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Less or More DCs: US Companies Continue to Re-evaluate Distribution Networks

The battle cry for supply chain planners in the past economy has been "do more with less." In the supply chain, that translates to "more" customer service performance with "less" inventory and stocking points. Calls to reduce operating costs have resulted in a significant trend towards closing or consolidating physical distribution centers. Demands to reduce overhead and shift operating costs from fixed to flexibility are strong drivers, and many companies have decided that some warehouses can no longer be justified. Is this still the trend with the current transportation costs and a weaker dollar?

Companies are evaluating if they should have less or more warehouses in the current economy - higher transportation costs and a weaker dollar. The companies that chose warehouses as an area to cut find that a smaller distribution network footprint does not necessarily equate to lower operating costs. Fewer warehouses usually mean significantly less direct labor, lower facility costs and simpler inventory deployment, but at a much higher transportation costs. Meeting customer service demands, however, can be much more challenging and keeping total logistics costs in check requires great attention to transportation management. Evaluating the opportunities of less or more warehouses has been a daunting challenge to planners as they look to reduce costs and optimize their distribution network.

Those that have successfully evaluated their distribution network have learned that the correct answer for their company can be either less or more depending on their specifics. The optimal locations for a distribution network can be very different by company based on current economy and the supply chain footprint. It is important to consider your suppliers, manufacturing, warehousing and customer demand along with the business requirements to determine the most effective distribution network.

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