Distribution Center

The distribution center is stocked with the products or goods to be distributed to wholesalers or resellers, or in some cases, directly to the end customers. It is a component of the supply chain network wherein goods are stored and dispatched to customers or a company’s specific locations. Generally, distribution centers move vast volumes of products. Their fulfillment targets are usually large retailers or fulfillment centers. Now let’s learn what a distribution center is.

Distribution Center in E-commerce

What is a Distribution Center?

A distribution center is a specific warehouse that functions as a hub to purposefully store finished goods, simplify the picking and packing process, and directly ship goods to another location or final destination. The distribution centre concept is repeatedly used interchangeably with the term ‘fulfillment center’. Distribution centers deal with order fulfillment and other value-added services.

Distribution Center in E-commerce

Warehouse Vs. Distribution Center Explained

Many people think ‘Distribution center’ and ‘warehouse’ are identical terms, but there are significant differences between them. Let’s first review each of these terms and then look at the distribution center vs warehouse.

A warehouse only stores inventory (usually on a long-term basis), whereas a distribution center is a facility that temporarily stores goods until orders are fulfilled and then delivered to their next or final destination.

The following points explain the difference between warehousing and distribution.

Storage management

Warehouses provide inventory storage. Typically, a traditional warehouse is a vast industrial building with inventory shelves. Certain retailers will own or rent a warehouse to store merchandise. Alternatively, they control a co-warehousing space that enables multiple businesses to keep inventory and only utilize the required area.

On the other hand, distribution centers operate more actively. Typically, they are managed by third-party logistics (3PL) companies that provide distribution warehousing solutions and fulfillment capabilities. When the inventory is held in a distribution center, it organizes the fulfillment process and efficiently ships orders to customers.

Shipping workflows

Commonly, warehouses don’t provide shipping solutions and services for the shipment of each order to end customers or retailers. You might have to arrange for consignment if you want to bring out inventory from a warehouse.

On the other hand, distribution centers collaborate with leading shipping carriers that pick up orders daily. Hence, the purpose is to ship orders as soon as possible.

A tech-enabled 3PL reorganizes the shipping process to decrease shipping costs and accelerate last-mile delivery. Usually, they provide direct assimilations with e-commerce platforms to automatically send orders to the closest distribution center. With this connection, each customer’s order will be automatically conveyed to a fulfillment center where it will be picked, packed, and finally shipped out. After being shipped, the order tracking information is returned to the e-commerce store and shared with the customer.

Customer-oriented processes

Warehouses simply provide space and does not offer any value-added services for customers. It’s identical to a residential storage unit where you pay for the required space.

Distribution centers offer storage services and help e-commerce businesses revamp their supply chain. They are adept in inbound and outbound logistics. They look after all stages, from receiving inventory to shipping orders directly to customers.

As a result, distribution centers provide a more customer-oriented approach. For example, customers will enjoy a pleasant unboxing experience due to the meticulous packing of orders. Customers can also conveniently return goods in case of any discrepancy.

Distribution centers managed by 3PLs can facilitate customers with dedicated support, technology, infrastructure, resources, and best practices. So, they save time and logistics costs by reducing laborious logistics tasks.

In-house processes

Warehouses are designed merely to store stuff and are devoid of in-house processes. They don’t present any strategies to save on storage expenses. Also, they don’t suggest alternate ways to revamp your retail supply chain. They usually don’t need technology implementation, and billing is based only on the amount of space you utilize.

On the other hand, distribution centers emphasize order accuracy, speed, and efficiency. They enhance these parameters by employing technology and best practices. They may also amass fulfillment data to constantly discover ways to improve the overall e-commerce fulfillment procedure.

Several 3PLs that manage distribution centers provide direct integrations with e-commerce platforms that connect with their WMS (warehouse management system). Therefore, they automatically dispatch orders to the nearest distribution center. Finally, the orders will be picked, packed, and shipped.

When you connect your online store to a 3PL’s technology, the orders get automatically dispatched to the nearest distribution center that stores inventory. From this point, the retail fulfillment process commences, and a fulfillment professional picks, packs, and ships the order to the customer for you.

Distribution Center in E-commerce

Fulfillment Center Vs. Distribution Center: Which Is Better?

The fulfillment center is a warehouse that stores, processes, and ships orders to consumers.

The distribution center is a warehouse typically positioned near an airport or a port. Its central function is to redistribute products to stores within a prescribed time. For quick reception of your products, you can look for distribution warehouses near me.

