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Impact of adding Regional Warehouses on the overall inventory is positive.
Many companies think that adding more nodes in the distribution network would increase their overall inventory level. This perception is generally unfounded.
If we don’t have redistribution nodes in the network, we end up supplying all the CFAs directly from the factories. The resultant higher transit time brings down our ability to respond faster to demand changes, besides increasing inventory buffers at the CFAs. It works only if we supply to forecast and ignore actual demand signals coming from the marketplace.
If we want to make the supply chain more responsive to actual demand, we need to create redistribution nodes, which can service any downstream demand variations much faster. Shorter lead time from these nodes to CFAs also means the CFAs can operate with much lower inventory levels.
Overall, we end up with lower inventory in the system and a more responsive supply chain if we design the distribution network with such strategically placed regional warehouses.