Reducing the number of distribution centers in a system typically reduces the fixed warehousing costs and the cost of transportation from the plant to the distribution centers. Fewer distribution centers mean fewer locations to transport goods to, thus reducing transportation expenses. While there might be increased costs in other areas, such as longer shipping distances to customers, the primary savings come from reduced transportation and warehousing costs associated with the distribution centers.
* Storing cycle inventory in the distribution centers might still incur costs depending on inventory levels and turnover.
* Storing finished-goods inventory at the manufacturing plants might increase if fewer distribution centers result in holding more inventory at the plant.
* Transportation from the distribution centers to the customer might increase due to longer distances from fewer centers.
References:
* Chopra, S., & Meindl, P. (2016). "Supply Chain Management: Strategy, Planning, and Operation."
* Bowersox, D. J., Closs, D. J., & Cooper, M. B. (2013). "Supply Chain Logistics Management."

Section: Implementation and Operations
Explanation/Reference:

Supply chains for innovative products differ significantly from those for functional products, with higher demand uncertainty being a key characteristic:
* Demand Uncertainty: Innovative products often cater to new or rapidly changing markets, making it difficult to predict customer demand accurately.
* Short Product Life Cycles: These products typically have shorter life cycles due to rapid innovation and technological advancements.
* Higher Profit Margins: Although not directly related to the supply chain, innovative products often command higher profit margins due to their uniqueness and perceived value.
* Complex Supply Chains: Managing the supply chain for innovative products requires flexibility and responsiveness to adapt to the volatile market conditions. This contrasts with functional products, which usually have stable demand patterns, longer life cycles, and more predictable supply chain requirements.
References
* "Managing Supply Chains for Innovative Products" - MIT Sloan Management Review
* "Supply Chain Strategies for High Demand Uncertainty" - Journal of Operations Management

Section: Supply Chain Strategy, Design, and Compliance