Here is a breakdown of fulfillment center vs distribution center.

Point of Comparison Fulfillment Center Distribution Cente
Order size
Most fulfillment centers deal with smaller orders. They mainly focus on business-to-consumer transactions.
Distribution centers handle larger orders. They mainly concentrate on business-to-business customers such as e-commerce stores.
Delivery periods
The fulfillment centers can quickly deliver your shipping needs. They can fulfill shipments to your customers within two days.
Distribution warehouses usually ship in bulk to save on costs. So, you may expect a longer time for shipment.
Type of services
The fulfillment centers provide many other services, not just storage. They receive, process, and ship orders to customers.
Distribution centers are checkpoints in the wholesale segment of the supply chain. Compared to fulfillment centers, they have fewer services. They don't include outfitting and custom packaging services.

In-house processes

The fulfillment center is a warehouse that stores, processes, and ships orders to consumers.

The distribution center is a warehouse typically positioned near an airport or a port. Its central function is to redistribute products to stores within a prescribed time. For quick reception of your products, you can look for distribution warehouses near me.

Here is a breakdown of fulfillment center vs distribution center.

Distribution Center in E-commerce

What are the Essential Processes in a Distribution Center?

Defined workflows at the distribution center help process orders swiftly. They effectively pick, pack, and ship packages to customers. Let’s look at the essential distribution center processes.

In-house processes

Collecting and storing stock in a warehouse refer to delivering, receiving, and revamping storage space in single or multiple distribution center locations.

A proficient and experienced warehouse receiving process can enhance the inventory management and fulfillment cycle. Consequently, the fulfillment chain and inventory management become more efficient and cost-effective. However, it involves several significant steps and requires great effort. Also, it needs to maintain proper documentation to prevent issues in the future.

After the inventory is received and analyzed, the next step is safely storing the received merchandise. Inventory storage options are a bin, shelf, or palette based on the quantity and size of products.

Picking and packing

A tech-enabled distribution center administered by a 3PL revamps the warehouse picking process. In most cases, a WMS is employed to automatically allocate similar orders with inventory in the identical area of the warehouse. Hence, pickers will go through fewer steps for picking orders. This procedure leads to a more efficient workflow by improving order accuracy and speed.

After this process, a picking list is created. It contains the items ordered, their quantity, and the location of each product in the distribution center. Each item picked up is scanned from the storage space or inventory container. Hence, inventory counts are updated in real-time, and updated stock levels are conveyed for the business. Once all items of an order are picked up, it’s time to pack them and attach a shipping label securely.

Restocking

Efficient inventory restocking (alternatively known as inventory replenishment) is a necessary inventory management process. It assures that you always have enough inventories stored and ready to be picked and packed when each order arrives.

When an organisation is unsuccessful in forecasting demand, tracking inventory levels, and restocking products efficiently, the common inventory issues faced are backorders and stockouts.

If multiple warehouses are being used, the inability to restock (specifically high-demand products) at your locations can lead to a split shipment. Split shipment means an order with multiple items being fulfilled and shipped individually.

Those distribution centers managed by 3PLs use inventory management software and other inventory automation tools. Therefore, they can assist you in preventing understocking and overstocking. So, you obtain data and visibility in real-time inventory levels at different locations. Hence, you can better control inventory, track inventory trends, and systematize reorder points.

Distribution Center in E-commerce

Objectives and Functions of a Distribution Center

Distribution centers look after the collection and shipment of a company’s goods in minimal time. So, they feature a high product circulation. Their objective is to uphold a minimum stock or inventory level. Typically, they work with high-demand products. They prioritize service and urgency.

To comprehend how a distribution center works, its functions can be divided into three main areas: goods’ reception, storage, and order planning & shipment. Huge distribution centers are categorized into explicit warehouse areas to fulfil these functions.

E-commerce warehouse executive checklist | Locad

Role of Distribution Center in Supply Chain

The notion of supply chain management is changing over the last few years. Therefore, the role of the distribution center is significant in sustaining an accurate supply chain. The following section discusses the role of a distribution center in the supply chain.

