It is frequent for enterprises with expanded distribution networks to face the problem of inaccurate allocation of goods. This may be due to changes in business environment, products ageing or variations in clients’ preferences. To address this challenge, a company may redistribute goods among individual points of sale, bypassing the central warehouse as a physical point of redistribution.
When products that are not likely to be sold are left in a shop, they begin to age and lose their value. In contrast, points of sale where a product is rotating will have to restock from the central warehouse. In that case, it would be recommendable to redistribute the goods between points of sale, bypassing the central warehouse as a main point of redistribution. The warehouse function would be limited to transmission of instruction for preparation or acceptance of shipment.
When is it economic to redistribute?
The answer is easy – whenever its cost is lower than the cost of product purchase and warehousing of excess amounts of goods. Redistribution involves two types of expenses: packaging and transport as well as the risk of lost sales or damage. In most cases, logistic minima refer to the product value.
Redistribution for the entire network should be carried out at the same time. An enterprise should identify “receivers” and “providers” based on demand forecasts, taking into consideration: a safe inventory, possible sales until the planned time of transfer, logistic minima, transportation time, etc. How a company may deal with many shops returning excess goods? The costs related to preparation and transportation of shipments may be reduced by a relevant pairing of shops with excess products and those with shortages.
How to redistribute?
The optimisation of transfer and allocation of goods may be achieved in two steps:
- Identification of the best (in terms of qualities and values) possible transfers of goods, bearing in mind that it is always a one-direction movement – from the “sender” to the “receiver”;
- Allowing for a new hypothetical inventory for both the sender and the receiver shop.
The two steps are repeated in consecutive iterations until all the opportunities of further optimisation have been exhausted. Once the process has been completed, an enterprise has got a list of transport orders and hypothetical post-redistribution inventories. If it is not possible to cover the demand internally, any shortages of goods need to be restocked from the central warehouse. However, as the amount of goods is lower an enterprise may reduce its operational costs.