Supply Chain Distribution Tradeoffs

Supply Chain Distribution Tradeoffs

• Distribution vs. Transportation: Direct shipping from plants to customers is costly. Warehouses (DCs) reduce costs by allowing large shipments to distant facilities and smaller deliveries to customers. However, too many DCs decrease efficiency, leading to less-than-truckload shipments and higher transportation expense.

• Distribution vs. Inventory: More DCs mean higher inventory carrying costs. Inventory increases with the addition of facilities, but at a decreasing rate. Decentralized inventory hinders risk pooling strategies as each facility needs safety stock.

• Regional vs. Centralized Facilities: Firms often use regional facilities for high-velocity items and a central facility for slow-moving items (e.g., replacement parts, costly products). Centralized inventory reduces carrying costs despite longer delivery distances.

• Distribution vs. Customer Service: More facilities improve customer service—buyers prefer DCs within a day's drive. However, this is balanced against the higher costs of operating additional facilities and carrying inventory.

Facility-Level Tradeoffs

• Space vs. Equipment: Larger facilities benefit from automation and materials handling. Proper equipment leverages vertical space and speeds up product flow.

• Equipment vs. People: Automation reduces labor needs. Manual operations require more people for distribution activities.

• People vs. Space: Larger workforces allow for larger facilities and higher throughput. Small teams need more automation in large facilities to efficiently serve customers.

• Resource tradeoffs: Financial and performance tradeoffs are necessary for internal efficiency. Efficient use of resources like space, equipment, and people is critical to meeting distribution goals.