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Less DCs: US Companies Continue to Downsize Distribution Networks

The battle cry for supply chain planners in the recent 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.

Most companies that choose warehouses as an area to cut find that a smaller distribution network footprint does equate to lower operating costs. Fewer warehouses usually mean significantly less direct labor, lower facility costs and simpler inventory deployment. Meeting customer service demands, however, can be much more challenging and keeping total logistics costs in check requires great attention to transportation management.

Those that have successfully reduced the distribution network have done so by becoming much more sophisticated supply chain managers. Tactics such as plant-direct shipping, cross-docking and rapid-turnover mixing centers can help dramatically reduce the need for the traditional distribution center. The location and role of the remaining distribution centers, however, becomes much more important when there are fewer.

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