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 pricers 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. The 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 in order 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 to not 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.
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Topics: Centralized Warehousing