5 Planning Scales in Warehousing
“The best way to predict the future is to create it.” —Peter Drucker
When examining planning scales in warehousing, namely, strategic, tactical, and operational, it is helpful to recognize that these decisions unfold across two distinct but interconnected perspectives:
- The distribution network level, where warehouses are positioned within the broader supply chain and influence overall logistics efficiency.
- The warehouse level, where the focus shifts to internal design, layout, and operational strategies once a location has been chosen.
This chapter explores planning at both scales. We first consider the role of warehouses in distribution networks, then examine how planning levels translate into concrete decisions inside individual facilities.
A central theme is the hierarchical nature of planning. Decisions at one level often cascade downward, constraining or enabling choices at other levels. For this reason, a systems perspective is crucial: changes at the network level ripple into warehouse design, while warehouse operations may, in turn, trigger adjustments at tactical or even strategic layers. Effective planning therefore requires recognizing these interdependencies, determining when to revisit earlier decisions, and coordinating solutions through sequential or iterative approaches.
For distribution network planning, we draw on the multi-level framework of Hendriks (2009). Within the warehouse, we build on insights from Gu, Goetschalckx, and McGinnis (2010) and Rouwenhorst et al. (2000) to highlight the interconnected dimensions of warehouse design and operations.
5.1 Introduction
Planning in warehousing and logistics always involves a degree of uncertainty. The longer the planning horizon, the greater the exposure to unforeseen developments such as shifts in the business environment, changes in customer preferences, or disruptive technological advancements. For this reason, a robust strategic plan must balance long-term direction with the flexibility to adapt when circumstances evolve.
Strategic planning, which operates on the longest time horizon, is often viewed with skepticism (as illustrated in Figure 5.1). Critics argue that forecasting the distant future is futile. Yet, as management thinker Peter Drucker reminds us, the true purpose of strategic planning is not to predict the future with certainty. Instead, it is to make better-informed decisions today; decisions that both prepare organizations to navigate uncertainty and, where possible, enable them to influence or shape their future trajectory.
5.2 Planning Levels in Logistics Networks
At the strategic level, managers determine the number, location, and size of network nodes, such as plants, cross-docks, and warehouses. These choices determine where capacity will reside for years and typically involve significant capital investments, so they are revisited rarely. In a supply chain context, this horizon corresponds to decisions that have the most significant impact on long-term success and require substantial resources and managerial attention.
Moving down in the hierarchy, the tactical level connects fixed nodes via topological links. Here, one determines how flows should be routed between facilities and how the internal layout of each facility should be organized. The planning horizon spans months rather than years, and the goal is to balance utilization and service. For example, choosing transportation frequencies or redesigning a layout skeleton falls at this level. Tactical planning involves medium-term decisions such as inventory management, transportation schedules, and production scheduling.
Finally, the operational level concerns the execution of day-to-day tasks, including those that occur second by second. Once the strategic and tactical frameworks are fixed, operational planning schedules vehicles, assigns people, and routes orders within the chosen design. Operational horizons are short (days, shifts, or minutes), and the focus is on real-time performance. Examples include warehouse layout adjustments, production line scheduling, and order fulfilment.
5.3 Planning Levels Inside the Warehouse
Having determined where a warehouse fits within a network, attention shifts inward to the decisions that shape its physical layout and operations. Gu, Goetschalckx, and McGinnis (2010)’s identifies several coupled design dimensions: functional structure, departments, layout, sizing and dimensioning, operating strategy, and equipment selection. A change in one dimension typically reverberates through the others, so planning must be integrated.
5.3.1 Strategic Inside the Facility
Strategic decisions inside a warehouse define the facility’s capabilities for many years and are seldom revisited. Examples include:
- Functional structure and footprint. The first step is to decide which functional areas the warehouse will contain (e.g., receiving, cross-docking, reserve storage, forward pick areas, value-added services, and shipping), and how much space each area will receive. These choices shape the fundamental flow of goods and constrain all subsequent layout and process decisions.
- Material handling system class. Next, planners choose the class of material handling system. Will the facility rely primarily on pallet racking and lift trucks, invest in automated storage and retrieval systems, or deploy conveyor belts, autonomous guided vehicles (AGVs), or other forms of mechanization? The level of mechanization sets the pace and cost of operations, and influences staffing and scheduling policies.
- Aisle orientation and block structure. Finally, one selects the global aisle plan and the positioning of docks. Choices such as a straight-through vs. a fishbone layout determine walking distances and congestion patterns. Once aisles and docks are set, later routing decisions must respect these constraints.
