What do top #01 businesses do? They monitor and control their production.
If you want your business to succeed, master maintaining your supply and demand balance, and you’re 49.99% out of water.
Research shows that 60% of manufacturers struggle with workforce management and supply chain disruptions. In contrast, companies like Tesla and Amazon manage to operate smoothly while slashing costs, streamlining operations, and optimizing inventory.
What’s their secret? It’s not magic; it’s strategy. Major companies employ centralized production, distribution, management, and control mechanisms.
If you’re unsure whether centralized production is right for your business, there’s no clear answer. Your decision should depend on factors (that we are going to discuss in this blog) that determine if a centralized or decentralized approach fits your needs.
What is Centralization of Production?
The centralization of production involves managing all manufacturing, inventory, and operations at a single location or under the same management or control system. Centralized production is like a brain where;
- Raw materials are stored in one place.
- Products are made in a single location (or a few big ones).
- All data (like sales and stock levels) flows into one system.
With centralized production, businesses increase quality control and monitor all their manufacturing processes under one roof.
To better understand this, consider these research findings: Inefficient inventory management costs businesses over $1.1 trillion each year due to excess stockholding, inventory waste, poor demand forecasting, and fragmented systems.
This is what happens when you don’t have a centralized production facility that keeps everything in control and prevents issues like excess or insufficient stocks.
When operations are centralized in one location, businesses can manage their inventories more effectively, leading to improved capital control, production management, infrastructure management, and workforce management.
For example:
Tesla Gigafactories operate on a massive scale while remaining centralized in their operations. They receive direct orders from the Palo Alto, California headquarters across all areas of business, including operations and manufacturing
Key features of Centralized Production
Single location: Centralized production takes place under one roof to control planning, production, and inventory.
Quality control: Production under one roof makes it easier for businesses to control quality.
Single decision-making: Most operations and decisions are made by a centralized authority.
Standardized process: Managing standard operating and manufacturing procedures in a single facility is easier.
Scalable infrastructure: Infrastructure is specifically designed for high-volume output, such as Tesla’s gigafactories, which produce over 500,000 vehicles annually.
Benefits of Centralized Production
Cost Cutting:
Centralized manufacturing helps companies cut costs on production, lead times, employee planning, and reporting cycles. McKinsey reports that companies that adopt centralized manufacturing procedures can cut costs by up to 15-20%.
At the same time, when the whole process is implemented at once, companies save up to 30% of employee planning and reporting cycles, saving them resources and time.
Better Quality Control
When companies perform all operations in a single facility, the chances for discrepancies are reduced. It also makes it easier to monitor and maintain standards and implement improvements without compromising quality.
Lower initial investment
Companies that prefer centralized manufacturing often require less initial investment due to a single facility.
Clear communication
Companies with centralized production have much clearer and more streamlined communication than decentralized ones because all operations, management, production, and distribution are handled under a single control.
Simplified logistics
Managing supply chains, distribution, shipments, and inventory in one location is much easier than obtaining weekly or monthly reports from various facilities.
Supplier relationships
Companies with a centralized approach often produce a large volume of products as they must distribute them single-handedly across regions. This requires the company to engage in bulk purchasing, which builds stronger supplier relationships and improves negotiations.
Infrastructure
Centralized facilities have all the major equipment needed in one location, eliminating the need to constantly purchase additional equipment for multiple facilities. As in decentralized production, each facility requires its own infrastructure and staff, which can be costly.
A centralized approach cuts many additional costs that can be used for other purposes. Additionally, centralized management oversees the raw materials used, ensuring quality control and minimizing waste.
Downsides and Risks of Centralization
Supply chain disruption risks
Having only one facility poses challenges in managing risks such as pandemics and geopolitical issues. These risks can lead to production delays and facility attacks, significantly impacting overall operations and manufacturing. Consequently, relying on a single location can make a business vulnerable to disruptions that can affect its ability to operate smoothly and meet production demands.
Longer lead times to distant markets
Often, these facilities are located far from the end consumers. This distance can lead to longer lead times and higher transportation costs. At the same time, being far away from customers can affect service efficiency and response times.
Less adaptability and flexibility to regional demand
Bulk production does not allow companies to easily redirect their entire production cycle based on specific regional demands. Additionally, it limits their ability to experiment with industry trends, making them less adaptable.
