Fulfillment Center vs. Warehouse: Making The Right Choice

Fulfillment Center vs. Warehouse: How to Make the Right Choice for eCommerce

As an eCommerce business owner, choosing the right fulfillment solution for your company is perhaps one of the most important decisions you will make. In many ways, the success of an online business hinges upon the quality of its logistics operation. The stronger a company’s fulfillment process, the stronger the company – and the greater its capacity for future growth.

That being said, the world of shipping and fulfillment can be overwhelming to navigate, especially for those who don’t have much experience in the field. It’s critical to have a solid understanding of your options in order to make the right choice for your eCommerce business. On the whole, entrepreneurs should always strive to strike a balance between cost-effectiveness and efficiency. The goal is to guarantee the seamless flow of products to consumers – without a painful price tag that will hinder a company’s financial health.

To help make your decision easier, we’ve compiled a guide that distinguishes between the different logistics solutions available; namely, fulfillment centers versus warehouses. Both come with pros and cons, but one might be far better for your specific business needs. Keep reading to learn more!

Understanding Warehousing Solutions

Warehousing solutions typically involve the storage, management and distribution of goods for businesses. While warehousing solutions can vary in services offered, they all provide a physical space in which products are stored, as well as the accompanying technologies and systems designed to streamline the movement of goods. Some warehouse solutions are most robust than others; for instance, beyond simply storing products, some warehouses also manage inventory, order processing and other logistical needs. But this is not the case across the board.

Business owners need to decide whether they want to establish their own warehouse storage facilities, or outsource to a third-party logistics provider. In order to make that decision, there are a number of factors that must be considered.

For one, eCommerce business owners should consider the size and scale of their business. Small business owners are generally better off outsourcing shared warehouse space, as it allows for less risk and commitment, and they can forgo the costs associated with owning and maintaining a storage facility. On the flip side, big businesses may prefer to operate their own warehouses, as it gives them greater control over the logistics process and could potentially lower costs.

The Role of Warehouses in eCommerce

Not all warehouses are created equal – while some are expansive and offer a suite of services, others are much smaller scale. As a result, their role in the eCommerce world can vary greatly. Generally speaking, though, warehouses play an essential role in the supply chain, and they serve as centralized hubs for storage, organization and the distribution of goods.

Some of key purposes of warehouses are as follows:

Storage and inventory management: At its core, a warehouse is about storage. Its purpose is to provide a secure space for storing goods. Depending on the type of warehouse, they might also be able to help businesses manage inventory efficiently.
Order fulfillment: Warehouses are critical to the order fulfillment process. Not only do they store the goods, but in many cases, warehouse staff are also responsible for picking and packing products, as well as shipping them to customers. Again, this depends heavily on the services offered by the warehouse.
Order consolidation: Warehouses allow businesses to consolidate orders from several sources, which reduces shipping costs and can improve overall order accuracy.
Economies of scale: Shared warehouses generally get preferred rates from postal service providers, which can lead to cost saving benefits for businesses.
Size and capacity: There are a range of different warehouse sizes that can accommodate a wide range of business needs. Larger retailers tend to opt for larger warehouses for obvious reasons.
Geographical expansion: For businesses hoping to expand beyond a single city, it’s useful to have storage facilities in multiple locations. This will reduce shipping costs and improve delivery times.

Costs and Considerations of Warehousing

As with anything in business, there are significant financial considerations when it comes to warehousing. Leasing warehouse space can be expensive, and it’s important to grasp what the cost entails.

The foremost financial consideration when leasing warehouse space is monthly rent. This cost will vary based on location, size and services provided. In conjunction with rent, there are other utilities and operating expenses that are inevitable. Rate hikes are also always a possibility, so make sure to prepare for that when you’re budgeting.

For those with small businesses that require minimal storage, you could consider self-storage facilities as a cost-effective solution. If you choose to go down that path, you should emember: these facilities are not designed for high-volume eCommerce operations. That being said, if your storage needs are minimal, this could be a good call for you.

We also encourage businesses to consider shared warehousing options, which involves sharing storage facilities with other businesses. This will lead to reduced costs.

The Dynamics of Fulfillment Centers

The central difference between warehouses and fulfillment centers is that while the baseline function of warehouses is to simply store inventory, fulfillment centers are actually responsible for moving products from point A to point B. Fulfillment centers play an essential role in the order fulfillment process.

In short, a fulfillment center is a facility that is strategically structured to manage storage, processing and shipping of goods – usually for eCommerce businesses.

Functions of a Fulfillment Center

Unlike warehouses, fulfillment centers are heavily involved in handling various eCommerce business functions, from receiving inventory to managing returns. The central responsibilities of a fulfillment center can be broken down into receiving and inventory management, order processing, picking and packing, shipping and logistics and returns processing.

Receiving and inventory management involves carefully cataloging all inventory, and tracking it in a sophisticated management system. This function is essential for B2B orders, in particular, since businesses tend to order products in bulk quantities, and it’s important to be able to track all inventory.

Once a customer places an order online, the fulfillment center is then responsible for processing that order. This can sometimes involve the coordination of multiple items. Then, fulfillment center staff will pick and pack each order, including invoices, packing slips and any promotional materials.

