As modern businesses endeavor to maximize profits, there is need to minimize costs involved in warehousing, including salaries, security, insurance and maintenance. In some cases, the firm may opt to concentrate its network by reducing the number of warehouses to only one or two strategically located facilities. Centralizing inventory is an ideal solution for most businesses, because it has specific advantages.
Holding inventory in one place enables a firm to be cost-efficient. The costs involved include rent, purchasing material handling equipment, cost of repairs, labor costs, insurance, property taxes and utilities. Firms require huge investments in setting up and maintaining an effective warehouse, and consequently, it’s cheaper to operate a centralized warehouse as compared to numerous warehouses.
Improved Inventory Management
Concentrating inventory in a regional warehouse makes it easier to manage. A firm operating a single warehouse is able to easily keep track of the inventory at several retail centers, maintain stock amounts, handle huge orders, and plan its distribution. Compared with having several warehouses, the centralized warehouse is able to monitor consumers' purchasing patterns and collaborate with suppliers to enhance efficiency in managing inventory. The business also is able to maintain records of its inventory easily and use the information in forecasting and planning.
A firm may be able to compete effectively if its inventory is in a central location. When a warehouse is located near the target market, the firm is able to get products to the consumers at the right time and at lower costs. This helps the firm to observe market trends, adopt necessary technology to meet customer orders effectively and thus improve its efficiency and competitiveness.
Avoid Surplus Stock
A firm with a single warehouse is able to avoid storing unnecessary stock. When a firm has multiple regional warehouses, each of these stores has safety stock and in-transit stock. Safety stock is the extra inventory kept to cover for late deliveries or unexpected increased demand, while stock-in-transit is the inventory being transported to the warehouse. A firm with a single warehouse is more efficient, since multiple warehouses hold a significant amount of unnecessary stock in each of the warehouses, leading to higher costs.