When a company outgrows its distribution capacity, it expands by opening a new distribution center (DC). The best approach to choosing your new DC location is to evaluate your entire logistics strategy.
Deciding where the DC is located is crucial for long-term success. Paying close attention while selecting the site could save a company from labor shortage problems, excess transportation fees and vendor issues. The right location could mean better customer service, strong data collection, and an increased bottom line.
Location, Location, Transportation?
Transportation is typically one of the highest expenses for companies. These costs are complex to calculate because the route or mode option can change, making each rate different from another.
Inbound Logistics notes that transportation is one of the most important factors in distribution center logistics. The cost of hauling products from a DC to customers and consumers is based on fuel prices, driver/truck maintenance costs and demand, which fluctuate at random.
Although trucks are the standard method of moving freight, companies often look for a DC with rail access to find cost savings. When shipping large amounts of heavy products, rail’s cost-effective delivery is an obvious trade-off.
Think about it like this: A retailer needs a DC that will best serve its delivery points. By analyzing its network of existing DCs, the retailer can determine the next site to optimize its processes. In retail supply chains, on-time delivery is a top priority, so being close to customers and suppliers on accessible transportation routes would be considered first in the site selection.
Questions to Ask Yourself Before Deciding on DC Location
- Where are your customers?
- What is your present busiest DC?
- What will the new inventory strategy be?
- Will the transportation strategy need to change?
Factors to Consider Before Deciding on DC Location
- Labor costs
- Proximity to customers and suppliers
- Site requirements
Planning and building a new distribution center takes time and money, but choosing the best site and evaluating logistics and transportation plans will help your business succeed in the long run.
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