Following the widespread supply chain disruptions of the past few years, many companies are examining their inventory management strategies, especially retailers. While the model of nationwide, multi-location warehousing has been the norm over the past decade, some executives are rethinking this approach and considering a more centralized inventory management strategy. Of course, service level must be addressed as part of a thorough cost/benefit analysis.
When analyzed and selected as the better model, companies may opt for one large warehouse, rather than spreading it out among multiple. The idea is that you will cut out duplication of labor, management, and infrastructure costs, as well as utility and leasing expenses. Goods acquisition costs can also go down with this strategy, lending to fewer shipments thanks to consolidation. Suppliers may also add discounts to this approach in the form of bulk deals.
Finally, a centralized warehousing strategy may allow for less inventory carrying because the need for safety stock will go down. You’re servicing all regions from one location, avoiding fluctuating demands from those various regions. While the centralized location may feel like a step backwards or counterintuitive, supply chains change, and for the current moment, this may be the path to success.