3.6 The effects of multiple warehousing

There are many instances where stock, instead of being held centrally, is dispersed to many locations to facilitate greater proximity to the consumer. For a given volume of total demand, the primary stock needed will not change by splitting the stock up into different locations; on the other hand, the amount of safety stock required will increase with increased number of stocking points. Assuming in this situation that each of the stock-holding points is identical in size and experiences the same pattern of demand, it can be shown that the safety stock increases in proportion to ?(number of stocking locations).

As the number of stocking points increases, changes in transport costs may well offset stock-holding costs; these will be discussed further in Chapter 4.

The values of reorder point, order quantity and safety stock calculated as above are based on the demand and supply patterns at a single stocking point. If there are multiple stock-holding points, then the primary stock-holding for the total will be the sum of the primary stock-holding for all the stock-holding locations in the system. However, this is not true for the safety stock, which increases with the number of warehouses according to

s = S ? n,

where

S = the safety stock for all the stock in one location,

s = the evuivalent safety stock spread over n locations.

This formula assumes that the stock levels, supply and demand patterns are the...