Warehouses are essential in production continuity, customer order fulfillment and effective inventory management.
If your warehouse is inefficiently organized, however, costs may outweigh benefits. Consider a recent study, which found that U.S. and Canadian retailers lost $349 billion in one year in overstocks and stockouts.
Organized warehouses are critical for safety and efficiency. When operations lack structure, employees spend extra time searching for materials or products—a costly waste of resources that worsens if items aren’t in stock. Disorganization also increases safety risks. Poorly stacked or packed items can shift unexpectedly, leading to injuries and lost production time. A proactive approach to organization helps prevent these issues and keeps workflows running smoothly.
Creating an efficient warehouse starts with a clear strategy—not quick fixes. Success comes from a structured approach that combines optimized layouts, clear labeling, integrated technologies, skilled teams and a well-defined inventory flow. When these elements work together, operations become more reliable, streamlined and ready to support long-term performance.
The results are significant: enhanced overall equipment effectiveness (OEE), reduced downtime and better support for lean initiatives.
Not sure how to make the move from a cluttered to streamlined warehouse? We’ve got you covered with a 6-step guide to improved warehouse efficiency.
Step 1: Assess your current warehouse layout and processes
The first step is taking a step back to assess current operations and identify key challenges. While it’s tempting to dive right in and start making changes, these changes can make already disorganized systems worse if they address symptoms but don’t resolve root causes.
Consider a company with overstock from a recent sales effort that underperformed. Pallets and boxes are clogging through lanes, making it harder for staff to reach required items. Here, the quick fix is simply finding a new location for these products, which solves the immediate problem but pushes the bigger issue downstream. To address the issue both now and in the future, the business needs to draft plans for selling or removing these items and implement strategies that prevent over-buying next season. Here are four ways to identify bottlenecks and inefficiencies.
- Conduct a walk-through: Start with a walk-through to document traffic flows, storage densities, picking pathways and staging areas. This gives you a baseline for warehouse organization bottlenecks.
- Use data: Next, use data such as travel time, picking accuracy, dwell time, inventory turnover and backlog metrics to pinpoint specific areas of concern.
- Identify physical constraints: A second walk-through helps identify physical constraints such as narrow aisles, overstocking, the use of obsolete materials and poor labeling.
- Engage employees: Always ask warehouse employees for their feedback on daily workflow issues that may not be immediately obvious. For example, staff may have learned to “get by” with equipment that’s no longer performing at its best. Addressing these issues, can significantly improving picking efficiency and overall productivity.
Step 2: Design an optimized warehouse layout
With issues identified, the next step is designing an optimized warehouse layout. While there is no “right” layout, three types are common:
- U-Shaped Flow: In a U-shaped flow, receiving and shipping are located on the same side of the building. Products enter receiving and move down the line to the storage area. Products going out are placed back on the line and sent to shipping. This flow helps improve overall efficiency.
- L-Shaped Flow: In an L-shaped flow, receiving and shipping are at opposite ends of the building. Once items are received, they move to storage, at which point the line bends toward processing. This offers a natural transition point for items that will remain in warehouse storage. L-shaped flows make it easier to separate inbound and outbound traffic.
- I-Shaped Flow: I-shaped flows support high-volume operations with a linear flow. Inbound and outbound processes are kept separate to improve throughput, but more warehouse space is required.
Regardless of which flow type you select, it’s important to consider picking speed and safety and design accordingly.
First up? Prioritize clearly marked aisles with sufficient safe clearance wherever mechanical equipment operates. If either of these machines has difficulty turning around, your aisles are too narrow. Next, make sure that fast-moving inventory, such as high-turn SKUs, is placed closest to workstations for maximum efficiency.
It’s also important to define clear zones within your layout to reduce the risk of overlap and potential errors. Common zones include receiving, quality checks, bulk storage, picking, packing, staging and returns. Finally, ensure that all items are stored with OSHA-compliant spacing and ergonomic access to reduce the risk of injury and ensure regulatory alignment in the case of an audit.
