Reference no: EM132805183

Discussion 1: Discuss the primary tradeoffs that must be made between distribution and logistics activities

Determining the number of facilities needed for a supply chain involves the evaluation of cost tradeoffs with other functional areas. As the number of warehouses increases, transportation cost and the cost of lost sales decline, though inventory and warehousing costs increase. Overall, total cost will generally decline. However, total costs begin to rise as increasing inventory and warehousing costs offset decreasing transportation costs and the cost of lost sales. Of course, the total cost curve and the range of warehouses it reflects will be different for each company.

Transportation costs- Consolidation of inbound freight into truckload quantities achieves lower transportation rates per hundredweight and reduced transportation costs. On the outbound side, increasing the number of warehouses brings the warehouses closer to the customer and market area, reducing both transportation distance and costs.

Cost of lost sales- an increase in the number of facilities improves customer proximity and inventory availability. This facilitates faster order cycle time and more complete orders. Fewer customers will be compelled to find substitute products or take their business to other suppliers, thus reducing defections and lost sales.

Warehousing costs- these costs increase because the total amount of space increases with a larger number of warehouses. For example, splitting a 200,000-square-foot facility in half will likely require two facilities of more than 100,000 square feet each. Office space, equipment storage, and other facilities have similar footprints in two facilities as in one, while aisles require a higher proportion of space in the two smaller warehouses.

Inventory costs- as discussed earlier, an increased number of stocking points increases the overall safety stock levels and inventory carrying costs in the supply chain. Moreover, as companies increase their number of warehouses, growing product lines will likely require more total space, even at the same sales volumes.

• Determining the number of facilities needed for a supply chain involves the evaluation of cost tradeoffs with other functional areas. As the number of warehouses increases, transportation cost and the cost of lost sales decline, though inventory and warehousing costs increase. Overall, total cost will generally decline. However, total costs begin to rise as increasing inventory and warehousing costs offset decreasing transportation costs and the cost of lost sales. Of course, the total cost curve and the range of warehouses it reflects will be different for each company.