Expanding your ecommerce business by opening more distribution centers (DCs) can be a beneficial strategy for reducing shipping costs and delivery times. However, more isn't always better. The expenses associated with opening, operating, and integrating additional DCs can easily negate the cost savings and logistical advantages they provide. To figure out if the numbers will work in your favor, you should consider the following variables.
Number of SKUs vs. Order Volume
In general, the more SKUs you have, the more it will cost to coordinate with your suppliers to maintain inventory levels across multiple DCs. However, those costs can be offset if your order volume is high enough. As we previously mentioned, a new DC can reduce shipping costs (assuming it's closer to your customers, of course). The greater your order volume, the greater your savings on shipping. When determining the cost-effectiveness of acquiring a new DC, you'll want those shipping savings to exceed the added inventory and warehousing expenses.
Average Shipping Weight
The average dim weight of your orders should also be included in your cost/benefit analysis. Heavy orders will generate bigger cost savings when shipping from multiple DCs. Conversely, you may see minimal or no cost savings on lightweight orders.
Multiple systems may need to interface in order to properly count and route orders to the right distribution center. Can your order management system incorporate a new distribution center?
Improving your distribution network's size and efficiency by opening new centers can be a solid strategy for maintaining a competitive edge - but only if the pros, cons, and costs have been thoroughly vetted. Alternatively, a third-party fulfillment provider may be a better solution. You can reduce transit times, cut shipping costs, and increase order volume without taking on the risk of opening and operating a whole other distribution center. At Fulfillment Works, we utilize customized solutions to provide clients with full-service fulfillment including logistics management, data solutions, warehouse services (with facilities strategically located in Nevada and Connecticut), and much more. Contact us to learn how we can help with your distribution goals.