Whether the brand owner is newly introduced to outbound fulfillment or has partnered with third-party logistics before, everyone needs to know the difference between decentralized and centralized distribution.
Before describing both of these processes, we need to note one thing. There is no one-size-fits-all to fulfillment.
We encourage heavy research before deciding between centralized and decentralized. Switching storing or shipping methods is not easy. However, the correct fulfillment should not defy the supply chain, products, and aligned missions of the brand.
Without further ado, here is the guide to centralized and decentralized distribution.
What is Decentralized Distribution?
Decentralization can be summed up with the quote, “Don’t have all of your eggs in one basket.” Distributing inventory means splitting up physical goods, storing, packing, management and fulfillment amongst multiple warehouses. It does not accumulate inventory in one singular warehouse.
The Advantages:
- Spreading Merchandise for Hazard Prevention. If flooding, fire, or building deterioration happened, damaged merchandise would decrease if properly split up between locations.
- Faster Fulfillment. Consumers can place orders from all around the world. Different warehouses can limit the distance between point A (fulfillment center) to point B (customers address). Imagine two warehouses, one was in Pennsylvania and the other was in California. The customer places an order in California. Would it be preferable to ship from the California or Pennsylvania location? Shipping from California for a localized approach is the best choice. With decentralized distribution, you are reducing shipping wait times and increasing satisfaction.
- High-Volume Order Capability. Saturating between different warehouses can increase the workforce, inventory space, and equipment for high-volume order capability.
- Lower Shipping Costs (in some cases). The same example for faster fulfillment can apply to shipping costs. Even if the shipping differs by cents, it is better to cut down costs when possible.
The Disadvantages:
- Mislocation of Goods. Merchandise may have a higher chance of being misplaced with separate locations, but the likelihood of this happening decreases with dependable 3PLs (third-party logistics).
- Higher Control Expenditure. Differing between warehouses raises control factors and leads to mix-ups in inventory. Hiring a 3PL that can handle higher control is optimal.
- Miscommunication. The benefit of having a larger workforce is excellent, but the miscommunication that can happen is not. We recommend brand owners communicate clearly on their business transactions as best as possible.
What is Centralized Distribution?
Centralized distribution may seem a bit self-explanatory at this point. But let us briefly touch on the meaning. Centralized is opposite to decentralized. Instead of spreading inventory amongst multiple locations, they focus all their merchandise on one warehousing.
That being said, fulfillment is like Goldilocks and the Three Bears. One distribution method can be too small, one method can be too big, and one can be just right.
Let’s see if centralized fulfillment is just right for your brand.
The Advantages:
- Lower Facility Costs. Being in one direct operating facility means lower warehousing costs.
- Straightforward Management. Hands-on approaches to the management of inventory.
- Faster Strategy Implementation. Instead of sending a developed strategy amongst different warehouses, centralized fulfillment means direct implementation to the crew and environment.
The Disadvantages:
- Higher Parcel. When choosing a centralized distribution, there can be higher parcel costs. Math problem example: It may cost 0.40 higher to ship from a centralized warehouse than a closer decentralized warehouse. But if there were 10,000 packages, 0.40 for each parcel would be 4,000 dollars unnecessarily spent. Remember, in business, little holes sink the ship.
- Delayed Shipping. When shipping from coast-to-coast or areas with larger distances in between, shipping can delay by weather conditions, environmental issues, or simple warehouse malfunctions. Eliminating centralized distribution reduces delays.
- Minimal Disaster Prevention. It only takes one spark for a flame to burn down a building. Less distributed inventory means major loss.
What is Hybrid Fulfillment?
The two concepts of decentralized and centralized distributions are contrary but can be combined. Oddly enough, they don’t separate like oil and water. They blend into a pleasant cocktail mixture of a method.
This approach focuses on combining the decentralized and centralized processes rather than choosing one. An upside to this is we get the best of both worlds. The downfall? We get a douse of drawbacks on either side.
Centralized, Decentralized, and Hybrid Fulfillment, Which is Worth it?
Remember, fulfillment is not one-size-fits-all. Each company should consider and restrategize inventory distribution. It comes down to the company’s needs and the risk factors they want to pursue. But, the debate on which method is worth it can be silly. Because both centralized and decentralized methods have benefits but also disadvantages.
Nonetheless, hybrid, centralized, decentralized, or not, we are here to answer all of your questions. Click here to learn more about our modern technology-first fulfillment.
