What should you consider when choosing centralized or decentralized?
As a packaging expert, I have obviously been following developments in fulfillment closely for years. Whereas retailers with a web shop in the beginning mainly delivered from multiple warehouses or stores, they are now increasingly opting for delivery from a single distribution center. There is something to be said for both choices. In the end, it all comes down to what suits your company best.
Considerations in decentralized inventory management
You obviously want to use the expensive square footage of your storefront as much as possible as a showroom. It’s a crying shame to have to give up part of that for warehouse space. Your biggest challenge in decentralization therefore lies with your inventory management. Because how do you make sure you have just enough items in stock to provide immediate delivery to both your online customers and the customers you get in your store? If the warehouse inventory in your store is too low, you won’t be able to deliver (on time). Or the cost of transportation from other locations or rush shipments is skyrocketing.
Considerations in central inventory management
With delivery from a single distribution center, inventory management is a lot easier. Because you only have to synchronize one or sometimes a few warehouses, centralized delivery allows you to automate the inventory management process better, cheaper and more efficiently. Now, the investment cost of automation is high. At a high scale, that is, when many products come in and are delivered again, the cost per product is relatively low. A low scale, i.e. decentralized delivery from a store warehouse, makes automation per product or operation a significant cost.
Last mile is a tricky issue in all cases
Whether you carry out the delivery of your products centrally or decentrally, the last mile is a tricky issue in both cases. In both options, it is the most costly part of the logistics process. Logistically, it is risky anyway to deliver one package to one address. You have more stops along the way and something can go wrong precisely during loading and unloading. So it makes no difference whether you make the delivery from a nearby store or from a central distribution center. If you choose to have your customer pick up the package at the store, you do make a profit.
Decentralized resupply more complex due to erratic consumer behavior
Consumer behavior proceeds in an erratic pattern, especially when viewed on a store-by-store and regional basis. Restocking your decentralized distribution points almost always involves mixed goods, always in different quantities. It’s a difficult logistical challenge to keep the inventory level of all your products at the right level if you have them spread across different warehouses. A problem you obviously don’t have with a central distribution center.
Higher error rate with decentralized delivery
An important logistical task involved in shipping products is order picking. In a large distribution center, people are more focused on the process and controlling it. The chance of error when picking in a distribution center is therefore a lot smaller than with decentralized delivery.
Prevent proliferation of packaging
Consumers are becoming more and more critical. And you have probably experienced it yourself several times: you receive your ordered product in a huge outer box, supplemented with plastic padding. In the current climate era, this is a major annoyance for many people. After all, we all want to leave a smaller footprint! With fulfillment from a distribution center, this is easier to avoid. There is a larger inventory with packaging for all possible product combinations. You can hardly get that done on a decentralized level. Because the inventory space the stores have to give up for all that packaging costs handsomely.
With good decentralized inventory management, you’re one step ahead of big online players
If you make sure that you get your stock management right at the overall store level within a region, you can really guarantee same-day-delivery. In your own van with branding, on an electric bicycle for my part. You are closer and offer your customer service right to his front door. Then, in my opinion, you clearly have a better position than the big online players such as Bol.com and Amazon.com. Especially since the customer can still come to your store to see the product and ask your specialized staff for advice.
Because the store can hold limited inventory, the store will have primarily a distribution function. The DC delivers to the store and continuously replenishes its stock. The store collects the order and delivers it to the customer within a few hours of the order.
Decentralized or central fulfillment, always ensure visibility and predictability
But whether you choose decentralized or centralized delivery, you need insight and real-time predictability to serve your customer optimally. An intelligent ICT solution that helps to establish and maintain a well thought-out logistical concept. Especially for this purpose Faes developed the ICT solution StackAssist, which helps you optimize your supply chain.
StackAssist Ensures a streamlined process
The program calculates load rates based on incoming orders, helping to find the ideal balance between efficiency and reliability. You know exactly what is the right time to start driving. And which orders you can combine. In fact, you get to see exactly what the optimal load is. Ideal for both delivery to the customer and delivery from the DC to the stores. So you save valuable load meters.
We are happy to help you gain control of the supply chain
You can turn to Faes for analysis and improvement of the packaging process in your supply chain. We also offer software solutions for packaging, loading and shipping. Curious about what we can do for you? Fill in the form below or contact us directly.