Pros and Cons of Risk Pooling

In Sections 5.3.1 and 5.3.2, we derived the benefits of risk pooling, assuming equal distribution of demand among the warehouses. This was done primarily for ease of calculations and to estimate quickly the exact reduction in inventory and number of orders. However, the demands do not have to be distributed evenly among the DCs. When customer demands are divided unequally, the average inventory for each DC has to be calculated based on its share of the demand, in order to calculate the total inventory in the supply chain. Still, the final results, namely the reduction in supply chain inventory and annual orders, will be true. 

Let us now summarize the advantages and drawbacks of the risk pooling strategy, which consolidates customer demands by using fewer warehouses for distribution. 

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In Section 5.3.3, we discussed the pros and cons of risk pooling. Here we will discuss certain environmental factors and product considerations that lead to potential opportunities for risk pooling. Listed in the following are the situations where risk pooling or inventory consolidation can be used to get maximum benefits ... 

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