Order Fulfillment Center vs. Warehouse: What is the Difference?
To begin with, what is the order fulfillment center and what is it different from a warehouse? When discussing logistics and supply chain management, people often use the terms warehouse and fulfillment center (sometimes called distribution center or 3PL) interchangeably. However, each term can have different meanings depending on the circumstances.
At the most basic level, both are large buildings that can hold inventory for all types of businesses selling products through either traditional retailers or online and e-commerce stores like Shopify, WooCommerce, etc. Despite this similarity, there are differences in the services offered and how they are used. To help you better understand which options suit your individual business needs, we will describe the functions and purposes of each in the following article.
A warehouse is a cost-effective storage for merchandise inventory
When using the term warehouse, it refers to where a business stores physical products for the seller for an open-ended period of time. Inventory for sale is contained in a large facility or industrial space. There can be large containers, storage crates, pallets filled with products and equipment such as forklifts to move inventory.
A warehouse is a cost-effective storage for merchandise inventory
Major companies working with warehouse suppliers primarily fulfill wholesale or B2B (business-to-business) orders in bulk. There are companies that rent out warehouse space depending on their storage needs, while some other e-commerce companies own and operate their own warehouse(s) to store inventory until it is ready to be shipped.
Depending on the location and lease terms, renting warehouse space is often a more cost-effective solution for small to medium-sized e-commerce sellers.
What is an order fulfillment center?
An order fulfillment center is a location where the seller or a company the seller hires to outsource their order fulfillment. It is also a third-party logistics service provider (3PL), fulfills orders through a customer's e-commerce store (also known as direct to consumer), or even business-to-retail fulfillment where the seller fulfills wholesale orders to big-box retailers.
An order fulfillment center is often larger in size and scale than typical warehouses that an individual company can rent or own. An order fulfillment center provides comprehensive services. Its main functions include managing merchant inventory, storing inventory, delivering orders directly to customers or retailers, and assisting sellers with the management of the entire vital, yet often difficult order fulfillment operation.
How does an order fulfillment center operate?
Since warehouse management has many factors involved, the smaller details can be overlooked and can end up causing unforeseen problems and supply chain bottlenecks.
An order fulfillment center is a hub for all the logistics processes needed to get a seller's products into the hands of their customers. This is also known as the order fulfillment process.
Inventory is stored conveniently in an order fulfillment center in preparation to fill customer’s orders. After the order is completed by the customer, the inventory is picked from the shelves of an order fulfillment center, packed, and prepared for shipping.
These business-to-consumer (B2C) orders fulfilled by an order fulfillment center are often shipped directly to an individual home. For high volume products, retailers can also use order fulfillment centers, often called B2B orders.
When a seller outsources their fulfillment to an order fulfillment center, the processing of the processes will be performed by the 3PL on behalf of the seller. Jobs may include storing, receiving, packaging, and shipping. Even negotiate lower shipping rates and handle demand in large volumes.
Inventory management will be easier and more time-saving when sellers outsource 3PL implementation. Sellers can focus on more important business tasks and also improve customer satisfaction.
What are the main differences between order fulfillment centers and warehouses?
As stated earlier, while often used interchangeably there are several significant differences between an order fulfillment center and a warehouse and the roles each plays in the process of getting products to the customer.
A warehouse's primary role is simply to store inventory, while an order fulfillment center is designed to enhance the customer experience of ordering and delivering products on time. This is possible because a 3PL fulfillment center is located close to customers and sellers store their inventory there. Thereby helping to reduce shipping time and at the same time save costs.
Long-term vs. Short-term Storage
The warehouse is the part of an fulfillment center, where the seller's inventory is stored. However, an fulfillment center has a primary goal of easily managing the processes that occur between the moment a customer places an order and the order is delivered to their home or business.
In the best case for businesses, inventory will not stay in the fulfillment center for more than 30 days. May be considered long-term storage and have a higher storage charge by the fulfillment center if the inventory needs to be in the fulfillment center longer. It is ideal to have regular contact between the order fulfillment center and the seller to strictly manage inventory levels. It's important for a seller to maintain an appropriate amount of their products, relative to how often customers are making orders, so that the fulfillment center has enough inventory on hand to meet customer demand.
Due to being used purely for storing inventory, the warehouse tends to be inactive. Quite the opposite of an fulfillment center, which is always bustling with activity constantly. End-to-end fulfillment solutions provided fully by the center include:
- Get inventory
- Kitting items if necessary
- Prepare a shipping label
- Shipping orders
- Return management
For a warehouse, the action takes place only when inventory is added or sent. Additional instrumental services are rarely provided.
What works best for any individual seller comes down to the type of service they need. If you need longer-term storage or the company is still running some work done at home, the warehousing service will be valuable to you.
Also, if the business has a large number of orders and needs a fast turnaround, opt for an order fulfillment center to handle fulfillment, customer service, shipping, and end-to-end logistics, is probably the best option. A trusted fulfillment partner can help with all of these issues.