What is a Fulfillment Center?
A fulfillment center is a physical location where a third-party logistics (or 3PL) provider fulfills customer orders. It provides storage, packing, and shipping services combined, ensuring that customers get their products on time. They free up lots of time and bandwidth for your organization, allowing you to focus on your business strategy. Whether that is a focus on marketing, sourcing new wares, or optimizing your company for efficiency is your choice. A fulfillment center is especially useful for companies that:
- Need space for more products. If your online store lacks the physical space for more inventory, a fulfillment service can be a smart solution and cheaper than a brick-and-mortar store or warehouse.
- Want to expand into new markets. If you are expanding your reach in an effort to increase your sales, a fulfillment center in a new country can act as a basecamp. The fulfillment center will handle the shipping and regulations, while you focus on promoting your brand in the new market.
- Want to focus on core competencies. Shipping and packing are difficult for a small company to efficiently manage. Balancing your obligations with your ongoing work to expand your company’s scope can be an exhausting juggling act. The majority of product-based business owners prefer sourcing products, creating new ones, strategizing or pitching to shipping. A fulfillment center can handle the practicalities while you look at the big picture.
- Need to reduce costs. A fulfillment center costs significantly less than renting and staffing a warehouse. You have greater flexibility and don’t need to worry about managing a larger workforce.
A warehousing solution stores stock for an extended period of time. It is a large space designed to house inventory in bulk. Shelves are stacked high and stocked with substantial quantities of products. They need to be managed with equipment like containers and forklifts. They aim to provide services for businesses that fulfil wholesale or B2B orders in bulk. Larger retailers will have their own warehouse space(s) for storing excess inventory. Others will rent space in a warehouse they share with other businesses. This is the option preferred by small to mid-sized retailers, as it is more cost-effective than buying their own space.
In contrast, a fulfillment center fulfills customer orders in a timely fashion, with strategic storage of inventory for various businesses in readiness to fulfill customer orders. When a shopper completes an online order, for example, the inventory is picked, then boxes packed and labeled for shipment. Fulfillment centers are at home with large B2B (business-to-business) orders and individual B2C (business-to-consumer) orders. The center manages its clients’ inventory and negotiates shipping rates on their behalf.
There are two main distinctions between warehousing and fulfillment centers. Warehouses store large amounts of stock over long periods. Fulfillment centers are intended to turn inventory over quickly. Stock should not sit in a fulfillment center longer than a month, otherwise warehousing fees will mount up. Sellers must be conscientious about ensuring that the fulfillment centers have enough product on hand to efficiently fulfil their shipping requirements. It is a tight rope to walk between too much and too little store inventory, but the advantages of choosing a national or international network of fulfillment/distribution centers are manifold: reduced shipping costs, less time in transit, and potentially, exploitation of shipping zones.
The second distinction between warehouses and fulfillment centers is the operations that occur. Warehouses are static. Fulfillment centers are more complex with many moving parts. Fulfillment centers are constantly receiving inventory, picking products, kitting and assembling items, packing boxes, labelling shipments, shipping orders, and managing returns. Warehouses receive and transfer out inventory.