DISTRIBUTION CENTER
Definition
A distribution center, sometimes called a distribution warehouse or logistics platform, is a physical facility where products are received from suppliers, temporarily stored, and then redispatched to stores or end customers. It plays a key role in the retail supply chain: it pools flows, optimizes transportation, and gives retailers control over delivery lead times. In terms of pricing, it influences landed cost and therefore the net margin of each reference.
Logistics costs have fallen from 4.2% to 2.8% of revenue
Home improvement chain — 80 stores, opening of a regional distribution center
logistics cost savings (4.2% → 2.8% of revenue) following the opening of a 25,000-square-meter distribution center, split between margin and price reductions.
Reinvested in margin improvement
Reinvested in price cuts across 200 KVI stores—the department gained 3 percentage points of market share in 18 months
Why it matters
- Pool ordered volumes: from a supplier to obtain better purchasing conditions, which impacts the selling price.
- Reduce transportation costs: to stores by consolidating shipments rather than delivering each point of sale individually.
- Closely manage inventory: and turnover, limiting costly overstocks and stockouts that degrade price image.
Real-world example
A home improvement retailer operating 80 stores in France is opening a 25,000 m² regional distribution center in the Nord department. Prior to this project to implement a pricing tool, each store was supplied directly by 150 suppliers, with logistics costs estimated at 4.2% of revenue. After the center became operational, logistics costs fell to 2.8% of revenue. The savings (1.4 percentage points) were split between margin improvement (0.9 percentage points) and investments in price reductions across 200 key product lines (0.5 percentage points). The affected product category gained 3 percentage points of market share in 18 months.
How to measure and use it
Le pricing dans un environnement avec centre de distribution doit intégrer le coût rendu réel par référence : prix d'achat fournisseur + coût de transport amont + coût de stockage en CD + coût d'éclatement vers les magasins. Les bons outils de pricing (ERP, pricing analytics) permettent de calculer ce coût rendu en continu et de le réinjecter dans les règles de pricing. Une référence à faible rotation coûte plus cher en logistique qu'une référence à forte rotation, ce qui justifie une marge plus élevée. Certaines enseignes vont plus loin en pilotant leurs flux en juste-à-temps, avec des livraisons plus fréquentes et des stocks réduits en centre de distribution comme en magasin.
Common pitfalls
- Calculate the margin solely on the purchase price: without integrating the actual logistical cost per reference.
- Overdimensioning the DC: A distribution center operating at 60% capacity is costly in fixed expenses and erodes margin.
- Underestimating replenishment costs: If the lead time between order and delivery is 5 days, store inventory must be adequately adjusted to prevent stockouts.
FAQ
A distribution center, sometimes called a distribution warehouse or logistics hub, is a physical facility where products are received from suppliers, stored temporarily, and then redispatched to stores or end customers. It plays a key role in the retail supply chain: it consolidates flows, optimizes transportation, and gives the distributor control over delivery lead times.
Not necessarily. Below 30 to 40 points of sale, the fixed costs of a dedicated DC often outweigh the savings generated. Pooling logistics with a provider may be more relevant.
Cross-docking (receiving followed by immediate dispatch without storage) is suited for high-turnover products with short lead times. Traditional warehousing is necessary for medium-turnover references or to absorb seasonal peaks.
For an omnichannel retailer, the DC can supply both stores and online orders. However, the pricing logic differs: the cost of fulfilling a single customer order is significantly higher than that of a store order.
See our solution: operational pricing consulting.
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