What on earth is an inventory location?

Below is a conversation between us and a stationery retailer, THS*. 

Us:  So does your system currently have inventory locations. 

THS:  Yes, it shows which store it's in. 

Us:  Er...we meant where the inventory is located in the warehouse. 

THS:  Yes (points to shelving), by the number taped at the top of the racking.  Our operations specialist labelled it (beaming with pride). 

Us:  *looks at the ONE number pasted on top of each set of racking, and faints*

Recently, we've come to observe that many warehouses seem to run their operations on common sense.  Unfortunately, common sense often means doing something, but not necessarily doing the right thing.  And that worries us, because many businesses are suffering from high rentals and manpower shortage, but have no idea that the inefficiencies in their operations are causing their high rentals and manpower shortage.  

Why?  In this case, THS had labelled the shelving, but had gone about it in the wrong way.  They had given a location name to each set of shelving rack, instead of labeling the individual locations where inventory can be held.  While their approach helps their operations staff to narrow down which set of shelving rack the item is located, the staff still has to 

1. Look up the item description on the pick sheet, and
2. Try to locate the product which bears the same description among a mish-mash of items stored within the 5 levels of a 1.6 meter-wide racking. 

Imagine the amount of time wasted in traversing the 1.6 meter shelving, up to 5 times, to look for the item. 

Then imagine the potential for picking error. 

While an experienced warehouse staff can probably spend less time at picking products, what if the staff is out sick or on vacation?  Order picking will be such a laborious task then. 

So what's the right way to labeling your inventory locations? 

Think of each set of shelving as having a number of storage locations.  How large should each storage location be?  That depends on the size of your products or cartons - but try aiming for the lowest common size.  Give each and every storage location a name.  The simplest system would be an alphanumeric one - something very similar to cinema or theater seats.  

There you have it.  Now the only thing left to do is enter those locations into your warehouse management system, if you have one, that is. 

* Name have been disguised to protect the identity of the company involved.