  • The number of distribution centers is inversely proportional to the number of the firm’s warehouses. The purpose of a distribution center is to hold goods temporarily. Therefore, the fewer distribution centers there are, the fewer warehouses there will be.
  • The main focus of the distribution center is not on the goods’ storage but the goods’ movement. All distribution centers guarantee that stagnant items are discarded. Moreover, it ensures that stocks are either expended or returned to decrease inventory.
  • The outsourcing of warehousing undertakings or distribution centers leads to improved economies of scale.
Distribution Center in E-commerce

Advantages of Distribution Centers

Convenience for customers and organisation

When it comes to shopping, a distribution center offers great customer convenience. Every manufacturer can’t set up a grocery store and supply to the customers. As a result, companies deploy distribution centers and distribution warehousing facilities.

Handling plenty of end customers would increase the operations’ profusion and company workload.

Setting up a distribution center offers excellent convenience to customers and the organization because the number of customers is more than the number of distribution centers your organization needs to manage.

Saves time and money

All distribution centers operate efficiently, lowering the organization’s operational costs. These centers save time by enhancing the operations’ efficiency and speeding up delivery.

For example, there can be plenty of trucks arranged in front of a distribution center to pick the products from a manufacturing hub to distribute them to the desired location. The manufacturing hub may not have an adequate storage facility for those products.

A distribution center can also disintegrate the bulk shipments into smaller shipments so that bulk customers can be catered to. This way, it achieves cost-saving.

Allows retailers to purchase products in small quantities

Purchasing the bulk of items from a manufacturing facility can be expensive. Following this approach can also prove to be inconvenient to retailers, and therefore, they are allowed to break up into smaller quantities. Consequently, retailers can sell those individual products to their customers. Subsequently, the customer can purchase the goods in smaller quantities whenever needed. Also, this approach relieves the customer from storage issues. This approach also allows both the middleman and the organisation to earn a profit.

Provides financial support

Retailers disintegrate bulk orders into smaller quantities. This provides easy payment options to customers; therefore, they can purchase a single product.

Conveys valuable information from the resellers

Resellers convey important information that helps improve the product and, ultimately, its sale. The reason is resellers are in direct contact with the customers. Customer feedback is conveyed to the organisation via the reseller as the organisation can’t approach each customer. Therefore, having a distribution center greatly benefits improving products and sales.

Distribution Center in E-commerce

Disadvantages of Distribution Centers

Loss of communication control

The manufacturer loses control over interactions with the final customers. They can’t directly communicate with them and so can’t exactly understand how to boost product sales.

Loss of revenue

The manufacturer sells the end product to the resellers or intermediaries at a price lesser than the maximum retail price. The middleman earns the profit in between. So, the organization faces revenue loss.

Conclusion

Distribution centers play a vital role in distributing goods to end customers. They streamline the picking and packing process, optimize the fulfillment process, offer value-added services, and many other benefits.

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FAQs

The distribution center works as a terminal to further transport the goods in the supply chain. It can work as a node for intra-dock or inter-dock operations. A distribution center can be used as an assembly facility where primary or secondary assembly of the product can be performed before shipping.

In addition, distribution centers can work as storehouses for damaged, returned, or cancelled goods. Those returned products are first conveyed to the distribution center and finally dispatched to the specific manufacturing facility or warehouse.

A distribution center can be used as an assembly facility for primary or secondary product assembling before shipment. For example, a bicycle can be assembled with a battery before transporting and then distributed to a specific warehouse.

A warehouse simply stores products. But a distribution center stores products and provides value-added services like order fulfillment, product mixing, packaging, cross-docking, etc.

Warehouses efficiently store products, whereas distribution centers are customer-focused and the channel between a supplier and the customers.

Another difference between warehousing and distribution is that operations in a distribution center are more complex than in a warehouse. Therefore, distribution centers are implemented with the latest technology for warehouse management, transportation management, order processing, etc.

Here are the three types of distribution centers:

i. Conventional – Material movement takes place by people and mobile equipment

ii. Mechanised – Material movement is supported by mechanised, transportation, and sortation mechanisms.

iii. Automated – Material movement takes place either in chunks or in full by robotics or mechanics.

i. Public Warehouses – They are self-contained businesses owned and operated by somebody else.

ii. Private Warehouses –They are owned and operated by dealers, wholesalers, or producers for their commercial resolutions.

iii. Bonded Warehouses –They can be owned by giant corporations or the government.

iv. Consolidated Warehouses –They obtain small shipments from different suppliers and then merge them into huge cargo before shipment to customers.

v. Smart Warehouses –AI administers order fulfillment, storage, and inventory control.

vi. Cooperative Warehouses -Cooperative groups (like winery co-ops or family farmers) own and administer appropriate warehouses.

Vii. Distribution Centers –They are the storage facility that meets specific needs.

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