The increase or decrease in facilities effect the following factors:
Response time- This is the time in between the customer placing the order and recieving the delivery. Increase in facilities will result in small response time and decrease in facilities will result in longer response time. Also the customers who can accept larger response time can have facilties located far from the customers and vice versa.
Inventory costs- Inventory costs increase with the increase in facilities and decrease with the decrease in it.
Transportation costs- If the economies scale of inbound transportation are maintained, transportation costs decrease with increase in the facilities and increase with the decrease in facilities. But if the economies scale of inbound transportation shows losses then the transportation costs will increase with the increase in facilities and vice versa.
Facility costs- The faciity costs decrease with the reduction in the number of facilities and increases with the increase in it as in less number of facilities the firm is able to exploit economies of scale.
Total logistics cost- This includes the cost of inventory, transportation and facilties combined together. With the increase in number of facilities the total logictics cost at first decrease and then gradually increase. The goal of the firm should be to keep the logistics costs minimum so that it has the scope of increasing the facilities to reduce the response time to its customers.