The terms fulfillment center and warehouse are often used interchangeably in discussions that involve logistics and supply chain management. However, based on the circumstances, each term can mean something completely different. This article describes the purposes and functions of each and will help you choose the option best suited to the unique requirements of your business.
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Warehouse
A warehouse is a cost-effective storage facility for inventory. It is a large industrial space or facility where merchandise is kept before distribution. Warehouses often have large shelves, containers, storage bins and pallets filled with products identified through their unique SKU (stock keeping unit). They are also outfitted with equipment such as forklifts used to move inventory within the facility.
Manufacturers produce goods with the expectation of a specific level of demand. However, whenever the products don’t perform as anticipated, it is necessary to keep what can’t be sold in a secure location. Warehouses store such merchandise for future use.
Warehousing providers typically work with large volume wholesale or Business-to-business (B2B) orders. Also, some e-commerce platforms own and run warehousing facilities to store excess inventory until it’s needed, while others rent out warehouse space depending on their particular needs.
Depending on location, renting warehouse space is usually the practical choice for small and medium-sized enterprises that need low-level order fulfillment. Startups or smaller sellers may choose to lease space if it is affordable, and they don’t have in-house fulfillment facilities for their inventory.
Fulfillment center
A fulfillment center is a facility where a third party logistics company completes customer orders received through an e-commerce store. It is usually bigger than a typical warehouse and has a broader scale of operations. Its primary purpose is to deliver orders to the customers and help sellers manage fulfillment operations.
Fulfillment centers lie at the heart of all logistics activities required to deliver a seller’s product to the client’s doorstep, a process known as order fulfillment.
Inventory is conveniently kept at a third-party logistics fulfillment center in preparation to fulfill customer requests. After a customer makes a purchase, the purchase is taken from the fulfillment center, packaged and then readied for transport. Unlike other order fulfillment systems, business-to-consumer (B2C) orders fulfilled by a third-party logistics provider are often delivered directly to the client’s home.
Fulfillment centers also process B2B orders. Often, this involves a high volume of products sent to larger retailers. Once a seller delegates product fulfillment to a third-party logistics provider, the company will handle the entire fulfillment process on the seller’s behalf. It will manage the storage, reception, and packaging, kitting and shipping of all orders received. The seller’s fulfillment partner may also negotiate lower shipping rates, and accommodate high volume orders.
Hiring a third-party provider improves customer satisfaction, time management, and makes it easier to handle inventory. Modern third party fulfillment companies use the latest technologies for their operations. Their approach facilitates the capture and documentation of the order fulfillment process in real-time. Each customer order is automatically sent from the e-commerce shopping cart to a fulfillment center to get packed and shipped. Once the order reaches the shipping team, both the seller and customer receive tracking updates for accountability. This information keeps customers satisfied and helps the business collect data to evaluate its performance.
The key differences
As stated at the beginning of this article, though many use the terms fulfillment center and warehouse interchangeably, there are several notable differences between them.
Duration of storage
The primary purpose of a warehouse is to store inventory, usually for long periods of time. In contrast, a fulfillment center aims to improve the customer experience through optimization of the order delivery process.
Although warehousing is an essential part of order fulfillment, the primary function of a fulfillment center is to handle the various processes that occur between the time a buyer places an order and the time it arrives at their address; inventory will not last more than 30 days at a fulfillment center.
Though it is possible to keep merchandise there for longer, it would be considered long-term storage, and most fulfillment centers will exact a higher warehousing fee. Ideally, the seller and fulfillment center work together to manage inventory levels because the seller must maintain a sufficient stock level relative to order frequency.
Traditional warehouses are limited to storing inventory. Fulfillment centers, on the other hand, are entirely different because they offer additional facilities that aren’t directly related to storage. Besides warehousing, order fulfillment centers will;
- receive inventory
- pick inventory
- kit orders
- package orders
- prepare shipping labels
- ship orders to customers
- manage returns
In warehouses, activity only occurs when stock is added or shipped out. There aren’t any additional facilities.
Frequency of pickups
Third-party logistics providers often have strong partnerships with several shipping companies. Since a fulfillment center operates in such a manner as to process B2C and B2B orders the moment they are placed, they need several companies to pick shipments at least once each day. This strategy helps ensure customers get their orders on time.
Depending on how sellers want their products shipped, the carriers may need to quickly pick orders with special delivery times such as same-day or next-day delivery. On some occasions, carriers will have a regular schedule for pickups, for both international and domestic shipments. Most fulfillment companies have a cutoff time for orders depending on the customer’s delivery preferences.
In contrast, a warehouse will have less frequent pickups, since it is more effective to send out all inventory at the same time, irrespective of the customers’ preferences. Furthermore, the freight companies that partner with warehousing providers typically set specific times to pick orders, and this affects delivery time as well.
The right choice for your business will depend on which services are more critical. Warehousing may prove more beneficial if longer storage times are required or if your company already has an internal order fulfillment strategy. On the other hand, if you have a large order volume and need a quick turnaround, working with a fulfillment center is likely the better option to help grow your enterprise.
