What is a fulfillment center? Fulfillment vs Distribution Center

What is a fulfillment center and how does it differ from a distribution center? How do I decide which is right for my business?

There are a few terms used to refer to the moving of orders for products of various kinds to customers. Some of these include, warehouse, fulfillment center, distribution center. With all the terms, it can be confusing to understand what each of them mean. Furthermore, how do you know which one you need for your own eCommerce business?

In this article, you will learn the difference between a fulfillment center vs distribution center. Additionally, you will learn which type of order processing may fit best for your business needs and what’s best for your customers.

What is a warehouse?

A warehouse is a building that stores products, materials, or other goods. There are several different types of warehouses. However at their core, warehouses are simply buildings to store goods.

Fulfillment centers and distribution centers are just a type of warehouse where a third party logistics company operates. Whatever the warehouse space is for, whether storing inventory or shipping orders, it always happens in a warehouse.

A distribution center with lots of docks and trucks

What is a fulfillment center?

A fulfillment center is a type of warehouse that performs picking, packing, and shipping of goods for eCommerce or regional B2B orders. This is why the process is called “order fulfillment“. It is usually one of the last steps in the supply chain.

Fulfillment centers ensure shipments process in compliance with your requirements. Items sent to your customers typically go through fulfillment centers. Usually they store in cartons on pallets. The warehouse receives and stores them for several weeks prior to the sale. Upon ordering, the order information transfers to the fulfillment center where processing (pick, pack, and ship) occurs.

What is a distribution center?

A distribution center is a type of warehouse that moves goods in and out in bulk quantities. It is similar to a fulfillment center, however distribution centers move material primarily to other businesses or warehouses such as fulfillment centers.

The term “distribution” describes what a distribution center does. They take large quantity of goods and spread them out among a number of recipient warehouses. This process involves short term storage and inbound and outbound operations in the same day. Typically distribution centers send material to wholesale channels, big box retailers, or fulfillment centers.

The Difference Between a Fulfillment Center vs Distribution Center

Fulfillment centers process and sell orders for consumers. Distribution centers spread goods out across a number of recipient warehouses.

Fulfillment centers are ideal for eCommerce businesses because their warehouse locations are closer to their customers. Distribution centers work for manufacturers looking to gain a larger retail or wholesale customer base, or get goods position closer to end-customers.

Fulfillment Center vs Distribution Center Services

Most of what differentiates a fulfillment center vs a distribution center is the services they offer. Because both are a type of warehouse, let’s identify specific differences in what each do.

A table comparing fulfillment center and distribution center services

Fulfillment Center Services

Pick and pack fulfillment services

Picking and packing are the core component of every fulfillment center. When customers place orders, the fulfillment center generates pick lists for all the items. A warehouse employee then picks the items in the orders. Finally, other warehouse workers combine the items into a box and parcel shipping providers deliver it to the customer.

Kitting and Assembly

A kit is a collection of items that your customers order together like a bundle. Fulfillment center services may prepackage and bundle these items before hand. This assigns each group of merchandise a new SKU. Kitting is critical for a business offering products like subscription boxes.

Freight Shipping

Some warehouse fulfillment services include shipping goods in bulk. An example is B2B orders going to big box stores, or retailers. A fulfillment warehouse may also transport oversized goods with LTL service.

Cross-docking

Cross docking is useful in the supply chain when a business needs to move material off a container near the port onto a truck more suited for freight. This is also useful when multiple quantities of goods need sorting for different destinations. Both distribution centers and fulfillment centers perform this service.

Inventory Management

If your purchasing teams is incapable or you simply don’t have a purchasing team, it helps to have decisions made further up the supply chain. Your fulfillment partner may offer inventory management services to maintain stock levels. This increases customer satisfaction and eases the burden on sellers and suppliers for short term shifts in demand.

Distribution Center Services

Receiving Inventory

The most basic function of a distribution center is receiving inbound materials. Materials come on pallets or floor loaded in containers. The distribution center’s job is to document and categorize all inbound materials. This way they can be sent to their proper destination such as a fulfillment center or big box retail store.

Replenishing Retailers

One major service that distribution centers provide is restocking or replenishment of inventory for retailers. Consider a store like Target or Walmart. There are thousands of individual SKUs in any given store. So they need a process that ensures inventory replenishes to the store before it runs out of stock.

