Centralized vs. Decentralized Supply Chains: What’s the Difference?

The only thing that remains constant in business is change. That means today’s leading businesses need to be more agile than ever and adapt their supply chains to meet customers’ needs — no matter where they are in the world. 

So why are supply chains often still inflexible?

To answer this question, you need to understand the difference between centralized and decentralized supply chains. In this article, we’ll discuss the pros and cons of each type and give you an inside view of how to leverage the best model to fit your business’s unique needs. 

Read About CBIP's Adaptable 4PL Logistics Services

What is a centralized supply chain?  

In a centralized supply chain, there’s a single HQ that serves as a central hub for all operations. Traditionally, that also meant there was a single warehouse that controlled the flow of all goods. 

Today, companies operating internationally may have multiple main hubs. But those using a centralized supply chain still rely on one focal point of operations and don’t employ an external partner network. This style of supply chain management is characterized by top-down decision-making and standardized procedures; in short, everything is handled in-house. 

What are the pros of centralized supply chains? 

With one location to operate out of, budgeting is made simple. There’s one warehouse to look after, one system to run, and only a few staff members to train and manage. 

This allows companies to standardize their warehouse operations routinely, make improvements to their systems more simply if necessary, and also provides the luxury of training, managing, and hiring fewer people. Additionally, a central HQ affords larger availability of products directly on hand. That lets companies cut costs by shipping more items in bulk, and managing inventory is a little simpler. 

What are the cons of centralized supply chains? 

With one location as a supply chain’s make-or-break point, flexibility becomes difficult.

Having a central hub for standard bulk orders might sound great in theory, but this system is coming into question due to the constantly-shifting manufacturing scene — not to mention changing customer demands. These realities mean centralized supply chains can have difficulties staying agile, which restricts them from growing and exploring other markets outside of their current operations. 

Furthermore, a company using a centralized supply chain is more susceptible to supply chain disasters. For example, if something goes awry at your primary location, it can be very difficult to adapt. This may force your business to come to a halt — and put you at risk of losing customers.

What is a decentralized supply chain? 

With a decentralized supply chain, there's likely still a traditional HQ where the bulk of executive decision-making still occurs. However, instead of being limited only to a single warehouse, companies that use a decentralized supply chain can utilize a series of warehouses (also known as ‘nodes’) that are strategically placed across different regions and countries.

This lets you utilize warehouses closer to production sites or customer bases, contract with regional partners around the world, and above all provide a more agile plan of action to meet customers' needs. 

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What are the pros of decentralized supply chains?

With multiple locations to operate out of, there are numerous benefits that come with a decentralized supply chain. 

First, you can reach a much wider customer base. Having various warehouses in different locations also allows businesses to provide faster shipping options. Even if a business’s HQ is far away, customers can still experience the joy of working with what feels like a trusted local distributor. 

In addition to reaching more customers faster and at a lower rate, there are other important factors that make decentralized supply chains valuable. First, unlike centralized supply chains, a decentralized supply chain is less susceptible to disasters. For example, if one warehouse hits an unexpected obstacle, you can pivot quickly.

This does more than just make businesses agile, though. It also means companies can be proactive by taking greater risks of their own such as by testing new products at a smaller scale or exploring newer markets. 

What are the cons of decentralized supply chains? 

All that said, decentralized supply chains also have a few cons to take into account. With more than one location to run, there is a potential for higher operational costs — including higher rent, higher insurance, and more staff members to account for. Furthermore, operating out of multiple nodes in a network increases the risk of misallocating goods throughout different warehouses.

So what’s better — centralized or decentralized supply chains?

No two businesses are the same, but it’s clear that resilience in the face of uncertainty is a competitive advantage. If a global pandemic with constant supply chain disruptions showed us anything, having options for your logistics pays dividends in the long run. Decentralized supply chains keep your business ready to change in real-time.

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Get an adaptable supply chain with CBIP

CBIP was created for ambitious businesses that want to grow fast — and we help you leverage decentralized supply chains to make it a reality. As a fourth-party logistics (4PL) company, we ensure your business isn’t locked into a supply chain that doesn’t make sense. 

With extensive experience in e-commerce and full-service logistics, we’re ready to meet the needs of your business. CBIP also integrates industry-leading technology into all operations across our partner network, including 15+ strategically-located warehouses around the world.

Ready to bring your logistics in the future and harness the power of decentralized supply chains? Call one of our experts today.