A distribution center is helpful for stock control, as it enables buffer stocks to be set up close to the final distribution points for rapid dispatch. In other words, it’s an imposing warehouse that can be used to compensate for possible stockouts at points of sale.
More concretely, in logistics terms, the distribution center is the link in the supply chain that directly follows the production tool. Its purpose is to store the product close to the consumption area, before it’s delivered to the retail outlet or to the customer.
The distribution center is a central element in a company's distribution network. To function properly, any online sales site needs to know exactly how many distribution centers it needs and where they should be strategically located, particularly when it comes to addressing the challenge of last-mile delivery.
To ensure the best location for a distribution center, a number of factors need to be taken into account:
- the available surface area and the quality of the building for accommodating inventory;
- the rental price of the space, to ensure a certain level of profitability for the distribution center;
- the accessibility of the distribution center; and
- the labor pool available to operate it.
Defining the number of distribution centers needed to run a business is a highly strategic decision. You need to know how many warehouses are required to store all your finished or semi-finished products.
Some companies choose to use several distribution centers. Others, on the other hand, prefer a single distribution center linking several production sites.
In all cases, distribution centers improve customer service by reducing order cycle times. They also reduce transport costs and offer distributors greater flexibility in terms of fulfillment.
These are key elements in making businesses more competitive.
However, distribution centers oblige retailers to bear additional management, handling, and storage costs.
Finally, keep in mind that in many countries, distribution centers must comply with a number of regulations, depending on the products stored there. For example, frozen goods must be stored in specific distribution centers, as must fresh produce or hazardous products.
