Benefits consolidating warehouses
This agrees with the conclusion of the classical EOQ and newsvendor models.
However, we show by an example that, for general stochastic demand processes, the total facility investment and inventory costs of a consolidated system can be infinitely worse off than that of a decentralized system.
Whether you're an ecommerce boutique or Target, you'll find a benefit to the practice.
This paper uses an analytical modeling approach to study the impact on facility investment and inventory costs when several DCs are consolidated into a central DC.
In particular, our model suggests that consolidation leads to lower total facility investment and inventory costs if the demands are identically and independently distributed, or when they follow independent but possibly nonidentical Poisson processes.
But with retail consolidation, LTL turns into a single truckload with decreased handling.
As a retailer, you likely want to purchase goods from multiple suppliers at different times, but you may not always be able to buy truckloads quantities every time.