If mishandled, a business will not be able to move any products, and may lose capital. If you are unsure about which would be more beneficial, here is a list of pros and cons of a centralized warehouse. Lower operation costs- By choosing to centralize warehousing and distribution, the need to pay rent or utility expenditures for different warehouses is reduced. In addition to paying more for rent, the need to spend more on new equipment and technologies for each warehouse is also eliminated.
The benchmarking data show that efforts to consolidate logistics have the potential to reduce needed warehouse space - and the associated Centralized and decentralized logistic - as well as standardize logistics processes.
In order to determine whether centralized logistics structures also improve logistics performance, APQC compared the quality of deliveries, inventory management, and logistics costs of organizations using a centralized structure with those using a decentralized structure.
Delivery Quality Organizations with centralized and decentralized logistics structures differ little in their perfect order performance.
APQC defines this metric as the percentage of orders delivered on time - with all order line items filled correctly, completely, and without damage; and with an accurate invoice. The performance of the two groups is identical at both the median and top-performer level, and has only a 3 percent difference at the bottom-performer level see Exhibit 1.
These results indicate that whether an organization has a centralized or a decentralized logistics structure makes little difference to the quality of orders actually shipped to customers. However, with a 92 percent perfect order performance rate at the median, both groups have room to improve.
To determine how centralized logistics structures can affect logistics processes before orders leave the warehouse, APQC analyzed inventory management performance.
Companies with a centralized logistics structure have a lower value of sales order line items that are unfulfilled due to stockouts or production capacity as a percentage of revenue than those with a decentralized logistics structure see Exhibit 2.
At the median, there is a 0.
The difference is larger at the bottom-performer level: Although the quality of shipments may not be affected by logistics structure, the fewer stockouts associated with a centralized operation could mean an improved experience for customers.
Reducing the amount of sales order items that are unavailable to ship would contribute to customer satisfaction and reduce the potential for lost business. APQC also looked at the value of inventory carried by the two groups.
Organizations with a centralized logistics structure have a lower value of inventory being held in warehouses than organizations with a decentralized structure see Exhibit 3.
Specifically, it can result in lower costs to store that inventory and fewer employees needed to manage it. Lower inventory value can also reduce the amount of inventory lost to obsolescence and shrinkage.
Even though organizations with a centralized logistics structure consistently carry a lower value of inventory, the difference between the two groups is less notable among top- and bottom-performers. Overall, the results indicate that organizations with centralized logistics structures may have consolidated warehouses as part of their centralization efforts and can therefore carry less inventory.
Yet whether or not these organizations have actually consolidated warehousing, carrying less inventory while having a lower percentage of stockouts means that they can more accurately plan their operations and stock to meet customer demand.
Exhibit 4 presents the median total logistics cost for both types of structures, as well as the median costs for individual processes within logistics. The lower cost to plan and manage inbound material flow among organizations with centralized logistics functions may be a result of their having fewer warehouses.
With fewer locations needing deliveries of materials, the cost of planning and managing incoming materials would decrease. Taken together, the lower cost to plan and manage inbound material flow, lower inventory value, and lower percentage of stockouts achieved via centralized logistics structures indicate that these structures facilitate better logistics planning and management.
The higher overall logistics costs for organizations with centralized logistics structures can be influenced by several factors. These organizations may spend more on outbound transportation because they have fewer warehouses and thus need to ship products farther to reach customers.
They may also be more sophisticated in their logistics functions and thus invest more in technology to support logistics processes. And more sophisticated technology may require more staff for its use and maintenance, which would add to total logistics costs. However, centralized structures seem to spur more effective planning and management of inbound materials and management of inventory.
In particular, organizations with centralized logistics structures spend less to manage inbound materials, have fewer stockouts, and hold lower inventory values. The choice between a centralized or decentralized logistics structure depends heavily on the individual circumstances of the organization.
If better management of inventory or inbound materials is a priority, then a centralized logistics structure may be the best choice.Congress was unwilling to expend the funds necessary to maintain a large standing army during the latter part of the 19th century because _____.
Agile Business — Finance 3 Benefits for the CFO The CFO and CIO together have an unprecedented opportunity to drive a holistic financial transformation. Common ways to limit the topic include selecting a particular industry, considering a type of product, and domestic versus international logistics.
Training for Future Wars “Everyone wants to be in charge, but no one wants to lead” John A. Mayfield, US Army, SFC Incorporating the lessons of World War II, the origins of today’s air control system are found in FM , Air Ground Operations, published in August , prior to an independent Air Force.
The RMA Debate, articles and links about the Revolution in Military Affairs, information war, and asymmetric warfare. Gateway to US defense modernization debate. To centralize or not to centralize?
By Andrew Campbell, Sven Kunisch, and Günter Müller-Stewens who laid out GM’s influential philosophy of decentralization in a series of memos during the s, Since centralized product management was clearly not .