Central and decentral Storage

Another constitutive decision is the question whether companies store their goods centralized or decentralized.

A central warehouse concept means that an entity (for example, operates in the middle of Germany) uses a central warehouse to store their goods and supplied from to all customers. Advantages result because the company needs only to build one stock. The investment costs in technical equipment so occur (usually) also only once. In addition, it can be stated that even the control effort in the warehouse is low because of the centralization. In addition, it is advantageous that in the central warehouse all products of the range are available. This means high availability.

If there is a customer base of a company from a few large customers, which are also regionally are relatively concentrated it is the optimal case to use the central storage. Transports can thus be optimally utilized and in this way it is possible to lower the costs of transport and distribution.

Decentralized Warehouse are scattered. With a customer base, which consists of many small and regionally disparate customers this type of storage seems to be the best. This ensures that the goods are stored already relatively close to the customer. There are therefore short delivery times, since only short distances must be overcome. The disadvantage here lies in the higher exposure to investment and fixed costs, because companies have to run different warehouses and that is why more equipment is needed. In addition, there is the risk of misallocation, so to have the right product at the wrong stock. This means that the availability of products is lowered.

Here you can see clearly the classic trade-off between inventory costs of logistics and transport costs. While in central storage, storage costs can usually kept low and the transport costs are getting higher, it's the other way around in decentralized storage. But by several warehouses near the customer, the transport costs are reduced and warehousing costs (due to multiple buildings, etc.) increase.

Here, too, can a break-even analysis show optimization potential and benefits.

Summary

central storage

• to realize optimal position in the center of the area to supply all customers in (relatively) short transport distances
  
• cost savings because there is only one operating warehouse
  
• lower expense as all the goods are stored centrally
  
• high availability of goods
  
• with a few major customers which are regionally concentrated, particularly suitable
  

decentralized storage

• several small, regionally dispersed warehouses near the customers
  
• short distances from the nearest warehouse to customer
  
• higher capital and operating costs
  
• higher control effort
  
• Risk that the right goods are in the "wrong" camp (misallocation)