of large primary (line-haul) vehicles to service these, with smaller vehicles delivering the orders to customers. For certain operations, of course, even these simple relationships will vary because of the need for very high levels of customer service or the very high value of products. In addition, it should be noted that there are a number of diff erent types of DC, Lyandama Page 11
each of which might be considered in the planning of a suitable physical distribution structure. These might include: • Finished goods DCs/warehouses – these hold the stock from factories; • Distribution centers, which might be central, regional (RDC), national (NDC) or local DCs – all of these will hold stock to a greater or lesser extent; •Trans-shipment sites or stockless, transit or cross-docking DCs – by and large, these do not hold stock, but act as intermediate points in the distribution operation for the transfer of goods and picked orders to customers; • Seasonal stock-holding sites; • Overflow sites. Logistics network and DC location strategies are aimed at establishing the most appropriate blend of storage and transport at a given customer service level. The interrelationship of the different distribution elements and their associated costs thus provide the basis for decision making. The optimal number of depots Decisions relating to the most cost effective number, size and location of depots are dependent upon the following factors: i. Existing and likely future demands on the company ii. Internal and external factors which might provide opportunities or constraints relevant to distribution iii. Possible alternative distribution policies Economies of scale Lyandama Page 12
The Fixed cost of a depot can be in a long run be reduced under low volume throughputs and removed all together by closing down the depot. Conversely for high volume throughputs the variable cost per ton can often be reduced by investment in handling equipment and automated systems. Further, more proportionally less stock is needed to support a high level of throughput than that required to support a low level of throughput. For these reasons there are often economies of scale in the depot operations as reflected below The effect of depot size is illustrated by the economies of scale that are experienced if larger depots are operated. It has been established that, the operation of depot and the amount of stock required to support a depot tend to be higher (per unit) for a small depot than for a large one. This is because larger depots achieve better space and equipment utilization and can benefit from spreading overhead costs over the higher throughput. As far as stock holding costs is concerned, the larger the depot the less the buffer stock is required. It should be noted that eventually diseconomies of scale can come about due to excessive size of the depot. Very large depots are adversely affected by such conditions as excessive travel distance, management problems etc.
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- Fall '19