With the emergence of a large number of supermarkets and hypermarkets across the country and the stabilization of the Polish “hypermarket” market, it can now be observed that major Polish retailers have begun building massive distribution centers, which have become the same central warehouses found in the former. They supply approximately 70% of all items available in the outlets of large retailers.
The fact that distribution centers are being created is linked to the general principle of centralizing all areas related to running any business. The entire idea of centralization, and consequently the creation of central warehouses, consists of maximizing the availability of goods for customers while simultaneously reducing company costs by purchasing goods more cheaply from suppliers (one of the factors). The process of delivering goods to a store through a central warehouse involves delivering only those products needed on the shelf that day to the stores daily. There are several methods used to manage products under conditions of centralization. The first is the central warehouse. In this way, large retailers order products from suppliers either to their own warehouse or to a warehouse run by an external company. Stores then order goods daily or every other day, thereby reducing the need to store large quantities of goods in store warehouses. This provides more space in stores, which can be better utilized, e.g., as additional sales area.
Two other ways that allow for inventory management through a centralized network are cross-docking and the pick-by-line method. In both cases, the central warehouse does not store goods from suppliers but delivers them to stores on the same day they are delivered to the distribution center.
Of course, not everyone sees only benefits in centralization, but also risks. And in truth, there is no golden mean, but only the best solution… The main benefits and risks associated with centralization and the creation of distribution centers should be divided into benefits for the manufacturer, the supplier, and the company owning the distribution center. The primary benefit for the supplier is a significant reduction in transport costs, consisting of moving away from deliveries to many delivery points in favor of a single unloading point. One can speak here of very high costs associated with maintaining a vehicle fleet, operating one’s own vehicles, hiring a carrier, paying drivers, and other things directly related to transport. Other additional benefits for the supplier include reduced personnel costs due to simplified order processing, accounting, and administrative procedures; the supplier receives only one order for the central warehouse, rather than many orders from individual stores, which is also directly related to simplified documentation (the supplier issues one invoice to the distribution center and receives one confirmation of receipt of goods, unlike what happens with direct deliveries to many delivery points). As a result of the centralization of deliveries, the manufacturer will be able to allocate more of their profits to improving the sales of their own articles and will not have to allocate a large amount of their money to investments related to improving or purchasing logistics rolling stock. Another very important positive element for the supplier is the quantity of one-time product delivery to the distribution center – instead of delivering individual cartons to a given store, suppliers will be able to deliver either full pallets or entire layers of goods and thus eliminate a significant part of their fixed costs associated with running a warehouse. In this case, there is no talk of using a logistics minimum, because the delivery is collective to one collection point, where the orders of all stores of a specific chain are accumulated.
The primary benefit for the company owning the distribution center is receiving significant trade discounts and logistics fees from suppliers – this is directly related to the reduction of costs at the supplier’s end. Delivering goods through a distribution center will allow stores to order products exactly when they are needed instead of placing orders once a week or less often, as is the case with direct deliveries. This will allow stores to achieve benefits related to reducing inventory levels, better product availability, etc. One of the main reasons for excessive inventory, and thus unnecessarily frozen capital for the company, are the minimum delivery quantities required by some suppliers in order for direct deliveries to be profitable for them. Centralization certainly eliminates this problem, and the cross-docking warehouse is the cheapest alternative of all. As a result of centralization, the level of inventory in stores is significantly reduced. In this way, significant benefits can be achieved in the form of reduced working capital. In reality, in most cases, it will be possible to sell the goods and receive money into the account before paying the suppliers. It is believed that greater centralization of deliveries will reduce the possibility of collusion between store staff and drivers, which results in the issuance of false invoices and credit notes.
The article comes from the magazine “Logistyka”, No. 3/2005.