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In: Operations Management

Why do transportation costs initially decrease as the number of warehouses in a system increases?

Why do transportation costs initially decrease as the number of warehouses in a system increases?

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Expert Solution

If the amount of warehouses inside a network grows, the cost of freight is declining. The basic argument is that economies of scale still occur. ... Which reduces the cost of transport. In comparison, as goods are delivered to the factories, one truckload may support more than one warehouse, rising the cost of transport.

If the amount of warehouses inside a network grows, the cost of freight is declining. The basic argument is that economies of scale still occur. In specific, if an order is to be put and we presume that the commodity is accessible at each site, the order shall be delivered from the warehouse nearest to the customer . Which reduces the cost of transport. In comparison, as goods are delivered to the factories, one truckload may support more than one warehouse, rising the cost of transport. Finally, a portion of the output is delivered directly to the warehouse closest to the factory when a drug is manufactured; another portion of the output is sent to the warehouse second closest to the factory ...

keosha answered 2 months ago
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