Many online retailers struggle to make the big cut in business because they pick the wrong centers to manage their order fulfillment.
In many cases, the wrong decisions made by retailers can be traced to their lack of knowledge about the differences between distribution centers and fulfillment centers. It’s even worse when they don’t know the key factors to look out for in choosing the right company for their order fulfillment.
What distinguishes a fulfillment center from a distribution center? What does Betty, the next-door wannabe retailer, need to know before jumping into the vast sea of online e-commerce retail?
This article answers all the above questions and gives juicy tips on deciding which order fulfillment method best fits your retail brand. Let’s dive in!
What Is a Fulfillment Center?
Fulfillment centers are storage facilities online retailers use to handle storage, picking up, packaging, and shipping customers’ orders directly to their doorstep.
Fulfillment centers operate similarly to a storage facility for photographs. When there’s a request for your photos, you simply dig into your storage and send out the needed quantity. This analogy illustrates the function of fulfillment centers in storing and delivering products.
Another great thing about fulfillment centers is that they thoroughly cover every aspect of fulfilling an order and giving customers good value for their money.
Their workflow includes purchasing the goods, storing them in a suitable warehouse, picking and packing requested orders, ensuring a safe shipping process, and handling returns as and when due.
Even better, you can get personalized and customized order fulfillment if you want one from the center. They are basically an online retailer’s bestie in the e-commerce game.
Examples of fulfillment centers include:
- ShipBob
- Amazon fulfillment
Benefits of Fulfillment Centres
Fulfillment centers are ideal for small to midsize e-commerce brands because they guarantee the following.
Low operating costs
We all want superb and affordable order fulfillment, don’t we? A fulfillment center is an answer to that.
You enjoy a seamless order process without breaking the bank, giving you a win-win on both sides.
Reduced shipping costs
Shipping cost scares 5 out of 10 customers away faster than the actual cost of the item(s).
A Fulfillment center tackles this by utilizing inexpensive shipping techniques to entice customers. This technique raises the average shopping basket size and benefits the company’s bottom line.
Faster delivery times
Customers want their orders as early as yesterday! A fulfillment center caters to this strong emotion by offering remarkable delivery speed.
You can be sure to expect them to ring the doorbell of the delivery address within the shortest time possible.
Increased client satisfaction
A happy client is the lifeline of any business, especially a fulfillment-based enterprise. Because without them, you are simply marketing to the void.
Fulfillment centers ensure clients get a fully optimized, specially tailored order processing without compromising quality over quantity.
Third-party handles returns
A fulfillment center may hire a third-party logistics company to oversee its return management program, freeing up their time to handle other business-related tasks and giving them peace of mind that their stock is in capable hands.
Specialization and customization
Who wouldn’t be glad to read a specially written message from their favorite seller?
A fulfillment center can tailor customized orders for your customers on your behalf. They are customer-centric for a reason.
Drawbacks of Fulfillment Centers
Fulfillment centers have a few challenges that are worth mentioning. They include:
Setup fees
Most fulfillment centers have a generally low overhead cost, but their setup costs can sometimes be on the high side.
Raising funds to kickstart a fulfillment center can drive you up the wall despite the high competition. The cost of registration alone can send you into a dizzy spell. And that’s not to mention some other expenses that will creep up.
Over-the-top order minimums
Some third-party logistics have a minimum order mark that a fulfillment center must meet before processing their orders for fulfillment.
Failure to meet this mark could lead to many problems because it will prevent the next steps necessary to ensure order fulfillment from starting.
Small storage area
Typically, fulfillment centers are not always gigantic. Therefore, too many orders placed simultaneously can make a center run out of inventory to meet customer’s demands.
Loss of control
There may be control issues when the third-party logistics mismanage inventory or fail to follow due protocol.
A poor logistics system would cause harm to your retail store and may ultimately disrupt your supply chain.
What is a Distribution Center?
A distribution center is a short-term warehouse that more giant retailers use to store their goods for future redistribution.
Distribution centers are great for order fulfillment because they connect business-to-business and serve as links for business-to-consumer.