Just in Time Materials

A useful service that distribution centers provide is just-in-time inventory replenishment. Manufacturers use a lot of parts to assemble and build their various products. These parts require storage space. But manufacturers only need a limited amount of parts for their output in a particular period. A distribution center can send materials on a regular basis to the manufacturer so they can maintain production. At the same time, the manufacturer can dedicate their warehouse space to their manufacturing activities.

Wholesale Marketing

Wholesale distributors usually operate within a single industry like plumbing, construction, or electronics and offer their own marketing, sales, and product fulfillment. These distributors sell to resellers (and sometimes the general public) at discounted prices. Manufacturers choose to work with them at a lower price-point because they come with a larger customer base.

Distribution Center vs Fulfillment Centers Pros & Cons

There are benefits for outsourcing fulfillment and distribution to your business. However, sometimes there are drawbacks to using these services. It helps to know what some of these pros and cons are before making decisions on how to store inventory in your supply chain.

A distribution center with trucks and trailers ready for freight services

Fulfillment Center Pros & Cons

PRO: Extended Storage Options

Fulfillment centers often allow for storing material for an extended period of time compared to a distribution center. While some try to incentivize rapid turns of inventory, this is still longer than a distribution center which seeks to move material in and out usually within a 24 turn.

CON: Costly Long-term Storage

While fulfillment centers can offer long term storage, the typical goal of a fulfillment process is to cycle inventory within 30 days. Therefore, some fulfillment companies charge higher rates (sometimes drastically) for long term storage.

PRO: Reduced Shipping Cost

Fulfillment centers usually ship a lot of packages. Therefore their shipping rates are often lower than you could achieve on your own. Many times, this cost savings overcomes the additional cost of outsourcing fulfillment in the first place.

CON: Reduced Personal Touch

If you decide to perform your own order fulfillment, you may operate specifically for your business needs. That’s because it’s your own order fulfillment process. However, opting for third-party fulfillment services reduces the amount of customization you have on the process.

PRO: Faster Shipping Times

Often, fulfillment centers are located closer to your customers. This means that the delivery time is reduced, sometimes down to 2 day delivery. This doesn’t come without drawbacks as you can see in the next item in our list.

CON: Inventory Distribution Requirements

Although fulfillment centers can obtain faster delivery times, the drawback is inventory must distribute into these geographic locations. Often this process can cause more headache and cost due to the logistics and forecasting of your total sales. If your forecast is wrong, or the process for managing inventory is flawed, you may have a costly logistics problem, or missing inventory on your hands.

Distribution Center Pros & Cons

PRO: Customized Service Potential

Industry specific distributors tend to treat product as their own. This is because the product ties directly to their sales and marketing efforts. For example, a custom electronics distributor may offer marketing collateral, tools, or other logistics processes specifically suited for custom electronics.

CON: Higher Prices

While standard distribution is relatively cost effective, industry distributors require a larger chunk of your overall price point. Most often, manufacturers sell to a distributor at a lower price than they would an industry retailer.

PRO: Bulk Shipping Options

Because distribution centers move a large volume of LTL shipments, their pricing is more competitive. They structure discounts with carriers and sometimes develop their own carrier network. This means that moving multiple pallets worth of materials to a fulfillment center or retailer costs less than it might from other service providers.

CON: No Small Parcel Shipments

The main difference in fulfillment center vs distribution is that distribution centers rarely offer small parcel order fulfillment. Instead, their warehouse space moves large quantities of items in and out quickly. Fulfillment center operations typically work best for eCommerce companies who need small parcel order processing.

A large distribution warehouse with many pallets and racks

Choosing Between a Distribution Center vs Fulfillment Center

At the end of the day, you need to choose which type of warehousing services you use in your supply chain for fulfillment and distribution. The list above should give you a good idea of the various services in a warehouse and fulfillment center and distribution center.

Ask yourself these questions: Do you need to store products for a longer term, or do you expect inventory to cycle quickly? Do you need to ship orders directly to consumers, or are your customers businesses or retailers? Are you well suited to operating your own fulfillment warehouse, or are other companies more economical for things like storing, and the cost to ship orders?

Additionally, consider your customer in the process. What is most important to my customer and do the solutions my company provides meet their needs? Is it logistics of material in bulk, or small parcel delivery times?

Finally, make certain to include your management team. It’s highly likely they know more about your customer, and company operations to aid you in making educated decisions.

Need help with fulfillment?
Let AMS Build Your Supply Chain

With our turn-key supply chain, we are the best option for building your supply chain strategy. From finding the right manufacturing partner (whether that is us or another factory) importing, and fulfilling your product, we do it all under one roof.