Maybe your company is a startup that launched by shipping products from your garage or a spare bedroom. But success means those kinds of solutions don’t work for long. At some point, growing companies need to tackle inventory and fulfillment in a real, efficient, and cost-effective way. That leads to consideration of two options, and the question for many is Warehouse or Fulfillment Center: What’s the difference?
We’ll answer that question by covering the following topics:
- What is a warehouse?
- What is a fulfillment center?
- What are the differences?
- What is the best option for your company?
What is a warehouse?
This isn’t exactly a news flash, but a warehouse is a place to store products.
Warehouses are now used mainly by companies that need to always have stock on hand, and can’t rely on a supply chain management process that includes Just-in-Time Inventory. Despite the required investment in technology, infrastructure, and staff, organizations with their own warehouse see real benefits by having available inventory and having direct control of this part of the supply chain.
Inventory in a warehouse is relatively static. That’s why it’s not ideal for eCommerce fulfillment, but used for regular, scheduled, less frequent shipments using large-scale freight carriers. Companies that only work with brick-and-mortar trading partners and manage all orders with EDI often find that a warehouse is their best option.
At a true warehouse, orders are wrapped in bulk, often on a pallet, without the shipping labels required for online orders that are shipped directly to the consumer. To put it another way, large orders of the same product are the best use of warehouses.
What is a fulfillment center?
A fulfillment center is the physical location used by a Third-Party Logistics(3PL) provider to get orders out to online buyers. By working with a fulfillment center and a quality 3PL service, brands and suppliers can outsource the management of a process that is vitally important but often difficult. Instead of being forced to make a significant upfront investment in technology and infrastructure, brands and suppliers can pay recurring fees to the 3PL.
Working with a 3PL and its fulfillment center means that your inventory is stored at their location in amounts that make sense, and you get real-time updates about stock levels. When an order comes in, it is sent to the 3PL to be picked, packed, and shipped.
When working with a 3PL, it’s not cost-effective to keep endless inventory at their facility since you’ll be charged for the space. Don’t think of your fulfillment center as a warehousing service because while it is a physical space, you want your products to spend as little time as possible in it. It’s also important to have an EDI and order processing platform that is easily integrated with the system offered by your 3PL provider and used at their fulfillment center.
To manage the process for both customer satisfaction and financial benefits, companies should closely monitor demand and production. When this is done well, inventory can be maintained at levels that make it possible to ship orders in a timely fashion without spending unnecessarily to store products.
What are the differences?
A fulfillment center is meant to turn inventory over quickly. When used efficiently, stock spends as little time as possible at the physical location. Products arrive and are shipped out to fulfill eCommerce, direct-to-consumer orders. With a state-of-the-art fulfillment center, companies can rely on their 3PL to deliver hundreds or thousands of orders to multiple addresses, and drive customer satisfaction by doing it in a timely and efficient way.
While the footprint of a warehouse is generally the same as a fulfillment center, it doesn’t have the technology infrastructure to meet the demands of direct-to-consumer shipping. Instead, a warehouse is used as a long-term storage solution, usually holding inventory for extended periods, making large-scale shipments to a single address.
What is the best option for your company?
Start by considering the differences between warehouses and eCommerce fulfillment managed by a 3PL provider. And then analyze the supply chain process of your company.
- Is eCommerce business a major driver? Or are your orders exclusively through EDI and shipped to brick-and-mortar retailers?
- Are you shipping single orders to multiple addresses—the direct-to-consumer model?
- Do you get single orders from both your own eCommerce store and the sites of your retail trading partners?
- Are most of your orders multiple items, shipping to a single destination like a store or a trading partner distribution center?
- Do you have flexibility on ship times or do you need items to arrive in a specific window of time?
Clearly, the decision comes down to what kind of business you run right now, and what you want it to look like in the future. As eCommerce orders grow, some companies will retrofit their warehouse with fulfillment center technology. Just remember that it can be a significant upfront investment, and that the skill set of your team is probably different from the expertise of experienced 3PL providers.
Analyze your fulfillment costs carefully, and factor that into any decision. Can you actually save staff time and money by outsourcing? You also have to consider customer satisfaction. If you choose to use a fulfillment center, you will be paying a 3PL provider a monthly or annual fee. But it’s a worthwhile investment if the result is greater customer satisfaction, because happy buyers will shop with you again.
Today’s consumer is an impatient one—expectations about the arrival times of online orders are extremely high.While saving money and handling fulfillment in-house may fit with the bootstrapping philosophy that helped drive your growth, weigh that against the value of experts managing the process for you.
Finally, remember that 3PL providers operate in a competitive marketplace—analyze the key offerings of each one you consider. Some will focus on a specific industry, others will offer the benefit of sheer size, and some will provide tools that fit your needs extremely well. Your EDI provider should also be able to offer some helpful insight, and help you find a 3PL that can handle both EDI and online order processing.
Whatever route you choose, remember that needing great solutions for EDI, order processing, and fulfillment is a sign of success. There is demand for your products, and high volume sales. Congratulations!
