This document discusses the considerations for choosing between centralized and decentralized distribution centers. Key factors that influence the decision include supply chain costs, customer service requirements, competition, technology capabilities, transportation and warehouse efficiency. The optimal number, type and location of distribution centers depends on balancing inventory, transportation, warehousing and lost sales costs. Modern networks typically use a small number of strategic central warehouses combined with regional warehouses and cross-docks to efficiently reach customers through centralized planning and decentralized execution.

1. Centralised vs. Decentralised
Distribution Centres
Danie Schoeman
Barloworld Logistics Africa

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The Choice – A Delicate Balance
• Supply chain costs
• Required/Desired customer service
 Product availability
 Service lead time
• The competition and competitive actions in the marketplace
• Impact of information technology and communication systems
 TMS, WMS, Bandwidth
• Efficiency of transport operations
 Better designed vehicles
• Efficiency of warehousing operations
 Storage and MHE
• Organisational barriers
 The SC skills shortage
• Maturity of the S&OP process in the organisation
• Insurance
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Centralised vs. Decentralised
• “To be, or not to be: that is the question”
William Shakespeare's Hamlet, act 3, scene 1
• Is it really the question?
• Or are the questions rather:
 How many warehouse facilities should there be?
 What type of facility should they be?
 Where should they be located?
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A Subject of Economic Evaluation
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Total Cost
Inventory Cost
Transportation
Cost
Warehousing
Cost
Cost
Number of Distribution Centres

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Conventional Distribution Network
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Total Cost
Warehouse &
Inventory Cost
Primary Transport
Cost
Local Delivery
Cost
Cost of
Lost Sales
Cost
Number of Distribution Centres
Optimum Number

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Modern Distribution Network
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Total Cost
Warehouse &
Inventory Cost
Primary Transport
Cost
Local Delivery
Cost
Cost of
Lost Sales
Cost
Number of Distribution Centres
Optimum Number

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Number of Facilities
• Factors to consider
 Cost of lost sales
 Inventory costs
• Investment
• Holding costs
 Warehousing costs
 Transportation costs
• Primary transport costs
• Local delivery cost
 Customer buying patterns
 Competitive environment
 IT deployment and usage

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Type of Facility
Operational Role DC Proprietor Facility
Fulfill demand Manufacturer
Retail distributor
Third-party distributor
Wholesale distributor
Distribution centre
Cross-dock facility
Flow-through distribution
centre
Consolidate products Retail distributor
Third-party distributor
Wholesale distributor
Consolidation centre
Mixing centre
Cross-dock facility
Flow-through distribution
centre
Returns Retail distributor
Wholesale distributor
Third-party distributor
Distribution centre
Flow-through distribution
centre
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Source: John Gattorna

9. © Barloworld Logistics Africa (Pty) Ltd
Type of Facility
Operational Role DC Proprietor Facility
Hold inventory – raw
materials
Manufacturer Bulk storage warehouse
Hold inventory – finished
goods
Manufacturer
Retail distributor
Third-party distributor
Wholesale distributor
Bulk storage warehouse
Assembly centre
Distribution centre
Cross-dock facility
Flow-through distribution
centre
Rework/reclamation Manufacturer
Wholesale distributor
Retail distributor
Third-party distributor
Distribution centre
Cross-dock facility
Flow-through distribution
centre
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Source: John Gattorna

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Type of Facility
Operational Role DC Proprietor Facility
Provide value-added
services
Manufacturer
Retail distributor
Wholesale distributor
Third-party distributor
Mixing centre
Assembly centre
Consolidation centre
Distribution centre
Cross-dock facility
Flow-through distribution
centre
Assemble products Manufacturer
Third-party distributor
Assembly centre
Cross-dock facility
Break-bulk centre
Flow-through distribution
centre
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Source: John Gattorna

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Location
• Strategies
 Production positioned or Source-based
 Market positioned or Market-based
 Intermediately positioned
• The rise of the Cross-dock
• Private/Bespoke warehousing vs. Public/Multi-principal
warehousing
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Conclusion
• The prevailing theme is that of
 A small number of facilities
• With strategic central/mother warehouse(s)
• And smaller regional inventory holding warehouses
• And/Or cross-docks to reach customers
 Planned and controlled centrally through a
• Inventory planning and deployment system
• Transport management system
• Warehouse management system (both local and central)
 With decentralised execution
 Supported by investment in appropriate technology.
• The answer to the question … Well, there is no perfect
answer.