Many people equate the terms “fulfillment center” and “warehouse,” thinking they mean the same thing. However, this is not true. While a warehouse can serve as a fulfillment center, a fulfillment center cannot be a warehouse. That’s because the purpose of a fulfillment center is more complex.
In a nutshell, a warehouse is a facility that companies use to store inventory. However, a fulfillment center is a cog in the supply chain wheel. A fulfillment center’s purpose is to ensure products get into the hands of consumers.
Of course, there’s a lot more depth to it. So, we’ve outlined fulfillment center vs warehouse differences below. These differences can help guide business leaders’ decisions about whether an automated fulfillment center or warehouse will meet their needs.
You can first think of the fulfillment center vs warehouse questions according to storage periods. Both store products and serve as a temporary place where those products stay until they are sold. Yet, a warehouse often serves as a long-term storage facility. It’s where companies and manufacturers can park things like raw materials, excess inventory, and supplies.
In terms of products, warehouses store items that don’t need to move as quickly through the supply chain. For example, a wireless carrier might order excess inventory of smartphone brands. The company anticipates it may become more difficult to get inventory on demand from the manufacturer. Excess inventory sits in a warehouse until stores need or request the product.
But the storage times in a fulfillment center don’t work this way. The goal is to move products through a fulfillment center quickly and just in time. Essentially, in a just-in-time supply chain system, there is just enough product to meet existing demand.
In most cases, companies aim to have inventory move through a fulfillment center within 30 days or less. That’s because the main purpose of a fulfillment center isn’t to store products. It’s to transfer products from manufacturers or suppliers to consumers. Sometimes there are other intermediaries in the supply chain, such as distributors and retailers.
Because supplies and products sit longer in a warehouse, there are usually fewer shipments going in and out. The job of a shipping carrier is to transport goods from one place to another. Sometimes a shipping carrier serves as the intermediary between companies. And at times, it’s the carrier’s job to ship the product directly to the household that ordered it.
However, shipping carriers can also deliver products and supplies from warehouses to fulfillment centers. So, one of the major differences between a fulfillment center and a warehouse facility is shipping frequency. There’s more activity going in and out of a fulfillment center because products are moving faster.
Let’s extend the example we introduced in the previous section. A wireless carrier has excess smartphone inventory sitting in a warehouse. Shipments from the warehouse go out to stores every three months as those locations request replenishments. Yet, the carrier’s e-commerce department also serves as a fulfillment center for online orders.
That fulfillment center ships smartphones twice a week as customers place orders through the website. Although a third-party carrier delivers the smartphones to customers, these carriers pick up shipments more frequently.
As you might imagine, a warehouse’s shipments are bulkier. We’re talking pallets of inventory or products going out at once on larger trucks. Naturally, this is more challenging and costs more. Shipping carriers often charge according to weight, even if the client has a bulk or volume rate agreement.
In contrast, end consumers don’t usually order pallets of products. Therefore, shipments from a fulfillment center are smaller. There may be more individual shipping labels and boxes. However, the cost of each shipment is nowhere near the expenses a warehouse racks up for a single transport.
Compared to a fulfillment center, a warehouse is fairly stagnant. That’s because its main function is storage. Once products arrive, they sit there for a while. While there might be warehouse staff, they are concerned with receiving shipments and finding bins or locations to place pallets of products.
Warehouses may also occasionally prepare goods for bulk shipments and audit inventory. But for the most part, there’s not a lot of activity going on each day. When we look at a fulfillment center, we often see the opposite. Several coordinated activities and functions are happening every day.
Some of them include:
Think about fulfillment centers for large online or brick-and-mortar retailers. These centers exist throughout the United States. When you order a mix of products online, your order might arrive in different packages. That’s because they’re coming from different fulfillment centers.
Each facility handles the preparation of specific products in the supply chain. Computers might pick the products for a single order from various bins. But as those products move down the conveyor belt, employees assemble them into boxes with the appropriate shipping labels. Once they’re sealed, it’s on to the pickup stage from a third-party carrier such as UPS, FedEx or the USPS.
So, how do you know if a warehouse is also a fulfillment center? And are there business cases where you would need a two-in-one solution? The answer to the first question is to look at the three key differences mentioned above. If the facility encompasses both sides of the spectrum, you likely have a warehouse that doubles as a fulfillment center.
Let’s say that a wireless carrier only has one facility that stores excess inventory and ships it out on-demand to stores. However, e-commerce fulfills online orders from that same facility. They take smartphone inventory from stored pallets on-demand and prepare individual shipments according to whatever orders come through.
