July 21, 2021

Understanding the Different Warehousing Solutions: Warehouses, Fulfillment Centers, and Distribution Centers

Yiasu Verma

One of the most important decisions while setting up an e-commerce business is selecting a warehousing solution for the storage and distribution of your inventory. Warehousing options include: 

  • Standard Warehouses 
  • Fulfillment Centers 
  • Distribution Centers 

While all three options provide large facilities to store inventory for your business, each of them offers different and specialized services. It is essential that you understand their differences so you can make the right decision for your business.  

Warehouses  

Warehouses are buildings used by businesses for simply storing inventory. They are permanent or semi-permanent places designed to house a business’s inventory in bulk for an extended period of time until it is needed. Because they are used for storing goods for long periods, warehouses are static and represent the passive elements of business operations.  

The main operation in a warehouse is when inventory is added or transferred out. Unlike fulfillment centers or distribution centers, warehouses are only used for storing goods and do not offer any additional value-added services. While most fulfillment and distribution centers have a warehousing component to them, warehouses do not double as fulfillment or distribution centers.  

Warehouses are ideal for small to mid-sized businesses that have low inventory turnover and do not need to spend too much time on packing boxes and shipping orders. As your business grows, so will your storage and distribution costs. Outsourcing warehousing and inventory management may make more sense once your business scales, as fulfillment centers offer more functionality and specializes services at cost-effective rates.   

Fulfillment Center 

A fulfillment center is a warehouse run by a third-party logistics (3PL) company that accepts, processes, and fulfills customer orders on behalf of e-commerce retailers. A fulfillment center’s primary role is to manage the seller’s inventory, store the goods, and ship orders directly to consumers. Fulfillment centers can be owned and operated by the 3PL, rented from another logistics company with third-party employees, or shared by two 3LP companies. It facilitates the timely delivery of online orders to customers, relieving e-commerce sellers from the burden of handling this demanding process. 

Fulfillment centers play an integral role in the completion of the order fulfillment process. A business’s inventory is strategically stored at a fulfillment center, ready to be dispatched to fulfill customer orders in an accurate and timely manner. Once a customer makes an online order, the goods are picked, packed and shipped. Fulfillment centers can be used for both B2C orders and high-volume B2B orders.  

Compared to a traditional warehouse, a fulfillment center is a considerably more complex operation with constant movement of goods. While a warehouse is primarily used to store goods long-term, the main goal of a fulfillment center is to turn inventory over quickly and efficiently. Goods are stored for no longer than a month at a fulfillment center, otherwise, the seller may be forced to pay additional storage fees.   

In a fulfillment center, a 3PL can offer a range of additional order fulfillment services, including: 

  • Receiving inventory 
  • Creating pick lists and selecting items 
  • Assembling and kitting items 
  • Custom Packaging 
  • Labeling 
  • Shipping 
  • Managing returns and reverse logistics services  
  • Omnichannel integration 
  • Inventory management 

Benefits of Fulfillment Centers 

Lower Operating Costs 

Renting warehouse space, hiring employees, equipment, packing materials, and maintenance, among other things, can increase your operating costs. Outsourcing fulfillment will lower these capital expenditures and allow your business to benefit from the economies of scale, helping you obtain the best available rates and conditions. Companies that utilize a 3PL keep their expenses predictable because they only pay for the services they consume, improving cost control. 

Better Customer Service 

Fulfillment centers are tailored to enhance the customer’s experience by having goods delivered on time. They are better equipped to offer same-day delivery options or guaranteed delivery dates. They are usually located near the customers or distribution hubs, allowing for reduced delivery time and provide cost savings. Some fulfillment centers also provide 24/7 customer support services allowing for easy returns, refunds, and exchanges. All of this contributes to a better customer experience. 

Latest Technology 

Fulfillment centers are equipped with the latest technology to streamline tasks like managing inventory, processing orders, organizing transportation, etc. The 3PL company provides fulfillment solutions with built-in integrations for e-commerce platforms, automating the documentation process so sellers can easily keep track of their inventory and order status without being physically present at the warehouse. Acquiring such systems involves heavy investment, in terms of both time and money. But, by collaborating with fulfillment centers, e-commerce businesses gain access to state-of-the-art software at a low cost. 

Enabling the Seller to concentrate on the Big Picture 

Fulfillment centers are ideal for growing e-commerce businesses, alleviating the hassles of managing inventory and packing orders.  By outsourcing these operational responsibilities, entrepreneurs can focus on the more strategic aspects of their business such as marketing, brand development, and product management.  

Distribution Center 

A distribution center is a warehousing facility that is used for receiving, temporarily storing, and distributing inventory to retailers or wholesalers. They act as a link between sellers and buyers. 

Distribution centers are also used by large retailers as merchandise hubs to maintain adequate quantities of stock in their stores. This is especially important when customer demand is high and goods are quickly purchased off the store shelves. Distribution centers allow for quick replenishment of these goods, allowing the supply chain of major supermarkets to stay responsive and up to date. For example, if you order a highly demanded product from Wal-Mart online and choose to pick it up in-store, the nearest center will ensure you get your order. 

The operations of a distribution center are more sophisticated than those of a warehouse. As a result, distribution centers are outfitted with cutting-edge technology like warehouse management systems (WMS) and transportation management systems (TMS) for activities including order processing, transportation management, and warehouse management. Similar to fulfillment centers, distribution centers are used to store goods temporarily and are focused on the quick movement of inventory so it can be distributed efficiently. 

However, a significant distinction between a fulfillment center and a distribution center is that the latter does not ship directly to consumers. Instead, it serves as a transit hub for items to change modes of trans-distribution. For example, freight may change to shipping or truck transport via the distribution center. Unlike fulfillment centers, distribution centers typically only cater to B2B customers. They are customer-centric and serve retail stores directly. 

Benefits of Distribution Centers 

Customer-Centric 

A distribution center’s principal aim is to meet customer expectations. They offer inbound and outbound logistics services, from receiving goods to sending orders directly to customers, providing a customer-centric approach. It helps manufacturers in the smooth distribution of goods to retail stores and allows them to keep up with changing consumer demands and order volumes. They also provide customer support services and provisions of returns management.  

Lower Costs 

By utilizing distribution centers, manufacturers will not have to own or rent multiple buildings for warehousing purposes. This means they will need less staff while also not requiring any computer technology. These cost-effective advantages assist them in developing strategies that maximize income and minimize costs. 

Better Online Retailer Relationship 

Another advantage of having a centralized distribution center is that it increases the opportunities for manufacturers to make connections with online merchants. By using the services of a distribution center, they can appeal to online stores by offering inventory storage and quick delivery on fulfillment of the order. 

Inventory management that is both efficient and cost-effective is important for any e-commerce business. Even though the terms “warehouse”, “fulfillment center”, and “distribution center” are sometimes used interchangeably, they provide different services, from basic warehouse space to complete fulfillment services.  

At Fulfyld, we provide solutions for your order fulfillment problems. Our partners have access to our strategically located warehouses and dedicated in-house team, allowing for rapid delivery options and accurate order fulfillment. Contact us today for more information! 

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