The Advantages of a Centralized Warehouse

by Dennis Hartman; Updated September 26, 2017
Portrait Of Two Businessmen In Warehouse

Every business that sells products needs an effective way to manage its inventory, whether it's a small local business or a multinational manufacturer or retailer. Inventory management involves many complicated decisions. For some businesses the choice between a centralized warehouse to store inventory or several smaller regional warehouses will affect other inventory management decisions and have a major impact on how the business operates.

Reduced Cost

One of the key advantages of a centralized warehouse is the savings it offers a business. Constructing, staffing, securing and managing a warehouse is a major expense, and multiple warehouses multiply this expense. If you run a manufacturing business, an on-site central warehouse can make use of existing land and put your production facility close to your inventory and distribution center, removing the need to transport goods from one to the other. A single warehouse can represent major savings, especially if you choose a location where land or existing warehouse space is inexpensive and one that is central to your customers for faster and easier shipping.

Staffing

A business with a central warehouse also sees an advantage in terms of staffing. Even if a centralized warehouse needs to be very large to replace multiple regional warehouses, it will still require fewer workers than needed when staffing multiple locations. You will also realize economies of scale from having to hire security personnel, management, inventory control staff and material handlers for only a single facility. Fewer workers means a slimmer payroll and additional cost savings.

In addition, staffing a centralized warehouse allows you to target inventory managers with a greater degree of experience or expertise. Since you will need fewer inventory managers, you may be able to hire those that command a higher salary but promote greater efficiency.

Simplicity

Centralized warehouses simplify inventory management. Customers will know how long orders take to ship regardless of what they order. Company-wide inventory is also easier to track, with a single facility to examine rather than multiple inventory reports that you must compile, compounding the chance for error. Finally, you'll be able to implement new inventory management policies at the centralized warehouse without coordinating efforts throughout multiple warehouses in your supply chain.

Possible Drawbacks

Centralized warehouses give you an alternative to local warehouses or distribution centers that place inventory closer to more customers. Local warehouses give local inventory managers more control based on local market conditions or special distribution needs that don't apply elsewhere, such as seasonal delays from bad weather. Local warehouses can shorten ship times since there's an increased chance that customers are geographically close to a warehouse. Finally, regional and local warehouses give businesses back-up options in case one warehouse is temporarily inaccessible or damaged. Such options don't exist for a firm with a centralized warehouse if it's struck by a blizzard, hurricane, earthquake, massive flooding, or any of the other calamaties that struck various parts of the country.

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