Do you have the right number of warehouses in your distribution network? It is a question that we get asked all of the time, and it is not an easy question to answer — here is why.
The reason that it is not an easy question to answer is because the answer is different for every sort of business. It also depends on the geography, the country you are in, the type of products, and your customer service offer. That is where I suggest that people start.
If you have a customer service offer of four hours — meaning that as soon as the customer places an order, the product is guaranteed to be delivered to them within four hours — then this will differ from an offer with 8 hours, 12 hours, or even more than this.
Let us say you have an offer for next-day delivery — typically, that might be: if you order before 2pm, we will guarantee to deliver your product tomorrow. What this means is that you have got to be holding stock close enough to all of your customers to be able to provide that next-day delivery.
The offer you have for your customers absolutely drives the number of warehouses and the number of stock-holding points you have in your network — unless you are sending out all the product by drones or helicopter (!).
But, let us assume it is all going out by road transport — do other things have an impact on the shape of your network? Of course they do. Your sources of supply play a crucial role in determining warehouse locations. If you are importing products through specific ports or receiving them from manufacturing facilities, you will need to carefully consider both inbound and outbound logistics costs.
The key is finding the sweet spot where your network design balances:
- Transportation costs
- Warehouse operating costs
- Inventory holding costs
- Most importantly, your customer service promise
Remember, there is no one-size-fits-all solution. The right number of warehouses depends on your unique business context. Regular review of your network design ensures it continues to meet evolving business needs and market demands very effectively.
Thank you for this detailed content. There are certainly a lot to learn with what you have written.
Glad it’s helpful!
WOW, it very helpful for me..!
Glad to hear that, Gurpreet!