The terminology in eCommerce can be confusing. Some facilities appear to carry out the same function but are called different things. Two locations, in particular, are easily confused; the distribution center and the fulfillment center. Both are essentially warehouses but fulfill different roles in the supply chain. Here we examine the important differences between these two vital elements of modern logistics.
Features of a fulfillment center
The volume of fulfillment centers has grown in direct proportion with the E-commerce market value and is projected to reach 6.5 billion square feet by 2025, of which the fulfillment center USA market will make up a significant proportion.
The distinctive feature of a fulfillment center is that it is a third-party logistics (3PL) warehouse for E-commerce retailers. Third-party logistics companies provide both warehousing and transport that are flexible to meet customers’ needs and changing market conditions. Goods can be received directly from a manufacturer or may be reviewed first.
The overall function is to make sure that goods reach customers at the time that they expect. Products are arranged so that orders can be picked and dispatched quickly directly to customers’ doorsteps and this is achieved through excellent communication between warehouse operatives and truck drivers and through optimization and planning. A customer could be a private individual (B2C) or another business (B2B) and high volumes can be processed. Typical examples are Amazon Fulfillment Center and FedEx Fulfillment.
Advantages of a fulfillment center
If you are setting up an ecommerce business, it is important that you understand what a fulfillment center can and cannot do. It would be the right choice for you if you want to do the following:
- Free up warehouse space so that you can use it for other things
- Have a depot that is geographically close to your customer base so that you can speed up shipping
- Deliver your products directly to your customers
- Have time to focus on other aspects of the business while someone else handles the fulfillment tasks
- A third party to pick and pack goods for your business
- The option of outsourcing packaging but retaining custom packaging and labelling
- Manage your returns and take over your reverse logistics
- The option of kitting services (putting separate pieces into a single grouping)
- Have trained workers handling your orders and receiving your inventory
- Have an automated system for your fulfillment that is transparent at every stage
- Use a customer service division if you do not have one of your own
Disadvantages of a fulfillment center
Conversely, a fulfillment center is not for you if you need any of the following:
- Unlimited storage space. There is always limited storage capacity in a fulfillment center
- Long term storage. These facilities will offer short-term storage only
- Bulk shipping of large quantities of products
- Cheap storage of unsold products. Storage of unsold inventory in a fulfillment center will be prohibitively expensive
- The cheapest storage and distribution option. Fulfillment centers tend to be more expensive because of their convenient location and the other services that they provide.
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Features of a distribution center
The key feature of a distribution center is that it provides ‘temporary’ storage. It also receives and distributes goods in the same way as a fulfillment center and is a connection between suppliers and customers. The flow velocity is high and goods move in and out quickly.
It is typical for a supplier to ship a product to a distribution center that serves one geographical location. They serve retail stores and are a pivotal part of the order process. Distribution centers usually store lots of different types of products so managing them can be complicated. To help with this, most rely on automated IT systems such as a warehouse management system (WMS).
A distribution center is often confused with a warehouse and it is easy to see why but there are subtle differences. A warehouse stores things – and nothing else. A distribution center, on the other hand, does a lot more. It can mix products and provide cross-docking (where goods are received from the supplier, sorted and immediately dispatched without actually being stored at all).
Advantages of a distribution center
A distribution center is the best choice for goods that do not need any further input such as additional packaging. If you have decided to use a distribution center for your business, here are the benefits that you will be able to take advantage of:
- Size and scale. They can store and ship large quantities of goods and products in large warehouses
- Deliver to businesses. Your goods will be delivered in bulk to business premises
- Long-term storage. There is no rush in a distribution center. Goods can remain there for some time.
- Competitive cost. It is not prohibitively expensive to store goods even if they are there for longer
- Location. You will be able to store your inventory near to where your target market is located
Disadvantages of a distribution center
You also have to bear in mind that there are some drawbacks that you will face when using a distribution center. Here are the main disadvantages:
- You will not be able to ship orders very frequently and in small quantities. They are designed to handle infrequent, bulk orders.
- You will have to pack your products yourself as goods in distribution centers are transported on pallets and are not taken off the pallets to pack
- Delivery times will be slower. This is due to the time taken to transport goods to their final destination – the center may not be close to your target market
- There will not be opportunities for you to communicate directly with your customers
- You won’t be offered the additional services that a fulfillment center would offer
Both facilities are designed to meet the specific requirements of businesses – depending on the scale and nature of the enterprise.
FAQ | What Is The Difference Between a Distribution Center And a Fulfillment Center?
What is the difference between a warehouse and a distribution centre?
The warehouse only contains goods. A distribution hub also provides services including packaging, product mix, shipping and cross-selling. Distribution centers can store merchandise relatively longer than warehouses if needed.
