Every second an employee spends searching for a shelf costs money. An unclear or inconsistent location system is one of the most underestimated causes of slow order picking and incorrect deliveries. In this article, you will learn how to number warehouse locations according to proven best practices, which mistakes to avoid, and how to future-proof the system.
Why a good location system is the foundation of your warehouse
A location code seems like a detail, but it is the backbone of your entire operation. Every pick, every stock count, and every replenishment revolves around the question: where exactly is this item located? If the answer isn't clear within two seconds, you lose time. On hundreds of picks per day, that adds up enormously.
Experience shows that employees lose an average of 15 to 30 extra seconds per pick due to unclear or inconsistent location coding. With 500 picks per day, this quickly amounts to more than two hours of lost productivity, day after day. In addition, the error rate increases: incorrect locations lead to incorrectly picked items, which in turn results in returns and dissatisfied customers.
There is also a direct relationship between location numbering and order lead time. The more logical the route via your coding, the faster an order is completed. This directly relates to the warehouse KPIs you need to measure , such as picks per hour and order lead time.
Many companies only realize their system falls short when growing: a second floor, a new warehouse layout, or expansion into multiple zones. What once made sense for 500 SKUs no longer works for 5.000. That is when it is time to think structurally about numbering warehouse locations according to best practices, instead of continuing to apply ad-hoc numbers.
The basic principles of numbering warehouse locations
A good location system is built on a logical hierarchy, is consistent in size, readable by both humans and scanners, and offers room for growth. Together, these four principles form the basis of every strong coding structure.
Structure of a location code: corridor-rack-level-compartment
The most widely used and proven structure consists of four segments:
- Gang: the path or row in which the rack is located (e.g. A, B, C)
- Rack: the specific rack within that aisle (01, 02, 03)
- Level: the height, from floor level to top shelf (0 = floor, 1, 2, 3…)
- Field: the specific position within that level (01, 02, 03)
This results in a code like A-03-02-05 : aisle A, rack 3, level 2, compartment 5. This structure aligns directly with the route a picker takes, making the system intuitive.
Tip: Always use the same number of digits per segment, for example, always two digits for rack and compartment. This prevents confusion between “A-3-2-5” and “A-03-02-05” and keeps sorting in systems consistent.
Alphanumeric versus purely numeric: which works better
Both variants have advantages and disadvantages. Alphanumeric codes (with letters for aisles) are easier for people to remember and recognize in a physical space. Purely numerical codes, on the other hand, are easier to process in some older systems and easier to sort.
Experience shows that a combination works best: letters for corridors (recognizable to people), and numbers for arithmetic, level, and subject (unambiguous for systems). However, avoid confusing letters such as I and O, which look too much like the numbers 1 and 0.
Commonly used structures for location numbering
There is no single correct way to number, but a number of structures are most common in practice.
Sequential numbering: advantages and disadvantages
With sequential numbering, you walk aisle by aisle, rack by rack, in ascending order. This is simple to implement and easy to explain to new employees.
The downside: if you later want to add a rack between two existing racks, a problem arises. You then have to either renumber (time-consuming and error-prone) or add an illogical intermediate code that breaks consistency.
Tip: When numbering sequentially, intentionally leave space, for example by numbering in steps of 5 or 10 (rack 05, 10, 15) instead of consecutively (01, 02, 03). This way, you can easily insert rack 07 or 08 later.
Zone coding across multiple product categories
Do you work with different product categories, temperature zones (for example, refrigerated versus normal), or separate fast-moving and slow-moving zones? Then zone coding is a logical addition. You add a zone letter or number before the regular code, for example, KA-03-02-05 for a location in the refrigerated zone.
This is also relevant if you work with different order picking methods : zone picking requires a clear zone division in your coding, otherwise it becomes difficult to optimize walking routes per zone.
For bulk locations (large quantities, reserve stock) versus bin locations (small picking bays for quick picking), it is smart to add a separate attribute, for example, the letter B for bulk and P for pick, so that your system and employees immediately see the distinction.
| Structure | Benefit | Downside | Suitable for |
|---|---|---|---|
| Sequential | Simple, quick to learn | Difficult to expand | Small, stable warehouses |
| Zone-based | Clearly organized by category | Something more complex to set up | Multiple product groups/temperature zones |
| Alphanumeric | Recognizable to people | Risk of confusion (I/1, O/0) | Most warehouses |
| Purely numerical | Simple for systems | Less intuitive for people | Highly automated environments |
Common mistakes when numbering warehouse locations
Even experienced operations managers fall into the same pitfalls. The most common mistakes listed:
- Leave no room for growth. A rigid, continuous numbering system without margins forces you to renumber when expanding, with all the associated risks of errors.
- Using confusing characters. The letter I looks like the number 1, and the letter O looks like the number 0. On a scanned barcode or a handwritten label, this leads to incorrect picks.
