This week we will be discussing inventory management concepts and current practices. We will address the basic concepts and the concept of Risk Pooling. Risk Pooling is a fancy term, but it is about concentrating inventory at the DC, and not in each store. That is the concept of stripping inventory from retail stores and warehouse them in distribution centers and continuously replenish the stores. Sometimes we called it Continuous Replenishment. Why? Retail space is much more expensive. In southern California, you are looking at $15 or more per sq ft per month versus warehouse space near Ontario of $1 per. That also led to practices such as Cross-Docking, and VMI(Vender-Managed-Inventory). That is what most retailers have gone to in the USA. The other option is DSD, Direct-Store-Delivery, which is used some but more popular in Europe and Asia due to the lack of the super retail chains. But with the formation of EU, European retailers are getting bigger and going towards the DC approach like here, their main port is in central Europe, Rotterdam, Netherlands. So lots of new DCs are being built around there, and major highways to get to all parts of Europe.
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