Warehouse and fulfillment center (also referred to as a distribution center or third party logistics) are some common terms that are used interchangeably when it involves a discusson regarding logistics and supply chain management, but depending on the other factors each term carries a different meaning. At their most basic tier, both are large spaces or buildings that can hold inventory for all types of businesses that sell physical products whether through an online store such as Shopify, Amazon, Flipkart, or a food retailer. Despite the similarity, the use of each space and the services provided, and the way they carry operations can be quite different. This blog will explain the functioning and purposes of a warehouse and a fulfillment center, helping you better understand which option might be suited best for your business needs.
A warehouse provides a cost-effective storage solution for keeping inventory
The term warehouse refers to the place where a company stores products for sellers for a long or short term basis depeding on the business need. It is a large space that houses an inventory to be sold. It can contain large containers, shelves, racks, storage bins, and pallets filled with number of different products each identified by their own unique SKU (or stock keeping unit), as well as equipment like forklifts that are used to move the inventory in and around the warehouse.
The type of businesses that work with warehouse providers primarily does wholesale or B2B (business-to-business) orders in large volume. Some large e-commerce companies own and manage their own warehouse(s) to store their excess inventory until it is ready to be shipped to the customer, while others company rent out the warehouse space depending on their storage needs.
Depending on location, taking warehouse space on a rent basis is usually a more cost-effective solution for small to mid-sized sellers for eCommerce order fulfillment although that can depend on the available space and rent terms.
Small companies or those just starting up might decide to rent a space that is smaller and affordable, such as local storage units if they don’t have the sufficient space and fulfillment facility space to maintain their inventory. This can help keep the everyday selling products close by their own location in a more cost-effective space.
What is a fulfillment center?
A fulfillment center is a service providing space that a seller or a company hires to outsource their order fulfillment. A third-party logistics (3PL) provider, fulfills customer orders placed through any eCommerce store (also known as direct-to-consumer) and/or business-to-retail fulfillment where the seller fulfills wholesale orders to big-box retailers. It is often larger in size and also has various departments than a typical warehouse that an individual company might own or rent. The primary function of a fulfillment center is to manage the seller’s inventory, store the inventory, ship orders directly to customers and/or wholesale orders to retailers, and assist sellers in managing the entire eCommerce store, yet often difficult fulfillment operation.
A warehouse tends to be inactive because it’s used simply for storing inventory. An order fulfillment center is quite the opposite, bustling with active all the time. A 3PL provides end-to-end order fulfillment solutions and at its fulfillment center including:
- Receiving inventory from seller
- Kitting items if necessary
- Packing orders
- Preparing shipping labels
- Shipping orders
- Managing returns
Operationally in a warehouse, the only activity occurs is when any inventory is added or sent out. There are rarely any additional services offered by a warehouse.
Large Network of Shipping Companies
A 3PL often has partnered with multiple shipping companies. Since a fulfillment center operates to provide B2B and B2C orders as soon as they are placed, they need multiple companies to pick up shipments at a minimum once a day, sometimes more as needed. This helps to ensure that orders will be delivered in the time frame guaranteed to the customer.
Usually a fulfillment company will have a cutoff time for orders to be placed to the delivery speed chosen by the customer. For example, an order might need to be placed my noon in order to guarantee next-day delivery.
A warehouse, on the other hand, will usually have less frequent pickups scheduled, since it is cost-effective to send out all items at the same time, regardless of the speed requested by the customer.
The freight companies that warehouses use often insist on a certain time to pick up the orders, which can cause a delay in the delivery time and allow for less flexibility in shipping costs for the seller.
What are Amazon Fulfillment Centers?
FBA is Fulfillment By Amazon, it is a service where Amazon team manages your inventory at their fulfillment centers and will pick, pack, and ship orders to your customers on your behalf. The amazon charges the storage and fulfillment fees from a seller.
Pros of using Amazon FBA Service
By using FBA, sellers leverage Amazon’s world class operation and large fulfillment center network. The seller doesn’t have to worry about managing their own warehouse and fulfilling their own orders, allowing them to focus on running other facets of their business.
FBA gives sellers the option to offer free, one or two-day shipping to Prime Members. This is a huge draw to sellers as it gives them the best chance of winning the buy box with prime members.
Cons of using Amazon FBA Service
While having massive scale and operational expertise is one of Amazon’s biggest advantages, it can also be one of their biggest weaknesses in terms of flexibility and cost for sellers.
According to Amazon, the company now operates 75 fulfillment centers and employs 125,000 full-time employees in the US. They are spending billions of dollars a year to run these fulfillment centers and these costs are passed down to the sellers. Amazon’s ever-changing fulfillment and storage fees for FBA sellers is well documented and can be pain point for sellers as these costs eat into their profits.
Like most businesses these days, sellers have to be nimble in order to keep up with customer demands and industry trends. Once your product is shipped to Amazon to be stored and fulfilled, your flexibility becomes a lot more limited. Sellers’ products are tied up at Amazon centers making it challenging to sell via other channels. In addition, sellers can no longer make changes to the packaging, add new inserts, or do any other custom kitting. This can be a deal breaker for a lot of sellers, especially high growth brands.
While the terms warehouse and fulfillment center are frequently used interchangeably, the need for a simple warehouse space is much different than being able to utilize complete fulfillment services via a fulfillment center.
What works best for any individual seller comes down to the type of service they need. A warehousing service that only stores inventory could prove valuable if longer terms storage is needed, or the company is still operating some of the fulfillment in-house. Alternatively, if a seller is needing a fast turnaround for large orders, working with a 3PL to handle the fulfillment, customer service, shipping, and end-to-end logistics, is probably the best option to help grow that seller’s business. A trusted fulfillment partner can help with all of these issues.
There are many benefits to working with a third-party logistics (3PL), if you are seeking eCommerce fulfillment services we’d love to hear from you. Contact us to connect about how we can help your company grow.