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There can be a lot of confusion between fulfillment centers and distribution centers. Both are essential operations for companies that sell products online, but they serve very different functions. In this blog post, we'll clarify the difference between these two types of warehouses and explain why you might need one or the other.
Every business must think of a proper warehousing center and fulfillment center vs. warehouse differentiation to meet its operational needs. It is necessary for the smooth functioning of the supply chain process. Hence, there are two primary options for warehousing for the eCommerce industry- the fulfillment center and the distribution center.
Distinguishing between fulfillment center vs. distribution center to recognize the subtle differences and knowing their pros and cons is essential before you choose them for the business. This article explains the difference so that businesses can make the right choices between fulfillment and distribution.
Define Fulfillment Center And Distribution Center
A fulfillment center is a 3PL third-party logistics warehouse that predominantly functions for receiving, processing, and fulfilling millions of customers' orders on behalf of the e-commerce business. When a business prefers to manage inventory with the fulfillment distribution center, the goods are sent to the center and should be examined. The manufacturers must ensure the examination of the goods.
What Is A Fulfillment Center?
A fulfillment center is a warehouse used by a retailer to store and ship products to customers. The retailer might use its fulfillment centers or the fulfillment centers of a third-party logistics provider.
The primary purpose of a fulfillment center is to reduce the lead time between when a customer orders a product and when they receive it. In addition, a good fulfillment center will ensure that products are shipped in the proper condition and that they arrive on time. With this, you can differentiate between the warehouse vs. the fulfillment center.
What is a Distribution Center?
A distribution center is a facility a business uses to store and manage inventory, usually products to be sold or distributed to retailers or other businesses. The products are typically kept in bulk, and the distribution center may also have facilities to repackage or label them as necessary.
A distribution center is often key to supplying goods efficiently to a large area. Orders placed by retailers are sent to the distribution center, where the products are retrieved and sent out for delivery. This eliminates the need for businesses to keep large inventories on-site, which can be costly and take up valuable space.
Fulfillment Center vs. Distribution Center
Here's a rundown of the critical differences between fulfillment centers and distribution centers to help you decide which type of center is right for your business:
Fulfillment Centers
1. Fulfillment centers are designed to store and ship products directly to customers on behalf of businesses.
2. Fulfillment centers typically offer a wider range of services than distribution centers, including packaging, shipping, and returns processing.
3. Fulfillment centers are often located near major transportation hubs to minimize shipping times and costs.
Distribution Centers
1. Distribution centers are designed to store and ship products to retailers or other businesses.
2. Distribution centers typically offer a limited range of services, such as warehousing and shipping.
3. Distribution centers are often located near major transportation hubs to minimize shipping times and costs. However, they may also be located near the businesses they serve to reduce travel time and expenses.
Pros and Cons of Fulfillment Center
Pros
Low Overhead Cost
Fulfillment centers generally have low overhead costs. They often utilize automation to maximize efficiency and minimize labor costs. As a result, these centers can pass on the savings to their customers in the form of lower prices.
Discounted Shipping
Fulfillment centers ship large quantities of orders quickly and efficiently. This allows them to offer discounts on shipping costs.
Faster Shipping Times
Fulfillment centers use the latest techniques and technology to get orders out the door quickly. Whether it's using robots to pick and pack orders or investing in new software to streamline the process, fulfillment centers are always looking for ways to speed things up. And that means faster shipping times for you.
Related: 5 Strategies To Accelerate eCommerce Order Fulfillment
Improved Customer Satisfaction
Customers are satisfied with the quality of service they receive from fulfillment centers. The quicker shipping times and discounted rates help improve customer satisfaction.
Inventory Control
Fulfillment centers can help you manage your inventory and keep track of your stock levels. This can free up your time so that you can focus on other aspects of your business.
Delivery Speed
Fulfillment centers can help you get your products to customers quickly and efficiently. By working with a fulfillment center, you can take advantage of their expertise in shipping and logistics to ensure that your products reach your customers as quickly as possible.
Customer Returns
Fulfillment centers can handle customer returns for you. This means that you do not have to worry about handling them yourself. This is a great way to save time and hassle.
Related: 5 Pitfalls of In-House Order Fulfillment
Cons
Setup Cost
There may be a cost to set up your account with a fulfillment center. This cost can range from simply providing your primary contact and business information, to more comprehensive fees for joining the fulfillment center's network.