After an order has been properly prepared and packaged, fulfillment centers will then deal with all shipping and logistics. They’ll coordinate with shipping carriers to transport packages to their final destination. Plus, fulfillment centers manage returns processing – which means they inspect any returned items and record it in inventory records.

Like warehouses, there are all sorts of fulfillment centers that offer a range of different services. At a minimum, though, they are not only responsible for storing goods, but also moving them from place to place. For eCommerce business owners, fulfillment centers play a key role in ensuring the logistics process runs perfectly. They assist with speed and efficiency by expediting the order fulfillment process, and their streamlined operations lead to improved customer satisfaction. If your goal is to grow your business, outsourcing your company’s logistics to fulfillment centers allows for significantly greater scalability and flexibility.

The Advantages of Using Fulfillment Centers

There are numerous benefits of using fulfillment centers, particularly if you’re a fast-growing eCommerce business looking to scale operations. Key advantages include cost-effectiveness and efficiency – but perks are certainly not limited to that.

Outsourcing inventory storage at a fulfillment center eliminates the need for businesses to manage their own warehouses, and offers them secure and organized storage for inventory. This significantly lessens the operational burden on businesses, allowing company leaders to focus more intently on strategic growth.

Using a fulfillment center also streamlines the entire logistics process, which means eCommerce businesses can have faster order processing times, leading to improved customer satisfaction.

Generally speaking, small eCommerce businesses – particularly those that are just starting out – don’t have much expertise when it comes to logistics. Fulfillment centers, on the other hand, have highly sophisticated systems in place that make fulfilling orders much more seamless. Using a trusted fulfillment center for your logistics needs ensures you are staying abreast of industry best practices, and conducting logistics in the most accurate, reliable and efficient way possible.

Risk mitigation is a big deal in the world of eCommerce, and it’s not always easy for a business owner to put out logistics-related fires – and trust us, there are plenty of them. Working with a fulfillment center can often reduce risks associated with inventory management, order processing errors and other shipping challenges. Fulfillment centers are well-equipped to tackle the everyday obstacles of the logistics world – which means there will be less logistical hiccups as you focus on growing your business.

Choosing Between a Fulfillment Center and a Warehouse

Of course, every eCommerce business is different and has varying needs, so there is no one-size-fits-all logistics solution. Many eCommerce business owners debate between a fulfillment center and a warehouse, and there are a few key factors to keep in mind when making the decision.

Business size: How big is your business? This is a critical question to consider when choosing between a fulfillment center and a warehouse. While warehouses can be suitable for varying business sizes, they can’t always accommodate bulk storage, and they don’t necessarily offer scalability. If you’re looking to grow your business fast, fulfillment centers simplify the scaling process.
Inventory management: For the most part, warehouses offer a physical space for product storage, but they do not necessarily have advanced systems for tracking the real-time movement of products. Meanwhile, fulfillment centers are adept at inventory management and real-time tracking. They often utilize the most advanced technology for inventory control, so you can always stay up-to-date on your company’s inventory data and records.
Order fulfillment: Warehouses are suitable for businesses shipping out simple orders, but they certainly do not offer advanced packing and shipping services for complex orders. Fulfillment centers specialize in end-to-end order fulfillment, and are responsible for picking, packing and shipping orders as well as dealing with returns.
Responsibility: While warehouses are suitable for businesses with a focus on bulk storage and centralized distribution, it is essentially up to the business to manage their own fulfillment and logistics. Meanwhile, fulfillment centers manage all logistics needs for eCommerce businesses.
Shipping times: Warehouses typically have longer shipping times, whereas fulfillment centers are known for offering fast and reliable shipping. Warehouses generally do not support same-day or next-day shipping, while fulfillment centers are able to easily accommodate expedited orders.
Customer service: Since fulfillment centers deal with all logistical needs, they offer additional customer service support to eCommerce businesses, and field inquiries related to order fulfillment and shipping. On the flip side, if businesses choose to use a warehouse rather than a fulfillment center, they will be responsible for fielding all questions from customers related to shipping and fulfillment.
Geographical reach: Fulfillment centers often partner with a strategic network of similar centers to allow for efficient regional and global distribution of products. Meanwhile, if eCommerce businesses opt for a warehouse rather than a fulfillment center, they may need to find multiple warehouses in different locations to be able to ship to distant locales.
Cost considerations: Naturally, cost is a major consideration when choosing between a warehouse and fulfillment center for your logistics needs. For the most part, warehouses involve lower ongoing costs for storage, however, fulfillment centers eliminate the need for substantial upfront investments in infrastructure and inventory management technology. Prior to deciding on a warehouse or fulfillment center, it’s useful to shop around for options and compare the different costs.

Conclusion

The importance of selecting the right logistics facility for your eCommerce business cannot be overstated. Ultimately, an online business cannot thrive if it doesn’t have stable and dependable shipping solutions.

Choosing between a warehouse and a fulfillment center depends heavily on the unique set of goals and circumstances of each business. Key factors such as company size, inventory dynamics, order fulfillment complexity and cost considerations are essential to keep in mind in order to make the right choice for your eCommerce business.