Centralization Vs. Decentralization Speech

Let me start off with a short horror story. From 2002-2007, Crocs shoes experienced massive growth. They had a revolutionary logistics system and were positioned to be a major player in the shoe industry. By 2007 they had revenues of $142 million. However, by 2009, revenues were down 32% and the company reported a net loss of $22.4 million, due to poor inventory management. The rise and fall of Crocs shows logistics’ importance cannot be understated. $1.2 trillion in logistics costs. Over 8% of our national GDP. Furthermore, 500 executives were recently surveyed and 70% wanted more visibility, 60% were concerned with their risk management, and 58% wanted to become demand driven firms. Centralization and decentralization help alleviate those executive concerns, while also driving down overall logistics costs. Now that I have talked about the importance of inventory management, I will go into further detail about what it entails.

What is Central vs. De? The logistics network structure has a horizontal and a vertical dimension. The horizontal dimension involves the number of warehouses of a stage. The vertical dimension comprises the various storage stages - that is, factory, central, regional and distribution warehouse. In addition to efficiency considerations, cost factors play a particularly important role in the optimal allocation of warehouses. In consideration of these factors, decisions on organizing a warehouse in a centralized or decentralized manner are made. Next, centralization and decentralization will be further deconstructed.

For Centralization, we will look at the automotive industry in America. In centralization, demand needs to be relatively known and delivery time must be flexible. Detroit is the center point for car manufacturing. From there, the product is shipped to the dealerships around the country. Since it is centralized, the companies have more control over their products and it lowers the risk of disruptions in the Supply Chain, which is important for high price commodities, such as cars. Demand from dealerships from year to year for new models is a known factor. Therefore, automotive manufactors can lower their transportation costs by using Truck Load rates, instead of the more expensive less than truck load rates. However, since the entire sales volume