Explain why once revenue and total logistics costs are considered together, the optimal number of facilities in a distribution network may well increase compared to the optimal number of facilities based on total logistics costs only

Include details about the behavior of relevant cost and revenue elements.

Total logistics costs are comprised of inventory, transportation, and facility costs. While inventory and facility costs always increase in the number of facilities, transportation costs first decline steeply, then rise. This causes the total logistics cost curve to first decline, then rise, suggesting a certain optimal number of facilities. However, on the revenue side, increasing the number of facilities always decreases response time, which should increase revenue (better customer service). Therefore, when these revenue implications are considered, the total profit (revenue - cost) may suggest more facilities than a cost analysis alone would imply.