It is nothing new that Amazon, over the last several years, has continued to push the limits of faster and cheaper delivery times. They are doing this by locating more distribution centers closer to the customer and for companies without the resources of Amazon, it can be difficult to compete. If your company is planning to open another distribution center to improve transit times and reduce shipping costs it is a good idea to understand what additional costs you might occur so you can make a smart business decision.
One of the biggest costs with multiple fulfillment locations is the additional inventory and managing that inventory. For companies with smaller SKU bases this may be less challenging then companies that sell hundreds or even thousands of SKU’s. In most cases when adding additional fulfillment centers there is a corresponding increase in inventory levels to ensure that all orders are fulfilled from the correct location.
Managing inventory at multiple locations can also add additional costs. The added time and resources for monitoring, ordering and tracking inventory all must be accounted for.
While outbound transportation cost savings are obvious, inbound transportation costs can increase. Most companies do not order multiple truck loads or containers of a single product therefore instead of 1 shipment to a single location you need to break the shipment down for each location. This process adds labor costs as well as additional transportation that all need to be accounted for.
Having the technology to support multiple fulfillment locations is key to making everything work. If you are going from 1 fulfillment center to a second fulfillment center you are going to want to make sure your IT infrastructure can handle this. Make sure your systems can manage inventory at multiple locations and provide an overall inventory view while also being able to automate the order splitting. This is usually an upfront cost when starting a new fulfillment center, but inevitably there will be some ongoing IT support that needs to be accounted for.
The outbound shipping cost savings is most likely the biggest reason for opening up additional fulfillment centers. If done correctly the cost savings on the outbound side can far out weight any of the additional costs previously outlined, but there can be some challenges to ensure you see all potential cost savings. Often times product might be out of stock at one location and available only at the location further from the customer. For companies shipping large amounts out of a signal location parcel discount programs could be effected based on capacity issues with carriers. Work with your carriers prior to starting a new fulfillment center to ensure you understand all the benefits and possible additional costs that might be involved.
For more information on how IDS Fulfillment can help with opening up your next distribution center, Contact Us Today!