What is the difference between a warehouse and a fulfillment center?
The primary difference between a fulfillment center and a warehouse is that a fulfillment center provides order fulfillment services, while a warehouse does not. A fulfillment center will pick, pack, and ship products to customers, while a warehouse will only store products. Additionally, a fulfillment center is typically located closer to your target market than a warehouse is, which reduces delivery times. Fulfillment centers also offer additional services like order tracking and inventory management that warehouses do not offer.
Which do you need – fulfillment center or distribution center?
When it comes to the fulfillment of eCommerce products and services your store probably wants fulfillment centers, not distribution centers. You need to find an online fulfillment company for your business. Decide how much support your company requires. Some eCommerce sites require specialized services like crowdfunding fulfillments and subscriptions. Make sure the fulfilment service is what you need.
What are the benefits of using order fulfillment services?
When your company is using a fulfillment center, you can take advantage of the following benefits: -You will have access to a large pool of workers that are specifically trained in order picking and packing -The center will be able to store your products for you -You will not need to make any capital investments in inventory or warehouse space -The center can ship your products for you -You will be able to outsource your customer service operations -The center will be able to manage and track your inventory for you
How much does it cost to store products in a distribution center?
Costs will vary depending on the size of the distribution center and the length of time you need to store your products. However, it is typically more affordable than using a warehouse to store your products. Contact the distribution center to obtain a quote for your specific needs.
How much does it cost to store products in a fulfillment center?
The cost to store products in a fulfillment center generally ranges from 25 cents to $2 per product, per month. This price includes handling and storage of the product. Fulfillment centers also charge shipping fees for products that are sent from the center. Fees typically start at around $5 and increase depending on the weight and size of the product.
What is the difference between order fulfillment and eCommerce?
Order fulfillment is the process of picking, packing, and shipping products to customers. eCommerce is the process of selling products or services online. Order fulfillment services help businesses manage their eCommerce operations by handling all aspects of order fulfillment including processing orders, shipping products, and managing inventory.
Is it better to have a distribution center or warehouse?
A distribution center offers many advantages over a warehouse, including the following: -A distribution center is typically larger than a warehouse, which means it can store more products -A distribution center provides services like packaging, product mix, shipping and cross-selling that a warehouse does not offer -Distribution centers are typically located closer to your target market than warehouses are, which reduces delivery times -Distribution centers typically offer additional services like order tracking and inventory management that warehouses do not offer.
How does a fulfillment center operate?
A fulfillment center operates by receiving orders from eCommerce businesses, picking the appropriate products from inventory, packing the products, and shipping them to the customer. The fulfillment center will also track inventory levels and manage orders to ensure that products are not oversold.
Should I automate the fulfillment process?
Yes, you should consider automating the fulfillment process to improve efficiency and reduce errors. Automating the order fulfillment process can help you save time and money by reducing the need for manual labor. Additionally, automating your order fulfillment process can help you keep better track of your inventory levels and ensure that products are not oversold.
What software do I need to automate my fulfillment process?
There are a number of software programs that can help you automate your fulfillment process, including order management systems, shipping software, and inventory management systems. Speak to a specialist to find out which software would be best for your business.
How does a distribution center operate?
A distribution center operates by receiving products from manufacturers or other distribution centers, and shipping the products to retailers or other distribution centers. The distribution center will also track inventory levels and manage orders to ensure that products are not oversold.
What is the difference between long-term storage and short-term storage?
Long-term storage is the storage of products for an extended period of time, typically six months or more. Short-term storage is the storage of products for a limited period of time, typically less than six months.
What are some factors to consider when choosing a fulfillment center?
When choosing a fulfillment center, you will need to consider the following factors: -The size and scope of your business -The type of products you sell -The number of orders you process each day -Your shipping requirements -The distance to the fulfillment center from your target market -Additional services offered by the fulfillment center, such as order tracking and inventory management
Can I pick up my own order from a distribution center?
Distribution centers do not usually offer customer pickup like fulfillment centers do. Goods are shipped directly to customers from the distribution center. If you need to pick up your own order, you will need to contact the distribution center to make arrangements.
What factors should be considered when determining a new location for a distribution center?
When selecting a new location for your distribution center, you will need to consider the following factors: -The distance between the distribution center and your target market -The size of the distribution center -The availability of labor -The cost of leasing or purchasing warehouse space -The availability of transportation infrastructure -The climate in the area where the distribution center is located.
Do I need to own a warehouse?
You do not need to own a warehouse to operate an eCommerce business. You can use a fulfillment center to store your products and process orders. However, if you have a large inventory or you process a high volume of orders, you may need to own your own warehouse.
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