Inventory Management and Warehouse Operations.


Using Bin Locations

By Dave Piasecki


In my experience, blanket statements related to methods used in the warehouses rarely apply. One significant exception to this involves using bin locations. I think almost every warehouse should use some type of location tracking for their inventory. While there are more advanced systems, a simple bin location system is all many of them need.

Terms related to location tracking are not really standardized. For the purposes of this article what I call a bin location system is a very simple system that allows you to associate one storage location for each item in the warehouse. Some software will refer to this as a "default location". To call this a system is a bit of an overstatement because it's really just a simple note/text field associated with the item, that you will use for a primary bin location.

Why use bin locations?

Without bin locations, you are generally forced to store inventory based on logical groups. This is essentially like a grocery store. All coffee is in the coffee aisle, pet food in the pet food aisle, etc. This makes sense in a grocery store because customers need to find this stuff, and while I would love it if my grocery store had a location system and allowed me to download the locations to make my shopping more efficient, I suspect I'm alone on this one.

Now let’s assume that grocery store is your warehouse, and rather than customers browsing the aisles loading their carts you have order pickers picking these orders. Picking a grocery order, even a small one typically requires a long walk through the store. If you could move the fastest moving 200 items to the front of the store, you can probably pick a lot of these smaller orders complete in that one area. But this would mean the fastest moving coffee is up front in the same area as the fastest moving dog food and fastest moving cereal and fastest moving snacks etc. And then the next 200 top moving items are in the next closest area. So the fastest moving coffee doesn’t even have to be near the second fastest moving coffee.

If you set up the warehouse that way without a mechanism to find the stuff, you’re going to be in a lot of trouble. And that’s where a bin location system comes in. It gives you the ability to slot inventory in a manner that provides more efficient picking of orders.

But wait, there’s more. Bin locations can also help with space utilization. You may have related products that would generally need to be stocked together, but they may be of very different physical sizes and/or very different sales volume. That fastest moving coffee may sell 100 cans a day, yet because the other coffees don’t sell that much, you are putting all of them on 18-inch deep shelving. That forces you go wider and taller with the fast mover rather than deeper. Deeper is better for space utilization in this case. Plus, you also have coffee filters on those same 18-inch deep shelving, which is too deep for some of those, resulting in empty space behind them. With bin locations, I can store the fastest moving coffee in 48-inch deep pallet rack and store those slower moving coffee filters in 12-inch deep shelving.

But wait, there’s still more. Using bin locations combined with proper training can help order pickers be more accurate. If they are directed to a specific bin location to pick an item, they are less likely to pick the wrong item. Did you ever end up with that awful fat-free coffee creamer instead of the good stuff? That’s because you were looking for French Vanilla coffee creamer and you found it, but forgot there was also a fat-free version that has "fat-free" is in really small print on the label, and it's stored right next to the regular version. With bin locations, these don’t need to be stored together, and therefore if you use the bin location to pick, you can avoid those types of errors.

But wait, there’s even more. In the grocery store logical storage method, you can find most of what you need, but it can take time. Sure, you know the aisle it is in, but you need to walk the aisle scanning the shelves to find the item. And in some cases, the logical grouping methodology isn’t all that effective. There are always some items that don’t necessarily fit in a category, so you need to find them or ask someone where they are. The same things happen in the warehouse, especially with newer workers. With bin locations, you don’t need to know where these oddball items are because they have an address (the bin location). So not only can you go directly to the exact location they are stored in, you can sort the picks by location so you pick everything in one very efficient trip through the warehouse. This benefit is there even if you don’t take advantage of the previously stated benefits. So you could leave your warehouse exactly as it is, and still be more efficient by associating bin locations with the items. I think you’re missing out on opportunities if you don’t take advantage of the other benefits, but that’s up to you.

Oh, wait, one more thing. With logical groupings, when you add new items, they have to go in a specific place even if there is no room there. So you may need to move stuff around, possibly lot’s of stuff, just to add a new item.

So with all of these benefits, why would someone not use bin locations? My thought exactly.

Problems with randomized storage.

OK, there are some downsides. Not necessarily due to bin locations, but related to the more random slotting recommended to take full advantage of bin locations.

You can lose stuff.

In the grocery store scenario, if someone put a bag of dog food in the coffee aisle, it would be obvious that wasn’t right. But, with more random storage, it’s not obvious if something is put in the wrong place. I always recommend occasional location audits with random storage. A location audit is the act of checking each location to make sure what is there is supposed to be there. This isn't a physical inventory or cycle count because there is no counting involved, so it can be done very quickly.

Putting away inventory is more complicated, and may even be less efficient.

