In supply chain analysis, we always start with centroids – the weighted center point of customers, sales units, distribution centers, suppliers or any other shipping type. This gives us a general region where we know we minimize our miles from one end to the other. This, in theory, then allows us to lower transportation costs.
The problem with centroids are the trade-offs. What are you giving up in order to maximize one area? By lower shipping costs, have we now raised our real estate and labor costs? Have we opened ourselves up to service level issues with our biggest customer or supplier?
The sexiest story focuses on a single major improvement (look to Washington DC to see that it’s true) but too often the trade-offs of finding the maximum possible outcome on a single variable result in a worse overall result.