Distribution centers (DC) are goods storage and delivery facilities companies use to distribute their products to customers. DCs are usually located as close as possible to end consumers to facilitate delivery.

Some locations are quite strategic, such as in market areas or shopping centers. However, along with the online shop trend, distribution centers can also be located in city centers with easy transportation access.

Distribution centers have an important role in the company’s supply chain. DC is responsible for managing inventory, ensuring that quantity requirements are met, as well as receiving, storing and shipping goods from manufacturers to customers.

The Importance of Distribution Center Expansion

Distribution center (DC) expansion can provide various benefits for companies, including:

• Increase storage capacity. Obviously, the main purpose of the expansion is to increase your storage capacity. With a larger warehouse, you can increase your supply of goods to meet increasing customer demand.
• Increase operational efficiency. An expanded distribution center means that the connecting points between you and your customers will be more numerous and perhaps closer. This can improve efficiency from various factors, including delivery travel time, transportation costs, and inventory accuracy.
• Improve customer service. By increasing delivery speed and always meeting customer needs, you are also indirectly improving the quality of your customer service.
• Increase competitiveness. The final impact of the previous continuous improvements is on your competitiveness in the market. You can ‘sell’ the advantages that you generate from this distribution center expansion.

7 Points of Consideration in Expanding Your Distribution Center

With everything that looks good, there will always be risks. So, you should consider carefully before actually deciding to expand your distribution center. Below we have summarized several key points for you to consider before expanding your distribution center.

1. The goal behind your warehouse expansion plans

Expansion is no small thing to do. For this reason, your background must be clear about why you need to expand your network distribution center. Do you need to do this to meet increased demand, is this in response to demands for cheaper and faster shipping costs, or is this done as an effort to increase business growth?

Whatever it is, your motivation for expanding must be clear, because in the future, this will be the basis for your decision-making steps.

To clear your doubts, we will help with a few questions.

• Do you need more storage capacity?
• Do you need to reduce shipping costs?
• Do you want to get closer to customers to increase delivery speed?
• Do you need more support to launch a new product?
• Are you sure your current distribution center is no longer able to meet your additional needs?

If you answered ‘yes’ to most of the questions above, then perhaps expanding your distribution center is something you need.

2. What is the potential level of your sales increase?

In line with the goals you want to achieve, it is clear that expanding your distribution center should bring benefits and convenience to your company. Make sure your time, energy, and money are invested in things that will give you the results you want.

Therefore, make a detailed design description, how you want the expansion process to work, what is needed and what the potential is. Using the data you have, compared with other people’s data, create a hypothesis about the profit scheme you will get after expanding.

Of course, you must adjust the recorded amount to operational costs during expansion, including purchasing or renting warehouse units, labor costs, additional modes of transportation, and many others. Also include a timeline for asset turnover, how long it will take for your company to recover its capital after carrying out major expansion.

If you feel it is not very profitable or takes too long, you can scale it down. However, if after calculating there is no potential for profit, you should rethink this step.

3. Does the supply location need to be changed?

This point is related to location. When you add a distribution center to several points, does the location of your supply center also need to be changed? Ideally, your production or supply center for goods is in the middle of scattered DC points. However, in practice, that may be too difficult to do.

For this reason, try to create a calculation plan that is similar to the previous point. The difference is, this time you have to focus on transportation routes, distance and travel time, obstacles, and special conditions that could hinder you.

4. What is the inventory strategy and rules for implementing it?

Managing one is clearly a different level of complexity from managing many distribution centers. Lack of thought about inventory management issues and other special rules is often the cause of company chaos after expansion.

You must set each level at each distribution center point. Do the number and arrangement of items need to be generalized, or divided based on location? Because it is possible that distribution center A is in a location where customers need product X more than at DC location B. That means one more task for you to do a survey to research customer behavior.

5. How does the product flow from the supply point to various distribution centers?

After determining the inventory management rules at each DC, you also have to think about the flow of goods delivery. Starting from the production center, to each DC, until finally reaching the hands of consumers. At the distribution center level, do you need to make deliveries between DCs or does each DC only have to provide deliveries to end customers?

Continuing to the reverse stage, if the inventory of certain goods runs out at DC A, what is the flow of restocking from the production center?

Tips for Effective and Efficient Distribution Center Expansion

Seeing the many points that must be considered, it is natural that you are confused and even more hesitant in making this decision. However, DC expansion does have a significant positive impact on the growth of your business.

For this reason, we have tips for those of you who want to expand DC but feel the process is too complicated and full of risks.

• Choose a strategic location

Location will greatly determine the DC expansion process. So, if you want to do it effectively and efficiently, you have to choose a new strategic location.

• Design a functional and efficient layout

A well-designed layout optimizes material flow, minimizes travel distances, and maximizes storage capacity. Consider using automated storage and retrieval systems (ASRS) or other technologies to improve efficiency.

• Ask expert services for help

For the sake of DC expansion whose effectiveness and efficiency are guaranteed, you can use warehousing services to provide space and inventory management only. Or if your most difficult point is in transportation, just use a transportation service that can work together with your particular system.

With the tips above, we close this article. Hopefully, you can be smarter in making decisions regarding DC expansion. For other information about distribution centers, see our other articles here.