4.2.2 Centralised inventories
In the same way that the consolidation of production can deliver cost benefits, so can the consolidation of inventory. Rather than have a large number of local distribution centres, bringing these together at a small number of locations can save cost. Savings can be achieved in this way by coordinating inventory management across the supply pipeline. This allows duplication to be eliminated and safety stocks to be minimised, thereby lowering logistics costs and overall distribution cycle times. Both may sound contrary to the fact that the transport pipeline will extend, owing to the longer distribution legs to customers from the central warehouse in comparison with a local warehouse. Nevertheless, through centralising inventory major savings can be achieved by lowering overall speculative inventories, very often coupled with the ability to balance peaks in demand across regional markets from one central inventory. Figure 4.5 characterises the different operating environments where centralised inventory may be a more relevant or a less relevant consideration, based upon logistics characteristics.