Retailers love them for their fast and sophisticated automation, flexibility, and their sizeable in-house capacity. A distribution center will ship any of your products, big or small.
Here are examples of companies that have distribution centers include:
Walmart
Amazon
Costco
Target
UPS
FedEx
Pros of a Distribution Center
The core benefits of a distribution center include the following:
Time-saving
Distribution centers collate orders in bulk. Doing this bulk fulfillment saves time better than fulfilling orders one by one.
Reduced cost
Distribution centers overhead cost is minimized and optimized to give clients the finest shopping experience without exceeding the budget.
Big storage facility
A distribution center opens the door to more extensive inventory for your brand. They typically have a large in-house facility, taking under their umbrella various products, ranging from big industrial freezers to simple pairs of shoes.
Cons of a Distribution Center
The following are some of the inherent disadvantages of distribution centers:
Complex operations
You could quickly become fed up with the numerous complex automation that a distribution center uses to handle order fulfillment.
For example, one program controls order placing while another controls inventories. Other software handles picking and packaging, while others handle logistics and delivery.
Increased Risk
A distribution center is more vulnerable to dangers when it operates an ample storage space. If an accident occurs, much of your merchandise may be affected. Damages ranging from minor to major may spring up, and the center might shut down without proper care.
Increased Operational Cost
Technology-enabled distribution centers optimize order fulfillment and speed up workflow. These savvy technologies take a big chunk of your money. Additionally, you must factor in employee salaries, land usage fees, and advertisements into your total billings.
Lack of Specialization and Customization
You would only get a partial-dose customized experience in a distribution center. It’s no news that their facility takes on various products. Hence, they lack full specialization in the respective product range they fulfill orders for.
How do Fulfillment and Distribution Centres work?
To suit customer’s needs, fulfillment and distribution centers ensure that the supply chain remains unbroken. Their procedure looks like the image below.
Intake and storage of inventory
After the delivery of inventory to respective centers, the next step is to check and verify your items to ensure they are authentic. That’s crucial to reducing the likelihood of customer dissatisfaction with a defective product.
These centers use an inventory management system to prevent human error and hasten productivity. This software reduces the stress of marking, tabulating, and keeping inventory in a specific order.
Selection and packaging
The centers keep Items ordered in many areas. Moving back and forth across the center to pick them up can be challenging. An effective warehouse management system addresses this issue. They effectively place similar orders in a section so pickers can do more tasks quickly.
The warehouse management system generates a picking list. This list provides details such as the item’s name, the quantity ordered, and location in the center. In addition, when stocks get checked out of the shelves, this software gives a real-time synchronized inventory count and updates itself.
After picking them, the items are placed into the proper boxes and sealed with the “ready to ship” stamp.
Restocking
A successful and seamless workflow depends on having enough inventory to back up orders. Restocking is, therefore, essential, especially for a high-end and quickly-selling commodity.
Five out of every ten distribution centers have stockouts and backorders, which, if not adequately addressed, can drive your company into bankruptcy.
Most of the time, tech-driven centers use an inventory management system that not only aids in updating your inventory in real time but also prompts retailers on how much stock is available and when to re-order.
Returns management
Returns are handled quickly and effectively. Not only does this increase consumer pleasure, but it also significantly reduces logistical costs.
After getting a return, ensure that all procedures are followed and that the returned items are either returned on the shelves if they are resellable or otherwise removed entirely from the inventory.
Differences between a Distribution and Fulfillment Center
Even though both fulfillment and distribution centers work to get customer orders prepared and ready to go, there is a clear distinction between these two in the following categories.
