When multiple warehouses are combined into one centralized warehouse, the requirement for safety stock is reduced because:
When multiple warehouses are combined into one centralized warehouse, the requirement for safety stock is reduced because:
When multiple warehouses are combined into one centralized warehouse, the total variability of demand is reduced. This reduction occurs because the demand fluctuations at individual warehouses are often offset by the fluctuations at other warehouses. Centralizing inventory in one location results in a more stable and predictable demand pattern, thus reducing the overall need for safety stock.
When multiple warehouses are combined into one centralized warehouse, the overall demand variability is typically reduced. This is because demand fluctuations that may occur at individual warehouses are often offset by demand fluctuations at other warehouses. By centralizing inventory in one location, the total variability of demand is smoothed out, resulting in a more stable and predictable demand pattern at the centralized warehouse
Why not A?
One warehouse serves same number of customer orders as multiple warehouse. Hence TT (if changed) is rather increased as on average customer are further away from central warehouse vs localized ones.