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To Centralize or Not to Centralize



As distribution companies grow, a decision must be made as to which warehouse configuration works best for you. The two most common configurations are centralized and decentralized warehouses. Centralized warehouses consist of a single large warehouse from which all products are shipped. Decentralized warehouses consist of several smaller warehouses in various locations which contain specific products to serve specific markets. Neither method is definitively better than the other, but certain factors within your business may benefit from one method over another.

 

Benefits of a Centralized Warehouse 

The most common benefit of a centralized warehouse is reduced operating costs. A single warehouse means paying rent and utilities for a single location. A single location also means that your rent isn't variable between locations (as there is only one) and therefore is more stable. Customer service also often improves with a centralized warehouse, as service remains more consistent. 

Drawbacks of a Centralized Warehouse

The two main drawbacks of a centralized warehouse configuration are increased shipping costs and increased shipping times. When shipping product from a single location, some locations within your shipping region will be much further from the warehouse than others. This can mean that some locations will incur a higher shipping cost, and shipping to these regions may be slower than to closer regions. 

Benefits of Decentralized Warehouses 

A major benefit of decentralized warehouses is the reduction in shipping cost and time. Warehouses can be stocked with products that are common for that region, meaning products generally shipping quickly to locations close to the warehouse. Having many smaller warehouses often increases the amount of space that you have to store products which increases the number of products, or the amount of each product which can be stored. 

Drawbacks of Decentralized Warehouses

The main drawback of decentralized warehouses is significantly increased operational costs. Rent and utilities must be paid for multiple locations, and a full staff must be hired, trained, and maintained. This cost may or may not be offset by the benefits in stock and shipping. 

So which is the best choice for you? 

Generally, if the benefits of the decentralized warehouse configuration outweigh the additional operating costs than your company would likely benefit from a decentralized system. You may also benefit from a decentralized system if your shipping costs and times are very high and if this increased cost and time are causing difficulty with your customers. If your shipping costs and times are relatively low, or if high operating costs are not sustainable for your business, it may be worth considering a centralized warehouse configuration. 

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