Labor bottlenecks or shutdown risks
Anything such as a strike, halt, or mass resignation can disrupt operations and potentially lead to shutdown risks. For example, 12,000 full-time employees resigned from Twitter after Elon Musk issued an ultimatum, which caused some offices to shut down. A mass resignation can directly affect centralized production if it is not managed promptly.
Centralized vs Decentralized Production
| Feature | Centralized Production | Decentralized Production |
| Operation | Operate in a single facility | Operate in multiple localized facilities |
| Control | High – decisions made from a central authority | Distributed – decisions made at multiple local facilities |
| Quality Consistency | Easier to maintain – standardized across all products | Harder to ensure – varies by location |
| Risk | Higher – single point of failure | Lower risk spread across multiple sites |
| Cost Efficiency | Generally high – benefits from economies of scale | Variable – may involve higher operational costs |
| Market Adaptability | Lower – slower response to local market needs | Higher – better for regional customization and responsiveness |
| Logistics | Centralized shipping may increase delivery times | Localized delivery, often faster for nearby customers |
| Scalability | Efficient for scaling a standard product line | Flexible for diverse product lines or global expansion |
When to choose centralized production
- Your business operates at scale (1,000+ SKUs).
- Your product is standardized with little or no customization.
- You have centralized inventory and supply chain systems
- Your demand forecasting is data-driven.
- You prioritize cost savings over hyper-local agility.
- Your customer range is in major regions.
When not to choose centralized production
- Your target market is highly diverse
- You cannot offer fast delivery in local regions
- You are facing logistical compliance and regulatory issues in your centralized location.
Impact on Inventory & Supply Chain Management
Centralized production aligns more effectively with centralized inventory management. Since most work is done in one place, companies can track inventory and supply chains more efficiently. You can;
- Track stock and manage it accordingly.
- Cater to supply and demand in real time.
- Prevent excessive stockholding or “Out of stock” situations
- You can easily integrate it into your CRM, ERP, or inventory software.
Example:
Warehouses with centralized production can also centralize their inventory data, making tracking all types of stocks, including raw materials, work in progress, and finished products, easier.
Common problems most centralized production systems face
Problem 1: Centralized production is expensive
Solution:
You don’t always have to start big. You can begin with a small facility and handle your manufacturing. Instead of buying expensive tools to track everything, consider using CRMs like Seebiz IMS for tracking inventory.
Problem 2: Shipping takes too long
Solution:
Partner with reputable shipping companies like FedEx or DHL in the initial stages. Add GPS tracking to monitor your shipments and avoid delays or lost packages.
Start Centralizing in 4 steps
1- Map your process
Map out your current production and shipment method.
2- Pick a location
Pick a facility closer to your end customer to reduce shipping costs as much as possible.
3- Use cost-effective and easy-to-use software
Use CRMs that are easy to use to help you centralize your entire tracking, ordering, and sales process system.
4- Train your team
Lastly, train your team on how to use new tools.
Conclusion
Most successful companies use centralized production methods, which provide scalability and efficiency in both production and distribution. Instead of debating the best production method, the right way is to align your manufacturing method with your business type, target market, and size.
Centralized production benefits many wholesale businesses by reducing costs and discrepancies, minimizing errors, and improving customer satisfaction through streamlined operations. Whether starting small or establishing a scalable business, you don’t need a large facility. Start with a single warehouse and use CRM systems to manage your inventory and sales effectively.
If you want to align your inventory with your production model, consider exploring Seebiz’s centralized inventory solutions.
FAQs
Q: What is centralized production?
A: Centralizing production involves managing all manufacturing, inventory, and operations at a single location or under the same management or control system.
Q: What is the main difference between centralized and decentralized production?
A: Centralized production occurs in a single facility under one management, like Tesla gigafactories. In contrast, decentralized or localized production takes place in various localized regions, such as Coca-Cola warehouses in multiple locations within a single area.
Q: Is centralized manufacturing cheaper?
A: “Cheaper” may not be the right word, but “Cost-effective” will be. In centralized manufacturing, you don’t need additional workforce for every other facility; you don’t need extra infrastructure. You can save on bulk purchases from suppliers and control your production while managing the team under a single supervisor, which makes it cost-effective.
Q: Can small businesses use centralized production?
A: Yes! They can always start with one warehouse and start their production, and they can use a look like Seebiz IMS for proper production management.
Q: What if my suppliers are in different countries?
A: If you are doing centralized production, position your facility close to your largest supplier and active customer base.
