The economy of distribution centers: The case of large retail networks in Brazil

Abstract

Large retail chains have revolutionized their logistics systems by positioning distribution centers (DC) close to urban centers. The primary objective was to be a prompt supplier for the nearby stores; another was to comply with the increasing traffic problems, which restrict the access of large trucks to urban retailers, while the last objective would be associated with a broader spectrum of reasons, called optimization of logistics processes. Rather than proposing the optimal location of warehouses based on the spatial distribution of flows and associated volumes, this study examines the economical meaning of creating a distribution center. In addition to the obvious reduction in transportation costs, the gains that are evaluated are referred to four factors, namely: (i) reduction of overall inventories and related operating costs, (ii) liberation of space in retail stores for parking and exposure of goods, (iii) reduction of clerical labor due to the centralization of controls on the products received and distributed, and (iv) reduction of back-orders. This study qualifies these factors and quantifies them. Key words: Logistics, distribution center, retail network.