What are the advantages and disadvantages of aggregating demand from a forecasting view? Are there other things that should be considered when going from multiple DC’s to one DC?
The advantages of aggregating demand from a forecasting view make it possible to possess an overall picture of the corporate and present a rough path to plan out for the long run. Whereas, the disadvantage is that the exact demand from a specific region can't be ascertained, because it is aggregated.
Advantages of aggregating demand:
Accurate demand forecasting gives powerful insights on what proportion, when, and which products should be stocked in inventory. Forecasting can be used to rise to align sales and marketing efforts and reduce the chance of stock-outs, leading to lower holding costs and increased turnover rates.
Disadvantages of aggregating demand:
Forecasts are never 100% accurate. Let's face it: it's hard to predict the long run. It may be time-consuming and resource-intensive. Forecasting involves plenty of knowledge gathering, data organizing, and coordination. It also can be costly.
Distribution centers are a trade-off in costs. There’s some extent of no return for every business, which is the cost of running the number of distribution centers they need versus the number of sales being generated through the distribution centers to support those costs. Distribution center costs are over just the brick and mortar of the building and also the utilities to run it.
You need to also consider the number of individuals needed, the number of inventory required, and therefore the extra inbound/outbound costs if you're transferring product from a central location to remote locations. Other things to contemplate are the overhead costs, like purchasing for multiple sites; the IT infrastructure (servers, software, etc.) needed to support multiple sites, etc
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