Wisdom for Warehousing | The Optimal Role of Warehousing in Supply Chains and Business

Warehousing and Sourcing When the total cost of raw materials and key components is a major portion of the total supply chain cost, when the unit costs of those materials are low, when overall demand is high, when significant discounts are offered for large procurement lots, when there is low likelihood of obsolescence, and when inventory carrying rates are low, large procurement buys with associated large lot size inventory levels may be well justified. That inventory must be housed somewhere, and that somewhere is a warehouse, sometimes called a raw materials warehouse. In our RightChain™ Inventory optimization work with a large candy company, we found that sugar and cocoa were the most expensive components of total supply chain costs. We found that their purchase lot sizes were much smaller than they should have been. The optimization led to the acquisition of a much larger raw material warehousing footprint yielding significantly lower total supply chain costs, higher gross margins, and higher gross margin percentages.

M&M Mars Warehouse Atlanta, Georgia

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