Sherman's Furniture compares the benefits of new construction, renovation or leasing outside warehouse space.
In 1976, Jack and Sharon Sherman started their business in a 144 square foot storefront on a side Street in Peoria Illinois. Today, the business has grown to three showrooms totaling over 40,000 square feet in Peoria, Normal and Peru Illinois. Family members in the business include the founders, their three children, a son-in-law and a future son-in-law. Product lines include furniture, appliances and electronics.
SITUATION: LOST LEASE: Business growth resulted in the construction of a 15,000 square foot warehouse adjacent to the Peoria store several years ago. Most of the space was used for floor stacking with a limited number of conventional racks. Additional growth made it necessary to rent space a couple miles away. In early 1995 the outside warehouse owners cancelled the lease and Sherman's Furniture was instructed to vacate the warehouse before April.
OPTIONS: LEASE, BUILD OR RENOVATE: Jack Sherman explored the possibility of leasing other warehouse space but he would have to rent more space than they really needed at a much higher cost. An added problem was that the location was inconvenient. Mr. Sherman felt that continuing to operate an outside warehouse would increase hassles associated with utilizing a location twenty minutes away. He envisioned costly extra stops every day to pick up and transfer inventory, problems in satisfying customers who wanted to pick up immediately, difficulty meeting vendor trucks and supervising employees.
Having read an article in the October 1994 issue of Furniture World about improving existing operations instead of investing in bricks and mortar or additional lease expense, he decided to undertake a two day diagnostic study of warehousing and logistics.
THE SOLUTION: When the warehouse was built a number of years ago, Sherman's Furniture had the wisdom to design for the maximum height that zoning would allow in the area, thus providing future flexibility to use the vertical cube. Local regulations resulted in a maximum of almost 15 feet clear height for about half the warehouse and 18 feet clearance in the rest. Because of a ramp leading to the dock, 6,000 square feet in the high bay area was the maximum area for effective use of cantilever furniture racking. Several layout options were explored which finally resulted in 11,300 square feet of shelf space in a four level configuration with five foot aisles for stock pickers.
But would there be a satisfactory return on investment? Preliminary budget calculations showed a superb potential return by using used racking and used stockpickers. New was not seriously considered because of cost and there was no way to get delivery within the required six week time frame. Bids were solicited to supply and erect the racking and to purchase two stockpickers. Excellent used racking was ultimately found (as you can see from the photo) and Jack Sherman was able to purchase two, three year old stockpickers coming off a full service lease at bargain prices.
CHALLENGES: MAXIMIZE SPACE & EFFICIENT DAILY OPERATIONS: One of the main challenges was to make space available to erect racking while still allowing for efficient daily receiving and delivery to customers. Storage trailers were put in the parking lot for inventory that wasn't expected to move during the construction project, but Murphy's law did require digging for a few items to meet customer needs. The project was completed on time and preliminary figures show the payback will be even better than predicted.
OTHER CONCERNS/ BENEFITS: Taking a completely fresh look at the entire operation also addressed other concerns. Slow moving inventory was identified for clearance sale and policies were reviewed regarding the advantages and disadvantages of special sales from manufacturers. Buying "too much" at special prices can actually cost more than buying the right inventory at standard discounts when you consider inventory carrying costs and open to buy restraints. Other administrative and process improvements were also made during the renovation process. An additional dock door and improved staging area will complete the renovation this summer to position the company for further growth.
BOTTOM LINE RESULTS: Bottom line, the installation of cantilever furniture racks and the use of stockpickers maximized the utilization of existing space and improved labor productivity. It also virtually eliminated the potential for damage during storage, improved Sherman's ability to provide instant delivery to customers and produced all these results with great capital efficiency.
Daniel Bolger, P.E. provides warehousing, transportation and logistics consulting to clients throughout the USA. Questions on this or any other article by contributing editor Dan Bolger can be directed to email@example.com.