The Center of Gravity Method: Placing (and Outfitting) Distribution Facilities

Optimizing a supply chain requires appropriate material handling equipment (MHE), thoughtful utilization of space, and plenty of analysis. But before worrying about MHE, distribution centers must be placed appropriately — otherwise, no amount of facility optimization will overcome the logistics hurdles of geography.

The center of gravity technique (or COG technique) is a concept for optimizing supply chains. The goal is to place distribution centers at locations that will minimize transportation costs from manufacturing plants to markets. 

Since the 1960s, the center of gravity approach has been something of a standard. With that said, the number of variables included within the calculation has grown and changed (as expected, given the complex nature of modern logistics). 

In this article, we’ll provide a basic overview of the center of gravity technique for supply chain logistics. We’ll also discuss the basics of distribution center outfitting — our goal is to provide an introduction to the key concepts that businesses need to compete in today’s markets. 

To discuss distribution center or warehouse MHE outfitting with an expert, call Solus Group at (314)696-0200 or send us a request online.

Center of Gravity Methodology: Calculating a Lower TCO

The COG methodology is simple (and potentially too simplistic for some businesses, as we’ll discuss later in this article). 

To perform the analysis, you’ll simply need to know the demand for products in a given area over a set period. If you’re already shipping to an area, this can be the number of monthly shipments. 

You must also plot all relevant locations (e.g., suppliers, markets, existing facilities) on a two-dimensional grid map. Note that the COG method assumes a flat plane. Geographic coordinates like latitude and longitude cannot be used directly, though analysts often use latitude and longitude after converting them into a planar coordinate system. That’s a bit outside of the scope of this article, but it’s an important note if you’re learning about COG for the first time.

Here’s the basic math:

For the X-Coordinate (Cx): Cx = Sum of (d_ix * Q_i) / Sum of Q_i

For the Y-Coordinate (Cy): Cy = Sum of (d_iy * Q_i) / Sum of Q_i

Where:

• Cx = The x-coordinate of the calculated center of gravity.
• Cy = The y-coordinate of the calculated center of gravity.
• d_ix = The x-coordinate of location i.
• d_iy = The y-coordinate of location i.
• Q_i = The weight (e.g., demand, volume, or number of shipments) associated with location i.  

Another example of the formula can be found on LibreTexts.  

An Example Center of Gravity Calculation

To see how the COG formula works in practice, let’s walk through a simplified example. We’ll imagine that a company wants to place a new distribution center to serve four major markets: Chicago, New York, Pittsburgh, and Atlanta.  

First, the company gathers the necessary data: the coordinates for each location on a grid map and the volume of goods shipped to each city. 

Note here that we’re not using the exact coordinates of each city — again, this is an extremely simplified example.

Next, the company calculates the numerator for the X-coordinate by multiplying each location's X-coordinate by its shipment volume, then summing the results.  

• Chicago: 30 * 2,000 = 60,000
• Pittsburgh: 90 * 1,000 = 90,000
• New York: 130 * 1,000 = 130,000
• Atlanta: 60 * 2,000 = 120,000
• Total Sum: 400,000

The same process is repeated for the Y-coordinate.  

• Chicago: 120 * 2,000 = 240,000
• Pittsburgh: 110 * 1,000 = 110,000
• New York: 130 * 1,000 = 130,000
• Atlanta: 40 * 2,000 = 80,000
• Total Sum: 560,000

Then, the total shipment volume is calculated to find the denominator.  

• Total Shipments: 2,000 + 1,000 + 1,000 + 2,000 = 6,000

Finally, these sums are used to calculate the final coordinates.  

• X-Coordinate (Cx): 400,000 / 6,000 = 66.7
• Y-Coordinate (Cy): 560,000 / 6,000 = 93.3

The calculated center of gravity is (66.7, 93.3). On a map, this coordinate gives the company a data-driven starting point for where to begin its search for a new facility.  

Advantages of a Well-Placed Distribution Center

In modern logistics, no part of the journey is more expensive or has a greater impact on customer satisfaction than the “last mile.” People expect low-cost, fast deliveries, and if a business fails to meet those expectations, consumers won’t stick around.

A strategically placed facility is a powerful competitive advantage for a few reasons:

• The last mile is expensive. By one estimate from MacMillan Supply Chain Group, last-mile delivery can account for over 53% of the total cost of shipping. Cutting down on delivery costs will significantly cut the TCO of a distribution center (DC).
• Slow delivery has a direct impact on sales. The soft costs of slow delivery are considerably higher than the hard costs of fuel and labor. One consumer survey from Arvato found that 24% of online shoppers would not order from a retailer again after a single negative delivery experience. 
• Fast, accurate deliveries drive loyalty and revenue. A Capgemini study found that 74% of customers who are satisfied with their delivery service are likely to increase their purchase levels with that brand by an average of 12%.  

A DC location isn't just about finding a mathematical center — it's about positioning your operation to win the last-mile challenge. But while the classic COG method is useful as a starting point, it’s far from perfect.

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The Limitations of the Center of Gravity Method

The COG method was developed and refined in the 1960s, which were times of relatively simple logistics. Today, we’ve got globalized supply chains, just-in-time inventory systems, and the high-velocity demands of e-commerce — and as such, some of the core assumptions of the COG methodology are no longer valid

Some of the limitations of a basic COG analysis include:

• Reliance on Straight Lines: When performed manually, COG calculations assume that traffic can travel across straight lines. Those straight lines aren’t always aligned with the actual distances of the roads that trucks will need to travel when delivering products and materials.
• Missing Variables: The COG method is purposely simplistic, and it doesn’t take many variables into account. You might need to deliver more products to certain areas during seasonal rushes; demand might change over time; material costs can go up and down. The model is static and based on demand at a single point in time.
• Assuming a Single Location: COG is designed to find the optimal placement of a single centralized distribution center; in the real world, you may need several distribution centers within a certain geographic region to serve different needs or to maximize access to suppliers. 

You can certainly make changes to the COG formula to adjust it to the unique way that your business operates. Realistically, that’s how every business uses the formula. 

The goal of COG methodology is to provide you with a baseline idea of where you should place an operation to minimize travel costs. Practically, though, your new facility won’t land squarely on the coordinates suggested by the COG formula.

Outfitting Distribution Centers for a Better ROI

Logistics businesses often spend heavily on COG analyses, and for good reason: If your facility is misplaced, you’ll overspend on transport for the entire period of operation. 

But in modern markets, appropriate MHE outfitting can be just as important as location. Avoiding warehouse honeycombing will reduce storage rates; optimizing order picking will cut lead times and improve customer satisfaction. When a DC is outfitted with the right equipment — including custom equipment, where necessary — it shortens internal order fulfillment times. That’s a critical component for ensuring that tight last-mile delivery windows are consistently met.

At Solus Group, we specialize in outfitting warehouses, distribution centers, and manufacturing facilities with material handling equipment. From mother-daughter cart systems optimized for JIT delivery to ergonomic packing stations, we provide the resources that DCs need to optimize every part of every process. More importantly, we support our clients with decades of engineering expertise. 

We’re ready to help you design a distribution center that can scale to meet demand — and meet the high expectations of your clients and customers. Call 314-696-0200 to learn more or contact us online.