- Inconsistent code length. If one zone uses two digits and the other three, confusion arises and sorting in your system no longer works reliably.
- Manual adjustments without documentation. A picker who “quickly” moves a pallet to another location without registering it causes a mismatch between your system and reality. This is one of the biggest causes of counting discrepancies.
Warning: A location system that exists only in the minds of your most experienced employees is not a system. As soon as that person is on vacation or leaves, errors and delays occur.
Step-by-step plan: how to set up a new location system
Setting up a new location system is not something you do overnight. A structured approach prevents you from having to make adjustments halfway through.
Step 1: Map out your current warehouse layout. Draw out your warehouse, including all aisles, racks, levels, and any zones. This forms the basis for your coding logic.
Step 2: Determine zones and walking routes for optimal picking. Look at picking frequency: fast-moving items close to the issue station, slow-moving items further away. This aligns with the principles of successfully organizing your warehouse.
Step 3: Choose your coding format and document the logic. Determine how many digits each segment will have, which letters you use, and why. Put this in writing so that new employees and suppliers can refer to it.
Step 4: Physically label and test with a pilot zone . Start with one aisle or zone. Test whether the labels are easily scannable and whether employees intuitively understand the logic before converting the entire warehouse.
Step 5: Roll out and train employees on the new system. As soon as the pilot is successful, roll out to the rest of the warehouse. Provide clear instructions and, where possible, visual aids such as floor plans at the entrance of each aisle.
Link location numbering to your WMS
An Excel list of locations works fine for a small warehouse with a handful of SKUs. As soon as you grow, this becomes unsustainable: no real-time insight, no automatic checking for duplicate locations, and prone to errors with manual updates.
A WMS automates this process. The system can automatically suggest locations based on picking frequency (slotting), ensuring that fast-moving items always end up in the most accessible spots. Additionally, a WMS provides real-time insight into inventory per location, preventing counting errors and discrepancies between physical and system inventory.
For example, Lyra WMS links location management directly to barcode scanning , so that every movement is automatically recorded. This significantly reduces the margin of error compared to manual registration and ensures that your location data always remains up-to-date, even during busy periods or staff changes. Check out the possibilities on the Lyra WMS features page for more details on location management and slotting.
Long-term maintenance and optimization
A location system is never “finished”. Sales data changes, seasons shift, and your assortment grows. Therefore, periodic maintenance is just as important as the initial setup.
Evaluate at least once a quarter which products are your fastest-moving items and whether their location is still optimal. For seasonal inventory, such as garden items in the spring or decorations around the holidays, it pays to temporarily rearrange locations so that busy periods run more smoothly.
Cyclic counting is essential to keep your location data accurate. Instead of one large annual count, you continuously count small sections of your warehouse. This aligns with the recommendations in the webshop inventory management tips and prevents small deviations from accumulating into major discrepancies.
Signal to review your system: if you notice that employees regularly ask questions about where items are located, or if your picking error rate is structurally increasing, that is a clear sign that your current location system has reached its limits.
Major changes, such as a relocation, a new warehouse layout, or switching to a new system, are good opportunities to re-evaluate your entire coding structure. You can find a structured approach to this in the WMS implementation step-by-step plan.
Frequently asked questions
What is the best way to number warehouse locations?
There is no universal “best” way; that depends on the size and layout of your warehouse. However, a number of fixed principles apply: consistency in format, readability for both people and scanners, and sufficient room for future growth. The most widely used and reliable basis is the aisle-rack-level-bay structure, where each segment has a fixed number of characters.
Should I use letters or numbers for location codes?
In practice, a combination works best: letters for corridors because people recognize and remember them more easily, and numbers for arithmetic, level, and subject because they are unambiguously processed in systems. However, avoid letters that look like numbers, such as I (looks like 1) and O (looks like 0), to prevent confusion and scanning errors.
How do I adjust location numbering for a growing warehouse?
Reserve space in your coding structure in advance, for example by numbering in increments of 5 or 10 instead of consecutively. This way, you can add new racks or compartments later without renumbering the entire system. Additionally, evaluate periodically, at least annually, whether your structure still aligns with your current assortment and warehouse layout.
What does it cost if warehouse locations are not numbered correctly?
In concrete terms: 15 to 30 extra seconds per pick due to search time, which, with hundreds of picks per day, adds up to hours of lost productivity. Additionally, the error rate increases because employees pick the wrong location or the wrong item, which in turn leads to more returns and a longer order lead time.
How often do I need to review my location system?
An annual evaluation is a good rule of thumb, but it may be necessary more frequently in the event of rapid growth, a highly variable assortment, or seasonal inventory. Also, pay attention to signals such as rising error rates or employees asking many questions about locations: this is often a sign that the system is due for a review sooner than planned.
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