Warehouse and Fulfillment Basics: Fulfillment Centers, Warehouses, and Distribution Centers

January 10, 2024
5 min read

Learn the difference between a fulfillment center, warehouse, and distribution center and how they all work together to build an efficient fulfillment network.

What Is a Fulfillment Center?

A fulfillment center (FC) is a large warehousing facility that is often run by a third party logistics (3PL) company. Inventory is received, put away, and stored by the fulfillment center until it’s ordered. When the fulfillment center receives an order, they pick, pack and ship the product to the end customer.

Typically, the inventory in fulfillment centers is high-velocity because it’s not intended for long-term storage. The longer inventory sits on the shelf, the less profitable it is for both the merchant and the fulfillment center. Eventually, this could become dead stock.Of concern, warehouse vacancy rates have fluctuated wildly for several years. Therefore, managing inventory and  prioritizing high-velocity SKUs is more important than ever. According to 2023 warehousing data, national rents increased over 7% between October to November alone, and the national vacancy rate was merely 4.6%.

Types of Fulfillment Centers

Different product types have different warehouse and fulfillment requirements. Fulfillment centers sometimes specialize in certain product types, including :

  • Big and bulky: Heavier products can be difficult to handle and therefore require proper equipment and trained labor. They also require special racking and storage techniques.
  • Small picks: Small products like electronics and jewelry need to be stored in a way that minimizes loss and picked in a way that minimizes mis-picks.
  • Temperature controlled: Large fulfillment centers are not usually equipped with air conditioning or heat. Some products can withstand a wide range of temperatures, but things like cosmetics and certain electronics need to be stored in a temperature controlled facility.
  • Climate controlled: Climate controlled facilities have temperature control and humidity control, which is often a storage requirement for products like pharmaceuticals and vitamins.
  • Cold chain: Perishable food items must be stored in a refrigerated facility referred to as a cold chain fulfillment center.

Stores as Fulfillment Centers

The explosion of ecommerce and decline of in-store shopping in 2020 led many retailers to fulfill ecommerce orders directly from their stores. This required some reorganization and retraining of employees, but retailers like Target turned their store footprint into a competitive advantage.

According to a report by McKinsey, shoppers expect an omnichannel experience and do not differentiate between sales channels. Target’s ability to pivot into fulfillment centers enabled them to offer options from home delivery to curbside pickup. Ultimately, this ensured Target could meet consumer expectations for fast shipping.

What is a Warehouse?

Often, the terms warehouse, fulfillment center, and distribution center are used interchangeably. The term warehouse simply refers to the facility in which the products are stored. A warehouse is referred to as a fulfillment center or distribution center based on its capabilities.

Learn more about warehousing and warehouse strategy with our 2024 Guide To Strategic Warehousing:

What is a Distribution Center?

A distribution center acts as a hub within a network of fulfillment centers. For foreign-manufactured products, a distribution center is often the first stop inventory makes when it lands stateside.

In a hub and spoke fulfillment model, distribution centers inventory and strategically feed it to fulfillment centers around the country. This model provides both fast-growing  brands and established retailers greater control over inventory distribution. For example, when sales tick up in different parts of the country the hub and spoke model decreases the risk of stockouts. Similarly, the hub and spoke model lowers risk for making long-zone shipments when demand spikes suddenly.

Ware2Go’s Warehouse and Fulfillment Network

Ware2Go, a UPS company, has a diverse network of warehouses, fulfillment centers, and distribution centers across the United States. By aggregating multiple clients’ inventory and daily shipping volume with on-demand warehousing, both emerging brands and large-scale retailers to secure space in top-tier 3PLs and warehouses.

Using machine learning and AI, Ware2Go’s network optimization tool, NetworkVu, shows Operations and Logistics Managers exactly where to place their inventory in order to get closer to their end customers. This lowers time in transit (TNT) on final mile deliveries for faster, more affordable shipping.

For more insights on fulfillment, warehousing, and final mile delivery, sign up for Ware2Go’s newsletter below:

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