Distribution Center vs. Fulfillment Center: What is the Difference and What is Best for Your Company?
Distribution and fulfillment centers are terms that are frequently used interchangeably, but they are not the same thing. While they look similar on the surface, as they both have warehousing space and shipping services available, their target customer is quite different. You work with a fulfillment center when you want to ship your products directly to consumers, such as from an eCommerce store. A distribution center, on the other hand, sends your products or components to retail partners and other businesses. Whether you need distribution services or fulfillment services depends on the size of your business, the type of products you offer, and your current needs. Third-party logistics providers may offer one or both services, so your main focus is understanding which one benefits your business model the most.
Are you primarily selling your products in retail stores and similar sales channels, or create components that other businesses use in their own products? A distribution center service facilitates fulfilling B2B orders, and typically handles larger shipments at a slower pace. The location of the distribution center is less critical than a fulfillment center, as businesses have different expectations and needs of how soon their orders arrive.
They have the facilities to store large quantities of your inventory, due to the average size of each shipment. The long-term storage expenses tend to be lower than fulfillment centers since the warehouse space doesn't need to be in shipping hot spots and the shipping cycle is longer. You still have your inventory close to your biggest business customers if necessary, but there's more flexibility.
Your goods should be ready to go from storage to shipment without any additional steps needed. While some distribution centers may offer value-added finishing services, it's much more typical to see that in a fulfillment center. These products should also be in a form that's set up for bulk shipment, rather than needing to be individually picked and packed. The typical way that they're loaded onto the truck is on palettes.
Distribution fulfillment services make it possible to scale your business up when you begin hitting a wall on direct to consumer sales. You can get out large quantities of your inventory to your retail sales channels, which is excellent for businesses that are looking to expand the markets that they sell in and continue to grow. Since they mostly work with larger-scale businesses, they tend to have fewer clients, which mean you get more individual attention. It's also harder to introduce mix-ups into the orders since they're such large quantities of the same types of product.
Fulfillment services handle your B2C needs by picking, packing, and shipping your products out to individual customers. Fast shipping is an expectation that most consumers have for the companies that they do business with, so the third-party logistics provider will have fulfillment centers set up where they can speed up the average shipment time. You also have a lot of flexibility in the shipping speed and types of shipments that you can make available to your customers. For example, people willing to wait for their packages can get standard delivery speeds, but those who need their orders more urgently can get next-day and two-day shipping.
Kitting, custom packaging, assembly, and other services are available at fulfillment centers. When you outsource this work to a fulfillment center, you get more resources to focus on your core business competencies. In some cases, you can even have the third-party logistics provider handle customer support for order and shipment related issues. They can also handle returns and refunds.
Since a fulfillment center deals with smaller-scale and individual shipments, the way it handles inventory is much different than a distribution center. It's set up for short-term storage and in more limited quantities. You're not typically able to send out bulk shipments via a fulfillment service, as they don't have the infrastructure in place to handle that kind of operation. The cost for inventory that sits in their warehouses for a long time may also be higher than a distribution center. In general, you're going to pay more overall for the fulfillment center, since they have a broader range of services and are much more hands-on with your products and packages. Their locations overhead can be more expensive, since they need to be located in prime shipping areas to ensure speedy delivery to your customers.
Many eCommerce companies work with an eCommerce fulfillment service so they can keep their overhead relatively low. Since they may not have their own warehousing space, assembly line, or customer service department, they leverage the third-party logistics company's resources for these critical duties. Few things cause customer complaints more often than inventory that is out of stock, and slow shipping speed. The fulfillment service can ensure that those situations are few and far between, due to the specialized staff and infrastructure that they have in place.
Larger businesses or those that rely heavily on retail sales partners will probably work best with a distribution center. You can handle your large-scale shipments without needing to invest the capital into the infrastructure that's needed to do it in-house. They have a system in place for handling bulk shipments, as well as a deep familiarity with the B2B market.
In some cases, it may make sense to work with both distribution and fulfillment services. You can look for a third-party logistics company that has both available, in order to keep everything coordinated and to ideally take advantage of the scale of your project for lower costs. Either way, distribution and fulfillment services can offer a transformative impact on your shipments and customer experience.