We need warehouses in a variety of different situations.
One of them is to consolidate our raw material supply.
So, let's imagine a company that has two plants and three raw materials suppliers.
Now we could shift from those raw material suppliers directly into both of our
plans and it'll be fine, but there is a better way and
that is to use a warehouse in between them that receives raw materials from
the three suppliers and then ships out, assembling assortments as needed.
Now, this has several advantages.
Number one, efficiencies and we can create efficiencies in transportation,
because we focus on each link specifically and make it really good.
We can achieve efficiencies in inventory,
because we can hold our inventory where it's needed and just as much as is needed.
And then finally, in production,
because our production facilities get the resupplies they need when they need them.
The other advantages are risk pooling, we hold inventories just in one
location rather than scattered across this network of companies.
And then finally, our service level would be much hire than they would be otherwise.
Even in more complex examples, warehouses still provide us with some benefits.
Now, let's look at the case what we the same two plans and
five different customers.