6 Considerations to Have Top of Mind While Opening Up a New Distribution Center

Distribution centers are the epicenters of business for inventory-based organizations, and they’re integral to the way they operate. And it’s often the case that a business needs to open a new distribution center, for a variety of reasons. Whether it’s due to expanding to new markets, seasonal fluctuations, a revamped inventory distribution strategy, or something else, opening a new distribution center is a complex operation which requires a multi-pronged approach to execute seamlessly.

Why is it important to tackle new distribution centers strategically? When switching from one distribution center to another, there can be a lot of risk for an inventory-based business. For example, a botched transition could lead to delays in service, misplaced or mismanaged inventory, or other disruptions in efficiency. 

There are also many questions to answer ahead of opening a new distribution center. Do you want to gradually transition or approach it in one go? What’s your strategy for avoiding excessive inventory costs? How are you going to transfer your inventory? What technology do you need to set things up the right way in your new center?

By understanding the challenges and needs of opening a new distribution center ahead of time, and keeping certain considerations in mind, inventory-based businesses can ensure their transition is as smooth as possible, and that their new center is optimized for success.

Why Open a New Distribution Center?

Whether or not your inventory-based business is opening a new distribution center right now, it’s likely that it will at some point during its existence. There are several main reasons why a business might open a new distribution center:

• Market expansion: Businesses might open a new distribution center in a different area or region to facilitate expanding market reach. 

• Faster delivering: Proximity to customers plays a crucial role in providing fast and reliable deliveries. 

• Reduced shipping costs: Shipping costs can be a significant expense in a supply chain business. By establishing distribution centers in key locations, businesses can take advantage of lower transportation costs.

• Inventory optimization: Having multiple distribution centers allows businesses to strategically distribute their inventory across locations. 

• Managing disruptions: When a business is operating from a single distribution center, it can be vulnerable to certain risks, such as natural disasters, labor strikes, or other unforeseen events. 

These are just a few of the most common reasons why a business might open a new distribution center, but typically, multiple distribution centers are the norm for businesses today. Data shows that a growing number of distribution centers have multiple buildings, with the most recent figures showing that 27% have six or more buildings. 

Opening a new distribution center can also be integral for solving key issues in inventory-related operations. For example, studies show that the biggest challenges to distribution centers include insufficient space, outdated equipment, and obsolete layout for current requirements. Many of these problems could be reduced or eliminated by adding additional distribution centers.

6 Considerations When Opening Up a New Distribution Center

Whether you’re relocating your distribution center, expanding your business, scaling for seasonality, or opening up a new premises for a different reason, there are many things to keep in mind before, during, and after the move. 

Here are six (6) considerations when opening a new distribution center, to keep your operation running smoothly, and to reduce any disruptions.

1. Determine your transition schedule

When it comes to the timing of opening a new distribution center, there are two main ways to execute the transition: gradually, or in one fell swoop. There are both pros and cons to both methods, and they vary depending on why you’re opening the new distribution center. 

If you decide on a rapid, on-off transition, you’ll select a date where you turn the new distribution center on. If you decide on a gradual transition, you’ll slowly start stocking the new location, and will begin services in a gradual fashion. 

What are the pros and cons of each method? If you decide on the rapid method, you’ll be able to get your distribution center open more quickly. But it can take a lot of planning to prepare an operation to open on a specific day. You need to have the inventory, systems, staff, and protocols already in place. And if part of your distribution center isn’t “finished” on the transition day, you might lose business. For example, if stock is missing that should be in place because it’s still on its way to delivery, it might lead to a loss of revenue.

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A gradual transition will involve building up the inventory at your new distribution center slowly and will require adding SKUs as they become available from that location. While this method will lead to a distribution center opening on a longer timeline, it can give you ample time to prepare for each step of the process.

2. Plan your inventory

The inventory you’re going to keep at your new distribution center needs a strategy of its own. Again, your inventory will vary depending on why exactly you’re opening this new distribution center. If you’re moving from an old facility, you’ll need to transition your inventory from one location to another without adding unnecessary additional stock. If you’re opening due to seasonality, you’ll need to use inventory forecasts and projections to determine what type of stock to keep. If you’re stocking a new distribution center, you’ll need to use data to inform your stock choices.

Either way, you should look at things like the sales forecasts for the areas you’re serving, along with inventory analytics, so you can understand how the relevant stock typically moves. You’ll also likely need to coordinate with your suppliers, and arrange new purchase orders (perhaps by using new blanket POs) to start to organize your deliveries and processes.

3. Determine your facility design

When designing your new distribution center, there are several things to consider. One is storage capacity and scalability. You can use forecasts and insights from your operations to understand how much inventory storage you’ll need, and what type of expansion you can expect in the future.

You can also consider how to design your new distribution center to prevent bottlenecks and facilitate the optimal flow of goods. You can take factors such as storage, packing, and shipping into account. You can also tackle elements such as workstation design, segmentation, and effective space utilization, to ensure workflows make sense, and that lost inventory is avoided.

4. Pick a technology integration

Every successful distribution center needs its selection of technology integrations which provide real-time visibility into inventory levels, automates repetitive tasks, and allows for thorough product tracking and inventory management. Distribution centers also rely on data, inventory analytics, and forecasts to function properly, because these insights help provide decision-makers with answers to key questions. For example, when the right inventory-based technology is in play, you’ll always know what you’re going to sell, what you need to buy, what isn’t selling, and what your most important items are.

Your technology is integral for a seamless distribution center operation. It allows you to reduce stockouts, improve service levels, reduce planning cycle time, and overall improve your operations, while reducing unnecessary costs from excess stock. 

5. Collaborate with partners and stakeholders

Collaboration with suppliers and partners is essential for the smooth operation of a distribution center. Building strong relationships and effective communication channels with suppliers, logistics partners, and carriers can lead to improved supply chain efficiency, reduced lead times, and enhanced customer satisfaction.

For example, decision-makers should closely collaborate with suppliers to ensure a steady and timely supply of products. You can use demand forecasts and inventory data to inform production schedules. It’s also important to collaborate with logistics partners and carriers to optimize new shipping routes, delivery schedules, and transportation modes. 

This collaboration can also be helpful for developing contingency plans, in case of unexpected disruptions in the supply chain. This might involve identifying alternative suppliers, creating backup transportation routes, and preparing for unexpected events.

6. Track your launch carefully, and adjust as-needed

Once your new distribution center is live, it becomes an ongoing operation that might need to be adjusted. Ongoing optimization is essential to ensure that the distribution center operates efficiently, adapts to changing market conditions, and continues to deliver value.

You can use data and analytics from your software to monitor metrics, to determine the performance of the new distribution center. You can then make continuous improvements as needed and can quickly adjust to things such as shifts in demand, seasonality, new product lines or offerings, or changes in order patterns.

Even after a distribution center is fine-tuned, you can use real-time data in an ongoing fashion to constantly monitor performance and make quick decisions which improve your operations. 

Opening a new distribution center can be exciting, but it can also come with a lot of responsibility and risk. But by taking certain factors into consideration, such as your transition schedule, your inventory, your facility design, and your technological integrations, you can ensure the process of opening your new distribution center is smooth, while service levels maintain optimal.

When it comes to your technology integration, StockIQ gives you the real-time visibility you need

Your new distribution center is going to play a key role in your business’ ability to perform, but it needs a robust supply chain planning suite to help it reach its potential. StockIQ is designed specifically for distributors and 3PL, and it gives your business everything it needs to run efficiently, improve forecast accuracy, and reduce inventory levels, while providing unmatched service to your customers and shippers.

To learn more about StockIQ can take your new distribution center to new heights, contact us