Shipping Costs
Using a fulfillment center may incur higher shipping costs. However, the lower inventory cost and increased efficiency can offset this. Ultimately, it is up to the business to decide what is best for them.
Order Minimums
Some fulfillment centers have order minimums that you must meet. This means that you must have a certain amount of products in your order to be able to ship from that center. If you don't meet the minimum, you may be charged a fee, or your order may be delayed.
Lead Times
If you're planning on ordering items from a fulfillment center, it's essential to remember that lead times can vary. For example, your products may take a little longer to arrive than if you ordered them from a local retailer. But overall, the process is usually pretty efficient!
Loss of Control
Business owners prefer to take full control of every aspect of their business, including order fulfillment. But it is not possible when you partner with a fulfillment center.
Customer Limitations
Customers may face limitations when trying to find their personal best. They may be unable to find the products or services that perfectly suit their needs. Customers may also have difficulty communicating with sales or customer service representatives.
Limited Storage Space
Fulfillment centers often have limited storage space. This can mean that orders may take longer to ship out. However, it also allows for more efficient use of space. This can be beneficial for both the company and the customer.
Pros and Cons of Distribution Center
Pros
Saves Time
A big company's time saved by having a central distribution center can be significant. Inventory in one location can be shipped out as soon as an order is placed rather than waiting for individual items to be gathered from different departments or sites.
Satisfied Customers
Customers are usually happy to receive their orders quickly and without any errors. A distribution center that is run efficiently can help to ensure that orders are processed and shipped quickly and accurately.
Increased Efficiency
A central distribution center can help to increase the efficiency of a company's operations. By having all inventory in one location, it is easier to track and manage. In addition, distribution centers can help to streamline shipping and receiving operations.
Reduced Costs
A distribution center can also help to reduce the overall costs of a company's operations. By consolidating inventory in one location, companies can save on storage and transportation costs. In addition, distribution centers can help to improve the accuracy of inventory management, which can lead to reduced costs associated with stock-outs and overstocking.
Enough Space
One of the most important considerations when choosing a location for a distribution center is to make sure that there is enough space. Distribution centers need to have enough room to store inventory and the necessary equipment and staff to run operations smoothly.
There are, however, some potential drawbacks to consider when setting up a distribution center. These include:
Increased Expenses
While a distribution center can save a company money in the long run, the upfront costs associated with setting up and running a distribution center can be significant. These costs include renting or purchasing a facility, hiring staff, and investing in inventory management software and other necessary equipment.
Complex Operations
A distribution center can be a complex operation to manage. Many moving parts include inventory, shipping, receiving, and customer service. Companies need to have well-trained and experienced staff to run a distribution center effectively.
Increased Risk
Having all of a company's inventory in one location can be risky. The company could lose everything if the distribution center is damaged or destroyed. In addition, distribution centers are often located in areas prone to natural disasters, such as floods or earthquakes. As a result, companies need to have adequate insurance coverage to protect against these risks.
No Direct Customer Interaction
One potential disadvantage of a distribution center is that there is no direct customer interaction. Customers place orders online or over the phone and then wait for their items to be shipped. While this can be convenient for customers, it can also lead to some feeling disconnected from the company.
Related: How To Sell Wholesale On Amazon?
How To Choose The Right Type Of Center For Your Business?
The type of center you choose for your business will depend on several factors, including the types of products you sell, your shipping volume, and your budget.
Types of products you sell: If you sell products that require special handling or storage, such as food or pharmaceuticals, you'll need to choose a fulfillment center that offers these services.
Shipping volume: If you have a high volume of orders, you'll need to choose a fulfillment or distribution center that can handle your shipping volume.
Budget: Fulfillment centers typically charge higher fees than distribution centers. However, they also offer a more comprehensive range of services. So, if you need these services and can afford the higher prices, a fulfillment center may be the right choice for your business.
Conclusion
So, what's the difference between a fulfillment center and a distribution center? The main distinction is that a fulfillment center will take care of all the pick, pack, and shipping for your business, while a distribution center will only handle the shipping. If you need help picking, packing, and shipping, we can connect you with great fulfillment centers that will take care of everything for you. Don't know where to start? Get in touch – our team is happy to help!
Recommended: How To Scale Your Online Business With Product Fulfillment Solutions?
