the replenishment period is that it depends on variables, such as product size, product order volume, total bin capacity, maximum bin size, and space availability. These variables need to be looked at in concert with the replenishment period, before arbitrarily setting a number.

Dan In warehouse with reserve stock and forward pick locations the safety stock usually ‘lives’ in the bulk reserve location. But not all SKU’s are treated this way. When there is only one stocking location for an item you must include safety stock in the total expected stock on hand to be certain that the bin size selected is big enough. Otherwise the bin is full and the next in-bound receipt will need to be placed somewhere else.

And then there is the whole discussion about statistics. Simply taking a number of days or a percent on cycle stock is way too simple for almost all situations. Period to period variation in demand and in supply quantity and timing need to be accounted for.