Before the 21st century, the supply chain was significantly less complex than it is now. You could walk between aisles in a distribution center or warehouse and find that your experience was similar in both facilities.
In the past, warehouses and distribution centers were used for storing and shipping products. However, these facilities have changed over the years to account for alterations in the market.
If you’re setting up a new facility, understanding the difference between a warehouse and distribution center is necessary to determine which one is right for your business. The following is a comprehensive guide on how distribution centers and warehouses differ.
When you’re building an eCommerce business, you must identify how you will send your customers their orders. Even when an eCommerce business offers great products that meet customer needs, it won’t be enough to keep customers satisfied if the logistics and order fulfillment aspects of running a business are ignored. Businesses have two options at their disposal, which include warehouses and distribution centers.
Even though the terms “warehouse” and “distribution center” are often used interchangeably, they describe two highly different facilities in the modern order fulfillment industry. The purpose of this article is to explore the functions and differences in a manner that helps businesses make more informed decisions.
What Is a Distribution Center?
Distribution centers are warehouses or specialized facilities that are stocked with items that will be sent to retailers, wholesalers, or consumers. These centers are part of the order fulfillment process from the moment a customer buys an item. A distribution center allows for the receiving, temporary storage, and distribution of goods based on any orders that are made.
Even though distribution centers are commonly referred to as warehouses, it’s not always possible to refer to a warehouse as a distribution center. Warehouses must handle order fulfillment and order processing tasks to be a distribution center.
While there are several different types of distribution centers, many of them serve retail stores in order to provide a link between suppliers and customers. For instance, Walmart has numerous distribution centers that are designed to pick, pack, and ship goods that customers order line.
What Does a Warehouse Do?
Warehouses are buildings where all types of goods are stored. The main function of a warehouse is to store products, which is why it can be easier to manage a warehouse than a distribution center. These facilities have evolved as the industry has moved from traditional supply chains to modern supply chains. It’s commonplace for warehouses to take on more roles than simply storing items. For instance, pre-building inventory can be kept in warehouses to account for high seasonal demand.
For items to be kept in a warehouse, customers need to place or schedule orders. The warehouse will then receive these items before storing them on racks or shelves. All items that are placed in a warehouse are scanned and tracked before being picked and pulled once they need to be shipped out.
A warehouse is never used as a manufacturing plant or processing facility. The five steps in the warehouse cycle involve receiving, identifying, verifying, storing, and retrieving. Warehouses are most often used in airports, railways, and seaports. The most common piece of equipment that warehouses rely on is the forklift. It’s possible for warehouses to contain temperature-control functionality to protect perishable goods.
Key Differences between a Distribution Center and a Warehouse
There are some clear differences between modern distribution centers and warehouses, which include how these facilities function and how long goods are stored in them.
Storage vs. Value-added Services:
Warehouses focus on storing products. In comparison, distribution centers provide additional services that include everything from packaging and fulfillment to product mixing.
A distribution center serves as a direct connection between suppliers and their B2B customers. This is where items and products are packaged before being sent to customers. Warehouses often serve B2B customers but can also serve some B2C customers.
Duration and Flow Velocity:
Warehouses usually store goods for a longer duration. In comparison, distribution centers store goods for shorter periods, which results in a high flow velocity when goods are moving from storage to a retail store before getting to the customer.
Complexity and Technology:
The operations in a warehouse are less complex and intricate when compared to a distribution center. In most cases, warehouses don’t have as many functions. Distribution centers are equipped with advanced technology and are tasked with handling warehouse management, transportation management, and order processing.
Fulfillment Centers: A Subset of Distribution Centers
Fulfillment centers are third-party logistics (3PL) facilities. These centers are oftentimes tasked with processing, receiving, and shipping orders for eCommerce retailers. You have two options when it comes to managing inventory. You can choose to either receive goods before shipping them to your fulfillment center or request that the manufacturer send these goods to your center directly, which means that you wouldn’t need to receive them in another location.
Fulfillment centers play an important role in making sure that items are delivered in an efficient manner. They also accommodate strategic product storage for quick order picking after a customer makes an online order. A fulfillment center can send orders to customers directly and is capable of processing high volumes of items.
Keep in mind that retail and eCommerce orders are usually shipped directly from fulfillment centers as opposed to warehouses. While any excess products can be stored in your warehouse, you should always have at least some of your inventory in a fulfillment center to keep backlogs from developing. A couple of the more popular fulfillment centers are FedEx Fulfillment and Amazon Fulfillment Center.
Choosing Between a Distribution Center and a Warehouse
Before you choose to obtain a distribution center or warehouse for your business, there are numerous factors you should consider, which include everything from storage needs to order fulfillment requirements. If you opt for a warehouse, this facility will mainly be a place where you store products before they are shipped to distribution centers or fulfillment centers. Distribution centers allow for cross-docking and many other value-added services.
If you need to store items for an extended period of time, it’s best to do so at a warehouse. Distribution centers strive for a high flow velocity, which means that item storage is temporary. There’s no exact rule you can use to identify which facility is right for your company. In order to make a decision, identify your specific needs before weighing the pros and cons of both options.
Pros and Cons of Fulfillment Centers:
Fulfillment centers have many advantages that aren’t available with standard warehouses or distribution centers. These benefits include:
- Warehouse space is freed up to provide more room for the rest of your inventory
- Goods are delivered directly to customers
- Personnel are trained on how to receive and handle inventory
- Workers can pick and pack your goods without issue
- These facilities are located nearby customers to accommodate fast delivery times
- Kitting and assembly services are oftentimes available
- Shipments are usually labeled
- You may have access to custom packaging
- You’re able to focus on your company’s growth if you outsource fulfillment services
- Reverse logistics services are available
- Fulfillment centers rely on automation to facilitate efficiency and transparency during the fulfillment process
Some of the issues with using a fulfillment center include:
- Limited storage space, which means that an additional warehouse is necessary
- Products are only stored for a short period of time
- Costs are higher when storing unsold inventory
- Bulk shipping isn’t usually provided for larger amounts of goods
- These facilities are more expensive in comparison to distribution centers as a result of their value-added services and ideal location
Pros and Cons of Distribution Centers:
If you’re thinking of having your items delivered with a distribution center, there are pros and cons to this type of facility. The primary advantages include:
- Ample warehouse space is available for storing sizable quantities of your inventory at the same time
- Large product quantities are delivered from one business to another
- You can place your inventory nearby your target market
- Long-term storage is available without incurring high costs
- These facilities are usually more affordable in comparison to fulfillment centers
- Most suitable for items that don’t need individual packaging or finishing
Some of the drawbacks to using a distribution center extend to:
- Orders are shipped less frequently since these items are typically shipped in bulk
- Goods are usually delivered to you on pallets instead of being packaged at the distribution center
- Shipments often take longer because the centers are further away than their target markets
- There aren’t as many value-added services at your disposal
- More difficult to interact with your customers
To maintain supply chain efficiency, it’s highly recommended that you understand the many differences between distribution centers and warehouses. In modern supply chains, warehouses are mainly used for storage purposes, while distribution centers focus more on delivering products to customers.
In modern supply chains, distribution centers have partially evolved into fulfillment centers that offer more services and usually package items before they’re shipped out. When you’re choosing between these two options, you need to consider your specific business needs if you want to make the right decision.