5.3.2 Tactical Inside the Facility
Tactical decisions adapt the fixed shell to changing demand over a horizon of months. They do not modify the footprint but determine how to utilize it. Examples include:
- Detailed layout. Zoning the warehouse, assigning stock-keeping units (SKUs) to specific zones, and choosing a slotting policy family (e.g., dedicated, class-based, or random) are tactical tasks. The chosen slotting policy influences replenishment frequency and picker travel distances. Replenishment strategies for the forward pick area must also be tuned.
- Sizing and dimensioning. Within each zone, one decides the split between forward and reserve storage, the depth of lanes, and which SKU should occupy each storage mode (pallet rack, carton flow, shelving, etc.). Buffer capacities must be dimensioned to accommodate expected variability while avoiding excessive space.
- Equipment selection. Finally, planners decide whether order pickers move to the product (picker-to-part) or vice versa (part-to-picker), set batch sizes for order picking, choose between wave and waveless control systems, and define staffing plans.
5.3.3 Operational Inside the Facility
Operational decisions enact the tactical plan on a daily or subdaily basis. Examples include:
- Scheduling. Warehouse managers schedule dock assignments, labor shifts, replenishment triggers, and cutoff times for order release. Scheduling must adapt to fluctuations in demand and supply, ensuring that capacity is available when needed.
- Routing and assignment. Once orders are released, pickers must be routed through the aisles, tasks must be batched, and replenishment assignments must be dispatched. Efficient routing reduces travel time and congestion, whereas poor routing wastes labor and delays orders.
- Real-time control. Warehouse management systems (WMS) handle exceptions and dynamically prioritize tasks. For example, a sudden stockout may require reprioritizing replenishment tasks, or a broken conveyor might divert orders to alternative routes.
Changing a single design knob (e.g., the boundary between slotting classes) can alter replenishment volume, increase picker congestion and disrupt dock schedules. Always evaluate changes with an operational model, such as discrete event simulation or validated queueing approximations, before institutionalising them.
5.4 Time Scales
A compact way to express the separation of horizons in planning is
\[ T_{\text{strategic}} \gg T_{\text{tactical}} \gg T_{\text{operational}}, \]
where \(T\) represents the time scale. Assigning precise values to these horizons, however, is not straightforward.
For instance, Rouwenhorst et al. (2000) suggests that for within-warehouse decisions, the strategic horizon \(T_{\text{strategic}}\) is about 5 years, the tactical horizon \(T_{\text{tactical}}\) is 2 years, and the operational horizon \(T_{\text{operational}}\) is 1 year. Other perspectives place tactical decisions on the scale of months or weeks, with operational planning unfolding over days, minutes, or even seconds.
The key takeaway is that time scales are not arbitrary. They depend on the context, the requirements of the decision, and the complexity of the system.
5.5 Coordinating Levels: Decomposition and Its Price
Although it is tempting to aim for a single globally optimal solution that integrates strategic, tactical, and operational levels, such an approach quickly becomes computationally intractable for large networks (especially when operational decisions must be made in real time).
A common remedy is to decompose the planning problem into smaller subproblems and coordinate their solutions. Two broad strategies dominate:
Sequential approach: The strategic problem is solved first, and its output becomes the input for the tactical problem. Tactical decisions are then fixed before addressing the operational problem. This method is fast and straightforward because each level is solved only once. However, it risks locking the system into a suboptimal configuration if the initial strategic or tactical choices are poor.
Alternating approach: Subproblems are solved iteratively. For example, one may alternate between tactical and operational optimization, exchanging feedback between them. This allows tighter coordination and can improve performance, especially when a few critical interfaces dominate system behavior. On the downside, it demands more computational effort and may lead to oscillations without careful design.
In both cases, decomposition sacrifices global optimality for tractability. Sequential planning is suitable when the environment is stable and data evolves slowly. Alternating approaches become valuable in settings with high uncertainty or strong interdependencies across planning levels.
- Use sequential planning when the environment is relatively stable and predictability is high.
- Use alternating planning when uncertainty is high or when a small number of critical interfaces dominate performance, so quick feedback across levels can significantly improve outcomes.
5.6 Conclusion
In conclusion, effective planning in warehousing (and logistics) is a multi-step approach that strikes a balance between strategic foresight, tactical adaptability, and operational precision. Each level of planning serves a distinct purpose, yet they are deeply interconnected, with decisions at one level influencing outcomes at others. As noted by Winston Churchill, “However beautiful the strategy, you should occasionally look at the results.” Therefore, adequate planning combines thoughtful design with iterative refinement based on feedback and outcomes from downstream decisions.