In an effort to increase their customer service levels and reduce order cycle time, a company is considering adding two additional warehouses to their overall operations.
As a result, which of the following statements best reflects the cost impact of the additional warehouses?
Adding additional warehouses to a company's operations typically results in higher inventory costs and higher inbound transportation costs. Higher inventory costs arise because maintaining more warehouses requires holding additional safety stock to ensure each warehouse can meet customer demands. Higher inbound transportation costs occur due to the increased complexity and frequency of shipments to multiple destinations.
Correct answer C Higher inventory costs(safety stocks increase) and higher inbound transportation costs(because of the number of destinations) APICS Number of Warehouses
C is correct If a business chooses a greater number, it faces higher inventory costs (because safety stock levels will increase), higher inbound transport costs (because of the number of destinations), and higher operating costs (facility operation and information management to control a more complex system). However, the customer service level will be higher, since there will be more warehouses nearer the customer (thus faster reaction time) and greater likelihood of being able to satisfy required customer demand within an acceptable time. Fewer warehouses means lower costs in general but also less competitiveness in terms of the ability to provide service quickly and with minimum risk. Businesses must consider their customers, their business models, and their costs in making this decision.