Transportation Costs and Warehouses Quantity Correlation
Main principles influencing the optimization of transportation within the logistics of supply chain center on the maximizing the carrier capacity involved in the delivery mission while obliging to the set legal frames and bulk hauling to remote destinations. This explains the case for manufacturers to supply to customers over wide area. In this sense, consolidated shipment caters for small orders as a cost-effective strategy. However, the delivery bulk should at all times stay well above the minimum level that adequately meets the fixed cost of operations. Amid these complexities, warehousing comes in handy, especially where direct delivery may not always be the cost-effective option. At vantage locations, the warehouse facilities will either act as distribution hub to customers for the remote manufacturer or as a cross-dock station.
At the initial stages of establishing more warehousing units at vantage points, efficiency in supply missions is achieved bring down the transport cost. The manufacturer constantly replenishes the proximate warehousing unit within chain of warehouses until the products are at the customer’s reach. For remote small-order customers, the warehouse units act as consolidation station where bulk delivery by manufacturer to the warehousing units for distribution at smaller quantities. However, an initial inverse relationship between overall transport cost and number of vantage warehousing units is limited to the economic gain reserved in consolidation. Thus, establishment of more warehouse units will be exploits of consolidation opportunities in the demand-supply systems in the supply chain.
The overall transportation cost diminishes until a minima climax where the consolidation opportunities are stretched to their limits. At this point, there is maxim utility of consolidation opportunities beyond which the cost of overall transportation increases with the number of warehousing units set up. Inventory is a management tool for efficacy and efficiency within business operations and depends on the intensity of operations. Commitment and implementing of inventory functions means localizing at every warehousing unit. Thus, the cost of inventory will increase as every warehousing unit means more records introduced for compilation and harmonization to the manufacturer.