Chapter 3: Buying Practices

Central Warehousing: Advantages

From a stock management perspective, maintaining a central warehouse can offer numerous savings over keeping inventory at the store level:

1) Reduced Inventory Levels: Stores carry less back-up stock if a central distribution center can respond to store demands quickly and efficiently.

2) Minimize Out-of-Stock: If sufficient back-up stock is centrally located and available for distribution on demand, then missed sales resulting from out-of-stock situations can be minimized at all stores.

3) Better Controls: Warehouse staff are hired for their shipping and receiving skills, while store personnel have stronger sales and service skills. Therefore, accuracy and efficiency in moving and maintaining inventory is much higher at the warehouse level.

4) Reduced Inter-Store Transfers: Keeping store inventories at a minimum level and replenishing them on a "as sold" basis allows you to reduce overstock situations requiring inter-store transfers.

5) Freight Benefits: Suppliers can ship merchandise more quickly and cheaply if it's going to one location instead of many.

Central Warehousing: Disadvantages

The biggest disadvantage of maintaining a central warehouse is that without strong buying discipline it's easier to get yourself into an overstock situation.

When you operate on a "distribution center" (DC) basis (i.e. without a central warehouse), goods that come into the center have been purchased for a particular store and are rerouted immediately. There is no back-up stock held in a DC. The buyer is also held in check by the physical size of his stores and their stock carrying capabilities.

Under a warehouse scenario where storage space is not a concern, buyers often rationalize "good" purchases instead of focussing on stock turns. There is also a tendency to resist taking deep enough markdowns at end of season. As a result, unsold merchandise is shipped back to the warehouse from the stores in order to make room for the new season's buy.