Challenges of a Centralized System

Challenges of a Centralized System
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Challenges of a Centralized System
Introduction
A centralized distribution system in a warehouse means that the business maintains its inventory in a single warehouse as opposed to a decentralized system where each store keeps its own inventory. The centralized system approach does have benefits like quicker fulfillment of orders as well as more effective inventory control which lowers the average inventory level, compared to a decentralized warehouse system. However, the centralized approach also presents some disadvantages like inconsistent demand, difficulties in adapting to the local market and a lack of emergency preparation.
A warehouse with a centralized distribution system has minimal benefits to a business if the business has unpredictable demand. Therefore, this elevates the likelihood of having to deal with stock-outs. Additionally, centralized inventory systems mostly function by a first come, first served basis. Such a situation causes a problem if a single store promotes specific merchandises in an advertised flier and does not get another shipment when required (Ding, 2017).
Most centralized warehouse systems fundamentally go against the capability of the adaptation of local stores to the market conditions. Store managers often have better knowledge regarding the products that are trending compared to the central buyers. The inability to make inventory orders at the local stores make…