When sales of the organization is increased, the importance of storage of raw materials is increased too. A group of company may have several production department and the location of the production department may be located at several areas. As sales increase, the requirements of raw materials will be higher. Delay to supply the raw materials may seriously disrupt on the production process and may fail to fulfill the requirements of the customers.
Considering the above issue, organisation consider whether the storage system will be Centralized or Decentralized. In case of Centralized warehouse materials are storage in one area and deliver to the production department from that area. On the other hand decentralized warehouse means, warehouse are located besides production department. Each method has own advantages and disadvantages.
When an organization receives raw materials in one warehouse but supplied the raw materials several production centres or departments and divisions is called centralized store. When the management of the company is very strict regarding the materials control, they follow central management.
Advantages of Centralized Store
The advantages of Centralized store enumerated as follows:
- Better supervision could be possible due to its single location
- Materials are tightly controlled due to specific area
- Better layout can be made
- High technical skills maintained by store supervisor
- As stock are kept as low as possible , it has needed a lesser storage area
- Better facilities for stores audit
- Easier stock taking is possible
- Lower cost of insurance is required
Disadvantages of Centralized Store
- Due to frequent transport to production centre, departments and divisions , a higher transport cost is incurred
- Possibility of bottle neck in the flow of materials to production
- It has a greater risk of obsolescence
- Due to centralized store, production may be hampered due to delay material supply.
Decentralized Store is the store where materials are received and issued from the same place. A large group of company maintain decentralized store nearer to its production centre so that they can avoid production disruption and minimizes the carrying cost of inventory. Every production department purchase and handle raw materials separately. Decentralized store is suitable where there is huge materials movements and production.
Advantages of Decentralized Store
- Easy materials controlling and storing functions
- Materials handling can be quicker than centralized system
- Minimizes the chances of materials losses due to fire, carrying etc.
- Internal Transportation costs is not needed
- Materials handling costs can be saved
- Requirements of individual departments can be easily fulfilled
Disadvantages of Decentralized Store
- Supervision costs of materials are relatively higher.
- More space is required for individual departments.
- Investment amount is comparatively higher.
- Very chance of misappropriation of stock due to appropriate authority.
- As separate store ,additional staff is needed. Hence staffing costs will be higher.
Both Centralized and Decentralized store has some advantages and disadvantages. Management will decide what kind of store exactly needed according to their size of business. Centralized system minimizes the employee costs and secure the materials but at the same time they have to pay big amount for transport cost for Centralized Inventory system. However, management attitude is the important whether they will adopt Centralized Inventory System or Decentralized Inventory system.