Reducing the number of distribution centers in a system typically reduces the fixed warehousing costs and the cost of transportation from the plant to the distribution centers. Fewer distribution centers mean fewer locations to transport goods to, thus reducing transportation expenses. While there might be increased costs in other areas, such as longer shipping distances to customers, the primary savings come from reduced transportation and warehousing costs associated with the distribution centers.

Storing cycle inventory in the distribution centers might still incur costs depending on inventory levels and turnover.

Storing finished-goods inventory at the manufacturing plants might increase if fewer distribution centers result in holding more inventory at the plant.

Transportation from the distribution centers to the customer might increase due to longer distances from fewer centers.

References:

Chopra, S., & Meindl, P. (2016). "Supply Chain Management: Strategy, Planning, and Operation."

Bowersox, D. J., Closs, D. J., & Cooper, M. B. (2013). "Supply Chain Logistics Management."