That’s a perfect example of a two-in-one solution. Your company might find this advantageous if you’re a smaller operation. You need to streamline costs and don’t have high shipment, inventory, or fulfillment needs. Some companies that start as home-based businesses convert garages and bedrooms into makeshift warehouses and fulfillment centers.
However, larger companies can also benefit from two-in-one solutions. Streamlining costs, especially labor expenses, is one reason why. Another reason is to cut down on potential shipment delays and offer services like express and one-day delivery. With some products, retailers may also offer same-day delivery from combined warehouses and fulfillment centers.
Brick-and-mortar companies are prime examples of organizations that benefit from a two-pronged approach. These businesses need warehouses to store excess inventory and products. Larger retailers that handle distribution internally also rely on a combination of warehouses and fulfillment centers.
These retailers’ warehouses store and build up products for upcoming seasonality. The warehouses also store leftover products that might sell again once the season comes back, such as major holidays. A retailer doesn’t need Christmas or Halloween decorations in a fulfillment center year-round.
However, it can store this merchandise in a warehouse until the stores need stock. Whatever is left over after clearance sales can go back and sit in storage. Once the season comes around again, the warehouse can send out leftover and new holiday inventory to the stores.
Meanwhile, the company’s fulfillment centers can keep current and non-seasonal products on hand to keep present orders moving. With this type of approach, there may be smaller and fewer warehouses vs fulfillment centers. That being said, it will depend on the company’s operations and strategic approach.
Some retailers might use regional warehouses to transfer products between stores. These facilities serve as a type of holdover facility for year-round products that don’t sell at one store. However, another store in the retailer’s network might have more demand for those products. Store and department managers can request to transfer items between warehouses.
Another reason why retailers might want to leverage warehouses is to move products in bulk across internal distribution chains. A common strategy for national retailers is to set up regional warehouses that sort mass inventory into pallets. These pallets become assigned or designated to specific stores. It’s a sort of hub and spoke system that many airlines also use.
For example, a large grocery chain has 12 stores in the Midwest, 13 in the Southeast, nine in the Northeast, and 10 in the Southwest. Executives decide to set up two warehouses. One receives and sends shipments for the company’s southeastern and northeastern stores. The other warehouse does the same for the midwest and southwest locations.
Fulfillment centers are more geared toward e-commerce companies. Now, we all know some retailers do both. These companies have an extensive network of brick-and-mortar stores and sell online. But for now, this section will focus on 100% online retailers.
For example, Amazon operates several fulfillment centers across the United States to ensure customers’ orders move through the pipeline. These products aren’t necessarily made or manufactured by Amazon, although some are starting to carry the “Amazon brand.”
But once a consumer places an order online, Amazon has to find some way to get it from the manufacturer or seller to the end-user. That’s where it’s fulfillment center network steps in. Wherever those products go in the supply chain network is where they’re packaged and prepared for shipping through a third party.
Returns that shippers and in-person centers pick up from these orders also flow back through the retailer’s fulfillment centers. Those products might go back into the bins or become discarded. From each fulfillment center, the company assigns tracking numbers under each order and updates consumers on shipping and delivery statuses.
A fulfillment center has some key advantages over a warehouse. For starters, a fulfillment center looks at an entire supply chain. The center’s activities are about moving products from the point of origin to the end or final point in the chain. A warehouse, on the other hand, is a kind of rest stop in the middle of the supply chain.
Some of the risks associated with keeping products in a warehouse don’t always exist in a fulfillment center. Since products are moving quickly, there are fewer chances products will become forgotten. When you’re placing items in a warehouse’s bins for months on end, they could end up expiring there.
Non-perishable items also have an expiration date in terms of relevancy. That wireless carrier could end up stockpiling too much excess inventory. The warehouse manager forgets there are smartphones up in the rafters for 10 years. By now, those models are out of date and no longer have the technology to work on the company’s network.
As a result, the carrier has to eat the cost and safely dispose of the equipment. This represents not only lost revenue opportunities but additional disposal costs. Fulfillment centers also don’t have to be owned and operated by the company. Leaders can choose to outsource and perhaps even save money with a third party.
Looking at the differences between a fulfillment center vs warehouse, it’s clear that the two are not as interchangeable as many people think. A warehouse does not see the flurry of activities a fulfillment center does. Warehouses serve as more of a long-term storage solution for stock overflows and excess inventory.
In contrast, fulfillment centers are busy making sure products get into the hands of those that order them. Items don’t usually last more than a month, as they move from the center into shipping boxes and then arrive on customers’ doorsteps.
