At the time, the firm operated with dozens of decentralized warehouses to hold inventory for its service locations. They wanted to move to a centralized warehouse structure, where they would build or convert a large warehouse in each geographic region to serve the other smaller warehouses in that region. Their question to us was: Given this new structure, which products should be stocked in the central location, and which should remain decentralized?

How did CTL address this problem?

The CTL team constructed an optimization model to guide the decision on which products to centralize. The model took into account several factors of concern, including service levels, transportation costs and consolidation opportunities, and relative holding costs across the products.

What were the results and specific impact on the company?

The team demonstrated that transportation factors tended to outweigh other costs and to drive the decisions on whether to centralize. In addition, the output of the model quantified the tradeoff in responsiveness and cost savings. The model was provided as a tool for the company to use for each of its regions. As the firm implements their new centralized warehouse structure, they plan to use this tool in making these decisions.