Total logistics costs are the sum of inventory, transportation, and facility costs for a supply chain network. What occurs as the number of facilities increases?
What will be an ideal response?
Answer: Total logistics costs first decrease and then increase as the number of facilities increases. Each firm should have at least the number of facilities that minimize total logistics costs. For example, Amazon has more than one warehouse primarily to reduce its logistics costs (and improve response time). If a firm wants to reduce the response time to its customers further, it may have to increase the number of facilities beyond the point that minimizes logistics costs. A firm should add facilities beyond the cost-minimizing point only if managers are confident that the increase in revenues because of better responsiveness is greater than the increase in costs because of the additional facilities.
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Indicate whether the statement is true or false.