Economies of scale

ECONOMIES OF SCALE is a term in economics that refers to a company’s ability to reduce costs by increasing the volume of production.

The term is typically used in reference to manufacturing production, but it can apply in any area where increasing scale of output allows costs to be spread over a larger quantity of goods. This includes the world of logistics and distribution.

Our cover feature this issue (page 12) takes a look at the new master distribution centre that Advance Auto Parts has built in Bolton, Ontario, to handle inventory for two of its brands, Carquest and Worldpak. While the two auto parts distributors share the same parent, they have – until now – managed their own warehousing and distribution.

But when both were outgrowing existing facilities, the parent company had a lightbulb moment and decided to bring the two together under a single roof in a much larger facility. It now has one work force, one building, one set of utilities to manage, and can combine orders for Carquest stores and Worldpac outlets on the same trucks. It only had to install racking, automation, and a pick tower for one new facility, not two.

While the process of integration was not without some challenges – like learning how to operate separately but also together, and pulling down operational silos – the result has management smiling. It’s a formula that seems to be working for the two companies, and they are looking for expansion of the model, both within the new facility and across the country.

The idea is not entirely new, of course. Third-party logistics – which has been around for close to 60 years – takes advantage of these same principles to offer warehousing and distribution services to disparate clients from under the same roof.

But Advance Auto Parts stands to benefit more from this new arrangement than it would by using a third party to manage its distribution operations. Keeping it in house means maintaining control and avoiding the costs of engaging a 3PL, while at the same time enjoying all the benefits noted above.

President & Managing Partner | Delon Rashid Head of Sales & Managing Partner | Peter Bulmer

Corporate Office

48 Lumsden Crescent, Whitby, ON, L1R 1G5

ISSN 0025-5343

Online 1929-6460

From where I stand it feels like a winning combination, and one that I will be watching as the company seeks to build out the model and prepare for future growth.