Question

1. When designing a network of distribution centers to serve a large market, like the U.S., it is common to debate the number of facilities to use. Discuss the following.

• What arguments would you use to support having many facilities? What assumptions did you make to support your analysis?

Having many facilities can be good for higher levels of productions

• What arguments would you use to support having fewer facilities? What assumptions did you make?

Fewer facilities mean fewer total costs to worry about, but a lot less production capacity

• Which business functions (departments) are likely to support each of these positions (i.e., having more or fewer facilities)? I would think a department such as the logistics department would suggest having fewer facilities, but on the supply side it’s better to produce more, and at times hold more inventory.
• How does the availability of third-party providers influence your decision?

Answer 1

Distribution refers to the steps taken for the movement and storage of a product from the supplier to a customer in a supply chain. While designing a network of distribution centres for serving a large market, there are some factors which are influencing the network of distribution centres such as the customer needs that are met and the cost of meeting customer needs.

As the number of facilities increases, the inventory and the cost of inventory increases. Increase in the number of facilities decreases the total cost of transportation. If the number of facilities gets increases to a point where there is a loss of economies of scale in an inbound transportation, the cost of transportation also gets increases. Due to the increase in the facilities, total logistics cost decreases at first and then increases. An organization should hold atleast the number of facilities that can minimize the total cost of logistics. An organization should always go for adding facilities beyond the cost of minimizing the point as if only the management is confident that the rise in revenue is greater than the increase in the cost due to additional facilities.

If in a condition where the number of facilities is in a few, the inventory level and its associated cost will gets decreases and also the total cost of trasportation will gets increases under such a condition. Situation having decrease in the facilities, the total logistical cost gets increases at first and then gets decreases.

For example, the Amazon company with a few facilities are able to turn its inventory just about twelve times in a year, while with the borders about 400 facilities achieves just two turns per year.

Third party logistics company offer logistical services and then provide support to all the aspects of the shipping operations, managing the movement of goods from the manufacturers and distributors and then to the end customer. They influence the logistical decision based on the warehousing, inventory management, freight audit, shipment tracking, payment, brokerage of customs, materials procurement as well as transportation. They also influence the department of logistics with few facilities such as shipping and receiving and distribution. It also helps the company to save time and money and for promoting more affordable experience to the customers.