If you have coffee to put away, you can’t just head to the coffee aisle anymore; you need to have the location with the inventory. This is often best accomplished by running some type of document (could just be a receipt/putaway label) as part of the receiving or replenishment process. The less efficient part comes in place if you get large receipts of similar goods. For example, if you get in a receipt of multiple coffee products. In the grocery store scenario, you would just stock them all in the coffee aisle; now they may go to multiple locations spread throughout the warehouse.

Ultimately, I find the benefits of bin locations almost always outweigh the problems. But you can mitigate the problems. As I mentioned, location audits are a fast way of making sure you don’t have lost inventory. And the efficiency problem can be mitigated by still doing some grouping of similar products, but not absolute grouping of products. For example, you could set one area for fast-moving coffee products, and another for slow-moving coffee products. Here you still gain some of the benefits of bin locations, but still have reasonably efficient putaway since all the coffee products are in just two areas.

Setting up bin locations.

The first issue people run into is deciding what their locations should look like. This is the called the location scheme, and represents the format of the locations. Think of a location as an address. Addresses are fairly standardized within a country. In the US an address like 1234 5th St. means building/house number 34 on the 1200 block of 5th Street. You also would have a City and State element in the address, but those are separate because once you’re in the right city and state, you only need to focus on the address.

A bin location should be similar. Not really following the same format as an address, but applying the same concept. One big difference is that addresses are kind of backwards. They start with the most detailed element, and then go to higher level elements. So when you use an address to find a place, you actually start at the end of the address and move backwards. It would be more logical for an address to be Country, State, City, Street, Block, House. But, mail goes through several sortation steps, so it kind of makes sense to have the Country, City, and State at the bottom, since that’s what the sorters (manual or automatic) needed to look at for the first sort. But in the warehouse, we want to start with the element that represents the largest area. If you have zones in your waehouse you would start with Zone; then you would generally have an aisle designation. Aisles are typically lettered (A, B, C, etc.). This is because with letters you get 26 aisle designations with just one character, and that is typically enough for an entire small warehouse, or for all aisles in a zone of a larger warehouse. Also because the combination of letters and numbers in a location helps to break it up and make it easier to read.

Once you get to the aisle designation, there are many more variations. Sometimes an aisle designates one row of rack (one side of a physical aisle), and sometimes an aisle designates the physical aisle, and then the rack/section designations are evens and odds just like addresses on a street. And then there are many ways to format the actual bin location within the aisle. I certainly have my preferred ways of formatting locations, but I’m not going to say that one way is better than another. I’ve seen many different location schemes, and most of them work fine. Also, the layout of the warehouse and the order-picking methodology may make some schemes work better in that specific warehouse than another.

Here is one scheme that could potentially be used in a piece-pick operation.

Zone-Aisle-Section-Shelf-Bin. With this scheme, location 2B0306A would indicate Zone 2, Aisle B, Section 03, Shelf 06, Bin A. You could also format the location with dashes to help break it up, so this could be formatted as 2-B-03-06-A. If including the dashes, I generally prefer to do it as part of the print/display programs rather than actually including them in the location itself. This means that the actual location is 2B0306A , but prints on paperwork or displays on screens as 2-B-03-06-A. The reason this is a better approach is that if you ever have to key in the location manually, you would just key it in without the dashes (much easier data entry). Note that I have Aisle and Bin as alpha characters. As mentioned before this helps to break up the location, and also allows you to use one character instead of two as we had to do for section and shelf because we could have more than 9 sections or shelves.

The scheme above is logical and works well to quickly find locations in the warehouse. It’s important to be as consistent as is practical. For example, I would try to have Section 03 be in the same place in every aisle, and shelf 06 at roughly the same height in each aisle.

While I like the above scheme, there are times where I use something different. For example, in full pallet operations, you can eliminate the shelf and bin if the pallets are in floor stacked lanes on the floor, but even if they are in rack, you can combine shelf and bin into just one character. This would mean that location 3A07D is Zone 3, Aisle A, Section 07, Pallet Position D. Or, you could eliminate Section and just number all the pallet positions within the aisle. So 3A078 is the pallet position 78 in Aisle A, in Zone 3.

But even with piece-picking bins, I may shorten the location for specific situations. For example, if I have a small fast-pick area with a small number of very fast-moving items, and am not using zones, I may just have location A02, where A designates the fast-pick section, and 02 is the bin number. This shorter location can make picking faster in this area, but lacks enough information to cover a broader area with many more locations. Therefore, I may use the longer scheme previously covered for the rest of the warehouse. Clearly, this conflicts with my suggestion to be consistent, but sometimes it makes sense to mix schemes in a warehouse.

Bin locations don’t have to be exclusive to one item. Aka “a bin doesn’t need to be a bin”.

What I covered to this point was having a specific address for each item in the warehouse, and that address is exclusive to that item. In other words, you do not share a location with other items. While that makes sense in many operations, it can be overkill for others. So a location could be an entire shelf, an entire section, several sections, an entire aisle, a floor area, etc. In these larger locations, you would likely have multiple items stored in the same location. So rather than going to a specific bin location and expecting the item to be exactly there, you go to a larger location and find the item you are looking for.

