Centralized vs Decentralized Inventory: Difference and Comparison

Inventory refers to the stock of goods available with a company for sale or the stock of raw materials available for production. It is basically an asset that can be realized for the generation of revenue or has a significant value in exchange.

Key Takeaways

1. Centralized inventory is when all goods are stored in one location, while decentralized inventory is stored in multiple locations.
2. The centralized inventory offers greater control and easier monitoring, while decentralized inventory allows faster delivery and better customer service.
3. Centralized inventory is more suitable for businesses with high demand for uniform products, while decentralized inventory is more suitable for businesses with diverse products and varying demands.

Centralized vs Decentralized Inventory

Centralized inventory is an inventory management system in which there is a central point where goods are stored and shipped to different consumers. Decentralized inventory is an inventory management system where goods are transported from a single point to other centres for storage.

Centralized inventory is an inventory management system where all the operational activities are conducted in the main headquarters. All the goods are stored at a common warehouse.

Decentralized inventory refers to an inventory management system in which the goods are transferred from a central point to different centres for storage.

Comparison Table

Parameters of Comparison	Centralized Inventory	Decentralized Inventory
Meaning	It is an inventory management system where goods are stored at a central point and from where the goods are shipped to various consumers.	It is an inventory management system where the goods are transferred from a central point to various centers for storage.
Decision making	In this system, all the major and small decisions are taken by the upper management that includes the board of directors, Area managers, and sometimes the CEO as well.	In this system, the decision-making process is carried on by the middle and lower management, thus making it decentralized.
Manpower requirement	The manpower requirement is comparatively lesser as only a few people are required for working at a central location.	The manpower requirement is comparatively more as a large number of people are required for working at multiple locations.
Stability in prices	In this system, stability and uniformity are ensured in the price of goods.	In this system, stability and uniformity may not be ensured in product prices.
Location	There is only a single location where goods and inventory are stored.	There are multiple locations where goods and inventory are stored.
Pilferage	The chances of pilferage in a centralized inventory management system are minimal.	The chances of pilferage in a decentralized inventory management system are eliminated.

What is Centralized Inventory?

To make the inventory management process system simpler, many companies and firms prefer using this system. This system helps upgrade the operational efficiency and multichannel management program of a company.

The advantages of a Centralized inventory are:-

• This system significantly lowers operational costs like rent and other utilities.
• It helps in increasing the profit margins due to a reduction in costs.
• It also helps in improving and maintaining the company’s culture.
• It also has a provision for better customer service through highly skilled manpower and resources.

The major disadvantages of a centralized inventory are:-

• The distance from the producer to the consumer is largely due to which the cost of shipping is significantly higher, and deliveries have to be made in a rush.
• The competition for acquiring human and physical resources is more.

They are themselves packing and shipping, due to which the entire operational structure is centralized, and they run the entire business from a single central warehouse.

What is Decentralized Inventory?

Decentralized inventory refers to an inventory management system where the goods are transferred from a central point to warehouses at different places, thus making the process more decentralized.

Decentralized inventory also helps in responding to emergencies in a better and more efficient way. All the goods are stored at different warehouses, thus minimizing the risk of fire and natural calamities.

The major advantages of Decentralized inventory are:-

• The flexibility in delivery is much higher in the system when compared to the decentralized inventory management system.
• The transportation cost is reduced to a greater extent.
• The delivery duration is also significantly reduced.

The major disadvantages of Decentralized inventory are:-

• The investment and operational costs are significantly higher.
• The manpower and physical effort required for inventory management are more.
• The control expenditure is also significantly higher.
• There are more chances of misallocation of goods.

Main Differences Between Centralized and Decentralized Inventory

1. Uniformity of prices is ensured in the centralized Inventory management system, whereas uniformity of prices may not be ensured in the decentralized inventory management system.
2. There are minimum possibilities of pilferage in a centralized inventory. On the other hand, the possibility of pilferage in the latter is not at all possible.

References

1. https://www.sciencedirect.com/science/article/pii/S0377221701001709
2. https://search.proquest.com/openview/f169573a00c6cf55531017b94a5e4afc/1?pq-origsite=gscholar&cbl=36584

Last Updated : 25 August, 2023