Optimization of warehouse storage capacity under a dedicated storage policy

The problem of the determination of the space requirements for warehouse systems operating under a dedicated storage policy, full turnover-based storage, is investigated. Space shortage occurs when demand exceeds the warehouse storage capacity. The additional space requirement is satisfied by considering a leased storage space. The warehouse storage capacity problem is then formulated as a non-linear programming model to minimize the total cost of owned and leased storage space. An iterative search procedure, which always generates the optimal solution, is developed. Illustration of the approach for systems operating under the standard economic-order-quantity inventory model is provided. The results obtained using the optimization approach presented can be used for determining bounds or approximations for the first-cut design of the storage space requirements.