Understanding the Pros and Cons of Centralized Warehousing

Inventory control is a substantial portion of any business that is generating product and holding it within a warehouse or distribution center. If your organization produces large volumes of product, then inventory control is an absolute must for your operation. If inventory is mishandled and not adequately dealt with, your organization may find profit loss, capital loss, and operational efficiency loss all a potential outcome for your business. If you are in the early stages of developing a distribution channel and attempting to choose whether or not to use centralized or decentralized warehousing, then it is important to understand the pros and cons of each of these concepts. 

With each of these concepts, there are many pros and cons to each. Centralized inventory allows you to oversee your inventory and have it all within one place, while decentralized inventory spreads your inventory out amongst various distribution centers. The main factor to consider is how far out your customer reach is and if your transportation costs are efficient and still leave you profitable. If you are still finding yourself to be unsure of which is more beneficial, in this blog we are going to focus on the pros and cons of centralized warehousing. 

Pros and Cons of Centralized Warehousing 

Within centralized warehousing, there are various pros and benefits to utilizing this distribution strategy. The pros pertaining to centralized warehousing include the following: 

• Reduced Operation Costs - Operation costs are by far one of the most substantial costs within any business or operation. Choosing to centralize warehousing and distribution will reduce your rent, utilities, and operational costs that it takes to run various warehouses. In addition to paying more for rent, the need to spend more on new equipment and technologies for each warehouse will also be eradicated as well. With these reductions in costs, retailers are also able to set pricing strategies with more ease due to the more stable nature of inventory management. This will ultimately allow for higher margins or lower prices for customers. 
  
  
• Reduced Inbound Costs - Centralized warehousing also can decrease the cost of shipping and transportation because of the ability to bank larger inventories. The need to dispatch trucks to replenish inventory will be less than a decentralized warehouse system, which in turn will protect retailers from having constant concern of high chipping fees. 
  
  
• Enhanced Customer Service - Through choosing to limit the number of warehouses or distributors, a company will then be able to direct its focus on resources and fewer facilities. This will mean the facility will have the highest skilled workers, latest technology, and the best equipment. If all of these are in one facility, the highest quality of service could be offered to customers. 

While there are many advantages to using centralized warehousing, there are areas where centralized warehousing lack as well. These disadvantages include the following: 

• Potential High Cost of Rush Delivery -  One of the most substantial disadvantages pertaining to centralized inventory includes making mistakes or miscalculations. If there is even the slightest miscalculation in how much product is needed or how long it should last, then the retailer would have to pay additional fees for rush deliveries to compensate for the mistake. If these mistakes happen regularly, then the money saved from opting to use a centralized warehouse will balance out.
  
  
• Problem with Local Managers -  Through deciding not to distribute through multiple warehouses, problems or challenges may arise with local managers. In general, local managers will have a strong bias for large amount of inventory being visually present. They would feel more secure because natural catastrophes or inventory mismanagement would not impact them nearly as much as they would other companies.

A software that can aid with production scheduling and adequate production of inventory would include PlanetTogether’s Advanced Planning and Scheduling (APS) Software. PlanetTogether’s Advanced Planning and Scheduling (APS) Software is a must for manufacturing operations that are seeking to take their operation to the next level in terms of operational efficiency enhancement and profitability increase. 

Advanced Planning and Scheduling Software 

Advanced Planning and Scheduling (APS) software has become a must for modern-day manufacturing operations due to customer demand for increased product mix and fast delivery combined with downward cost pressures. APS can be quickly integrated with a ERP/MRP software to fill gaps where these system lack planning and scheduling flexibility and accuracy. Advanced Planning and Scheduling (APS) helps planners save time while providing greater agility in updating ever-changing priorities, production schedules, and inventory plans.

• Create optimized schedules balancing production efficiency and delivery performance
  
  
• Maximize output on bottleneck resources to increase revenue
  
  
• Synchronize supply with demand to reduce inventories
  
  
• Provide company-wide visibility to capacity
  
  
• Enable scenario data-driven decision making

Implementation of Advanced Planning and Scheduling (APS) software will take your manufacturing operations to the next level of production efficiency, taking advantage of the operational data you already have in your ERP.

Video: Lean Centralized Warehousing – Minimizing Waste with APS

Centralized warehousing can significantly reduce operating costs, inbound transportation costs, and inventory complexity—but only when inventory levels and flows are planned correctly. In this video, you’ll see how PlanetTogether Advanced Planning & Scheduling (APS) applies lean principles to centralized warehousing, helping you minimize waste while maintaining service levels.

Learn how APS helps you:

• Support inventory control so stock is available when and where it’s needed—without tying up unnecessary capital in one facility
• Reduce operational costs by planning capacity and materials so you get the most from a single, central warehouse (rent, utilities, equipment, technology)
• Lower inbound transportation costs by banking larger inventories and reducing the frequency of replenishment shipments
• Use scenario-based planning to avoid rush-delivery costs when demand or forecasts are off
• Give planners and local managers visibility into inventory, capacity, and service trade-offs so they can make data-driven decisions instead of relying on “more inventory feels safer” instincts

This video is ideal for supply chain, warehousing, and operations leaders who are evaluating centralized warehousing and want APS-driven planning to support lean, waste-reducing decisions.

 

 

Make Centralized Warehousing Profitable with Better Planning

Centralizing inventory into a single warehouse can dramatically reduce rent, utilities, equipment, and inbound transportation costs—but only if you manage inventory and capacity with precision. Miscalculations in demand or stock levels can quickly lead to costly rush deliveries that erase the savings of centralization and frustrate local managers who want “safety” inventory everywhere.

Download our one-page “The Money Is in the Planning” infographic to see how combining centralized warehousing with Advanced Planning & Scheduling (APS) can help you:

• Turn centralized inventory into a controlled, visible asset instead of a risk to service and capital
• Reduce operating and inbound costs while still meeting customer expectations for availability and delivery speed
• Use scenario-based planning to test different inventory and transportation strategies before you commit
• Synchronize supply, warehouse capacity, and demand so you avoid stockouts that trigger rush shipments
• Leverage your existing ERP data to create optimized inventory and capacity plans that support both profitability and service

Share it with your supply chain, warehousing, and finance teams as a quick visual guide to where better planning and scheduling with APS unlock the full value of centralized warehousing.