The main reason you would do this is for space utilization. Having specific bin locations unique to an item, means you have to leave enough space there for the amount of that item you expect to have there. However, that means that many of those bin locations are half empty or empty at any given point in time. If you share a location, you can put more of something else in there. The theory here is that when more inventory of one item comes in, some space should have freed up from another item stored in the same location being depleted. It doesn’t always work that way, but it can be a workable means of getting better space utilization, especially for items that take up a lot of space.

Sorting bin locations for pick paths.

An important advantage of having bin locations is that you can now sort order-picking tasks by location. You should consider this as you set up your bin locations. The most basic sort is to just sort by location. This is what you should be able to do with just about any inventory software without modification. Therefore, ideally, you would set up your locations so the first location you would want a picker to go to, would come up first in a location sort. And then the next location, and so on. This means you need to understand your pick paths. Pick paths can get rather complicated and is far beyond the scope of this article, so I’m not going into a lot of detail here.

The good news with bin locations and pick paths, is that there are ways to sort bin location in a sequence that is different than the base location source. The bad news is that this may require some custom programming (a WMS would likely do this without custom programming). The simplest and most flexible what to accomplish this is to have a location master table where you can associate a “pick sequence” for each location. This way, if you want to send someone down the first aisle, then hit a couple sections of storage against the back wall, then come up the next aisle, you can do this even if this goes against the location sort.

The importance of getting the pick path right varies based on picking methodology and technology used. With paper-based picking, the order picker can see all picks and therefore can deviate from the pick order if there is a better way. In these situations, you just need the print order of the picks to be close to a pick path. A simple location sort is often good enough assuming your locations are set up reasonably well. But when picking using hand-held devices (or other similar technologies), the picker is typically only shown one pick at a time; therefore, the order picker cannot see that he has another pick that is nearby (maybe near a cross-aisle) but not necessarily in the pre-defined pick path. While this isn’t ideal, it’s probably not that big of a deal. But it does mean you want to try to get the pick path closer to optimal.

Leaving room for growth.

You don’t want to have to change your locations in the warehouse once they’re established. So try to leave at least a little room for growth. For example, if there is a possibility you can physically add two aisles before your current first aisle, label your first aisle C rather than A. If it’s possible you can add another section of rack before your current first section, leave those numbers open.

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Going beyond simple bin locations.

As I mentioned earlier, what I’m covering here is a simple location identifier associated with an item to designate its primary storage location. This doesn’t mean that all inventory for that item must fit in that location, but it does mean there is no functionality to track where that “overflow” inventory is. This means you need a logical means of finding overflow inventory. This may mean overflow is located above the bin or it may mean you have a designated overflow area for each section, a designated overflow area for each item, etc. This isn’t ideal, especially if you have significant amounts of overflow storage. But the next step up is a big one. The next step up in functionality would be a system that allows you to have multiple locations per item and tracks quantities by location. This is often referred to as a “locator system”. A locator system truly is a system because it has significantly more functionality than a simple bin identifier associated with an item.

The reason I say it’s a “Big” step is not because of the added functionality, but rather because tracking quantities by location forces you to do transactions whenever a quantity of an itemis put away, replenished, or otherwise moved. If you don’t accurately process all these additional transactions, your locator system will become a big mess. In my experience, most businesses underestimate how challenging it can be to maintain inventory quantities by location within a warehouse. I’m not saying you shouldn’t move up to a locator system. If you need one, you need one. There are operations that absolutely need to track quantities by storage location, and for them, they just need to understand what they are getting into so they don’t make a mess of it. But if you can get by without it, even if not having quantities by location causes a little pain, you’re probably better off not taking this step.

But my software doesn’t have bin locations.

Just because a particular software package doesn’t have “bin-location functionality” doesn’t mean you can’t use the simple bin-location methodology described here. All you need is a simple text field associated with the inventory item that you can populate and print on key documents and reports. Most inventory programs will have something available you can use for this. Many software products will have supplemental database fields you can use for things like this. For example, even though QuickBooks has bin location functionality in some versions of its software, it doesn’t have it in the basic “Desktop Pro” version. But it does have functionality called “Custom Fields”. All you need to do is set one of these custom fields as the bin location, and there you go. You can then add this field to some of there standard reports and documents. If your software doesn’t have extra fields like this, look to see if there are any other item fields that you aren’t using. This isn’t ideal but may get you what you need.


More Articles by Dave Piasecki.

Dave Piasecki, is owner/operator of Inventory Operations Consulting LLC, a consulting firm providing services related to inventory management, material handling, and warehouse operations. He has over 25 years experience in operations management and can be reached through his website (, where he maintains additional relevant information.

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