Challenges of a Centralized System

Challenges of a Centralized System
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Challenges of a Centralized System
Introduction
A centralized distribution system in a warehouse means that the business maintains its inventory in a single warehouse as opposed to a decentralized system where each store keeps its own inventory. The centralized system approach does have benefits like quicker fulfillment of orders as well as more effective inventory control which lowers the average inventory level, compared to a decentralized warehouse system. However, the centralized approach also presents some disadvantages like inconsistent demand, difficulties in adapting to the local market and a lack of emergency preparation.
A warehouse with a centralized distribution system has minimal benefits to a business if the business has unpredictable demand. Therefore, this elevates the likelihood of having to deal with stock-outs. Additionally, centralized inventory systems mostly function by a first come, first served basis. Such a situation causes a problem if a single store promotes specific merchandises in an advertised flier and does not get another shipment when required (Ding, 2017).
Most centralized warehouse systems fundamentally go against the capability of the adaptation of local stores to the market conditions. Store managers often have better knowledge regarding the products that are trending compared to the central buyers. The inability to make inventory orders at the local stores makes it difficult for a single store to adapt to the changing market demands (Ding, 2017).

Natural disasters are frequently unforeseen and may cripple a business. If most of the business’ inventory is centralized, the business owner may lose millions of cash if a fire broke out and decimated his or her entire stock.
Conclusion
A centralized system has benefits like the quicker fulfillment of orders and more effective inventory control that lowers the average inventory level. Nevertheless, this approach also presents some challenges like inconsistent demand, difficulties in adapting to the changing local market demands and lack of emergency preparation which may lead to losses in millions of cash.

Reference
Ding, S. (2017). Centralized and decentralized warehouse logistics collaboration (Doctoral dissertation, UC Berkeley).