| Characteristics | Fulfillment Center | Distribution Center |
Target market |
Fulfillment centers are customer-centric in their order fulfillment process. | A distribution center has a variety of target customers. |
| They act as a link between businesses and customers. | They can service and link one business to another and offer order fulfillment to customers. | |
| They pour all their efforts into ensuring optimum customer satisfaction. Due to this, they have a better customer support rating. | They need a more robust customer support relationship because their attention is constantly shared among many sectors. | |
Location |
Customers come first at fulfillment centers. | Distribution centers also need eyes on them. |
| You will often find Fulfillment centers on busy routes and major transportation sites. | Distribution centers are usually located close to important transportation hubs. | |
| The location strategy gears up customers and allows Retailers to reach out to more prospective clients at reduced shipping costs. | Distribution centers can be located in rural areas. Provided there is enough storage space to accommodate their extensive collection. | |
Customization |
Fulfillment centers are usually specialized in one niche of e-commerce retail business. | Distribution centers are generalized in their scope of e-commerce retail business. |
| Customization gives them an edge in providing more value-added services like personal branding and custom orders for customers. | It is tasking for them to provide additional branding and customization services to their long list of chores. They rarely offer these add-ons. | |
| An apparel fulfillment center like Globallyfulfill offers personalized services at a discounted price. | These centers only have a rudimentary knowledge of each of their product ranges. | |
Types and range of products |
A fulfillment center handles small to midsize products since their order fulfillment process is less tedious. | A distribution center has a wide range of products in-house. |
| Additionally, fulfillment centers monitor products like medical products that must be dealt with with the highest care. | Their array could cover virtually any aspect of e-commerce products. | |
| To give room for specialization, fulfillment centers usually narrow their product range. | Less time and attention is given to thorough handling of inventory because of their increased workload. | |
Volume of Shipping |
Shipping volume is comparatively lower in fulfillment centers as they seldom ship in bulk. | A distribution center accepts a more extensive variety of goods. |
| They have limited in-house storage space and a narrowed product range— small to midsize products. | This is evident in their high shipping volume. | |
| Their order rate is also lower as compared to the distribution center. | They have a more extensive audience base. Hence, they need to ship in bulk to cater to all their client’s needs at once. |
Which option is best for your retail store?
Now that you’re fully informed about the differences between a fulfillment center and a distribution center, it’s time to take the big step—choosing the one that will serve your retail brand. But first, you need to check and balance the following parameters:
Your Product Type
Your product type heavily influences your choice of center. Suppose your retail company specializes in shipping goods that are always in demand, like apparel, or need careful handling. A fulfillment center should be your preferred choice. A great agent like Globallyfulfill will do the tricks for you.
Average turnover rate
The appeal of online buying is not limited to having a customized experience. A quick and accurate turnaround is crucial. If your retail fulfillment store demands accuracy and rapid turnover, then you need a personalized and seasoned fulfillment center to run your errands.
Financial Budget
Your budget will have a significant impact on the center you choose. If you are just starting up your online retail store, it’s best to go for a fulfillment center because they offer your brand lower operational costs without sacrificing quality for quantity.
With a good center like Globallyfulfill, you will receive free storage for 30 days, after which we’ll charge you for space allocation at a reduced price. Our token benefits your budget by allowing you to do more while spending less.
Quantity of inventory
What is the size of your intended inventory?
This question is crucial in determining the right center for your brand. If you retail small to midsize products, then a fulfillment center is just what you need. Otherwise, if your retail is enormous and requires ample storage space, you might have to look into the distribution centers.
But even at that, Globallyfulfill has multiple warehouses worldwide. With this facility, we can adequately store your products without cramping them together in a tiny space. Also, we will efficiently handle your order fulfillment and ensure a smooth unbroken supply chain to the last mile.
Alignment of Purpose
You must carefully check the work ethics of the center you want to choose, be it a fulfillment center or a distribution center. Ensuring that their values align with yours will not only give you rest of mind but skyrocket your sales because they understand that a win for you is a win for them.
Final Words
Distribution and Fulfillment centers are essential for a seamless supply chain. They are implemented to transfer ownership of products from one stop to the other.
As an online retailer, you need to carefully read this article again to determine which option best fits your brand’s requirements. Find out which center aligns with your budget and which best enhances the reliability and visibility of your products.
Globallyfulfill dedicates time and effort to making life easier for e-commerce retailers.
We focus on providing one-stop order fulfillment services to global small and medium-sized online e-commerce sellers. We also offer an end-to-end solution to ensure that customers’ goods are stored, shipped, fulfilled, and delivered to them on time. Feel free to reach out to us today, we’d love to hear about your needs.