Step 3: Implement smart inventory management practices
Stock accuracy and material availability are vital to inventory efficiency. Improve both with practices such as:
- ABC analysis: ABC analysis categorizes warehouse inventory by importance and usage.
- FIFO/LIFO systems: First-in-first-out (FIFO) and last-in-first-out (LIFO) determine the order in which goods are sold. For example, companies that manufacture perishable goods, chemicals or serialized goods often use a LIFO model.
- Cycle counting: This approach replaces physical inventory shutdowns with ongoing audits to reduce downtime.
- Kanban or two-bin systems: Here, companies use two bins of inventory: one for immediate use and one as a backup. When the first is depleted, reorders are triggered. Combined with a robust supply chain management system, this approach helps prevent both over- and understocking.
- Standardized storage locations: By standardizing storage locations, manufacturers can reduce time wasted looking for familiar parts or products.
- Materials elimination: It’s also worth eliminating materials that are obsolete, slow-moving or duplicates. This helps minimize overspend and improve productivity.
Step 4: Use labeling, signage and slotting optimization
Labeling and signage speak to the visual components of effective warehouse practices. The easier it is for staff to see and understand where items should be stored, picked and placed, the more efficient warehouses become.
For example, the use of clear labels on bins and racks along with clear signage in aisles, pallet locations and staging zones makes it easier for staff to find what they’re looking for as quickly as possible. The use of barcodes and RFID tags on inventory items, meanwhile, helps automated scanning and improved real-time accuracy. It’s also worth creating large, clear signage for hazardous materials, oversized items and high-value inventory.
Slotting also plays a key role. Slotting is the practice of strategically placing inventory items and tools based on their “best” location. This location is influenced by factors such as size, weight, picking frequency and the likelihood of being bundled with other products or materials.
Effective slotting reduces wasted time by keeping often-used items close at hand. For example, companies might place small, high-volume products at accessible heights that allow workers to pick them without additional machinery. Or they might place key packing materials such as boxes, tape and scissors close at hand.
Put simply? Investment in visual management solutions reduces the time required to search and pick items, in turn reducing error rates and improving efficiency.
Step 5: Leverage warehouse technology
Technology also plays a role in improving warehouse efficiency. Some of the most common tools include:
- Warehouse management systems (WMS) for tracking, routing and replenishment
- Automated storage and retrieval systems (AS/RS)
- RFID scanning, barcode verification and mobile handheld devices
- Real-time dashboards showing material shortages or blockages
- Computerized maintenance management systems (CMMS) integrated with enterprise resource planning (ERP) and other backend systems for seamless material flow and tracking
Leveraging these digital inventory management tools can help reduce error rates and decrease the time and labor required to find and pick inventory items. Automated data entry through warehouse management software eliminates the risk of miscounts and duplicate records, while integrated solutions deliver real-time inventory level updates and guide employees directly to the items they need—streamlining workflows and improving overall productivity.
Step 6: Train and empower warehouse staff
Layout, inventory management practices, signage and technology all help increase efficiency, but companies can’t solve warehouse issues without trained staff. Here are four ways to help empower staff and give them the tools they need to succeed:
- Create comprehensive onboarding frameworks
- Ensure warehouse managers and employees are cross-trained
- Encourage continuous improvement
- Track and monitor warehouse KPIs
Why manufacturers should optimize warehouse and MRO operations
Optimized warehouse automation strategies paired with comprehensive maintenance, repair and operations (MRO) practices help improve material flow and increase inventory accuracy.
By taking a data-driven approach to warehouse operations efficiency, businesses are better equipped to reduce unexpected downtime, improve the flow of goods through picking, packing and shipping, and enhance inventory accuracy.
Optimized warehouse management delivers measurable gains in cost control and operational efficiency. Start building your strategy with ATS. Ready to improve performance? Let’s talk.
References
Chain Store Age. (2023, July 31.). Study: Global retail losses due in inventory distortion hit $1.77 trillion. Retrieved December 19, 2025, from https://chainstoreage.com/study-global-retail-losses-due-inventory-distortion-hit-177-trillion
