Centralized Distribution: Differences Between Decentralized Hubs & Why Location Matters
The thought of re-designing your business’s distribution network can seem daunting. Switching your warehouse and transportation systems is complex, especially if you have decentralized nodes within your supply chain.
That’s where centralized distribution comes in. It eliminates the multiple touchpoints required per shipment and organizes your scattered network partners into one location.
Although decentralized hubs have their own set of benefits, here’s why centralized ones are worth the investment.
What is Centralized Distribution?
A centralized supply structure is designed to create one hub for your logistics operations. It includes your headquarters, warehouse, and transportation services in a singular in-house location. Centralized distribution doesn’t employ external partners and is solely responsible for the flow of all goods from the top down.
Centralized vs. Decentralized Supply Chain: What’s the Difference?
A decentralized supply chain is designed to maximize market coverage and meet your consumers’ needs better. Decentralized distribution utilizes multiple regional or global facilities, warehouses, and headquarters. It uses an agile approach when making decisions for the flow of all goods.
The difference between centralized vs. decentralized supply chains is the number of locations they operate from. However, it doesn’t always mean decentralized logistics hubs are necessarily the inferior option.
Businesses have decentralized supply chains for the following, but not limited to:
- More market access due to their regional or global locations
- Larger inventory and stocking capabilities due to many warehouses
- Faster distribution due to their scattered locations being closer to customers
Centralized and decentralized logistics models both offer different opportunities, depending on the needs of your business.
Centralized Distribution: Understanding the Advantages it Offers for Your Business
While a decentralized supply chain typically has more market coverage and larger inventories due to its multiple locations, centralized distribution offers several advantages for businesses.
Streamlined Supply Chain Management
A centralized logistics hub allows you to streamline operations and communications with your network partners. It strengthens your supply chain’s efficiency by providing project managers with greater visibility and standardized tasks for warehouse staff when there’s only one facility to operate. That way, they can schedule and load freight for transport more easily.
Lower Operational Costs
Because centralized distribution uses a single facility, it lowers your operational expenses. It reduces storage rates, utility fees, and maintenance costs because you’re not paying to operate multiple warehouses and headquarters buildings.
A recent case study found that downsizing the number of facilities and reshaping your network can reduce distribution and transportation costs by 20%. It reports that a smaller, well-designed distribution network can operate more efficiently than a large one.
Additionally, the benefits of centralizing your supply chain, like standardizing operational tasks, bring more cost savings. You don’t need to hire more warehouse staff and have fewer systems to manage because one location is simpler to standardize.
Stronger Supply Chain Network Security
Freight scams, like cargo theft and double brokers, are rising. Last year alone, 85% of freight brokers and carriers reported double broker scams, with projections for 2024 breaking this record. That’s why now, more than ever, it’s crucial for businesses to protect their commodities.
Centralized logistics hubs strengthen supply chain security. When you have a singular network to safeguard and respond to, you can turn around contingency plans faster when necessary.
Warehouse management systems and software require ongoing security updates. Managing and upgrading many platforms as needed for various decentralized nodes is more time-consuming. Your network partners may also not grant you full access to their systems, making you rely on them to stay up-to-date with all versions of their technologies.
Quality Customer Service
Customer service issues are inevitable, no matter the location of your logistics company. What you can control is how you address them. Centralized supply chains typically have stronger customer service because you can resolve their problems and concerns faster.
For example, if you need to find lost inventory, you can locate them more quickly in one facility. Although most logistics providers offer 24/7 customer support and have track/trace technology, searching for lost goods in multiple warehouses takes longer.
Another example is pausing freight shipments. Since decentralized hubs have spread out nodes to reach consumers more closely, stopping services before it’s too late for unexpected customer requests can be more challenging.
Whether delays in material deliveries or unforeseen inventory shortages occur, having a network that can adapt promptly is essential to preventing disruptions to your supply chain.
One Centralized Hub, Countless Supply Chain Solutions: The Lone Star Advantage
While decentralized hubs offer unique benefits, you can rely on a more consistent supply chain with centralized distribution.
At Lone Star Logistics, we’re a centralized freight forwarder, offering everything your network needs in one company. From warehousing to packaging and customized intermodal transport, we give businesses better peace of mind knowing their commodities are distributed with a sole, premium provider.
Ready to make your supply chain more efficient?
Learn more about our logistics distribution services, or contact us for help today!
