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What is logistical compromise?

Updated: 12/17/2022
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14y ago

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Logistical compromise is part of the theory of trade-offs. It can be quite complex, but basically, there are several different costs in a logistics system and in order to save money overall, you might have to accept higher costs in one element.

The main elements of cost are:

production

packaging

information systems

lost sales

inventory

transport (inbound & outbound trunking)

transport (local delivery)

warehousing

If you have ten warehouses and you reduce it to one, you will save money on warehousing. But your local delivery transport costs will be higher, because most of your delivery journeys are now longer, so you need more trucks, drivers, fuel etc. The principle of logistical compromise is that you analyse the trade-offs and balance the different elements of cost, to get the optimum solution. So you might find that cutting down to three warehouses is the best option - you save money on warehousing and your transport costs don't go up too much.

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