In this paper, we consider a bay design problem in a less-than-unit-load production warehouse, which is motivated by a real-world problem in a semiconductor company. The objective is to maximize the utilization of the vertical space in bays by considering several practical storage requirements. To solve the problem, a non-linear integer programming model is first formulated. Since the problem is similar to a two-stage cutting stock problem (CSP), a column-and-row generation (CRG) method is developed, in which the original problem is decomposed into a restricted master problem and three subproblems, including two classical column generation subproblems and a row generation subproblem. The two former subproblems are solved as unbounded knapsack problems and for the latter, a two-stage approach is applied. The results of computational experiments on randomly generated instances show that the proposed CRG method is more efficient than the classic column-generation-based method, solving the non-linear model directly and solving a cut model in the literature directly. The results of a case study show that our strategy can improve the utilization of the existing warehouse storage space significantly by about 24%. The CRG method is also tested on basic two-stage two-dimensional CSP benchmarks and its performance is compared to those of other pattern-based methods. The results show its potential for effectively solving the basic two-stage two-dimensional CSPs.