A fulfillment center is essentially a warehouse used to pack and ship products to consumers. That said, the two terms, warehousing and fulfillment centers, are not interchangeable. True, both use large buildings to store product. But a warehouse is used to store product or bulk inventory for long periods at a time. A fulfillment center is used to house inventory for short time periods, just until eCommerce orders need to be shipped to customers.
The distinction is clear, and it’s important for business owners to understand the key differences between the two. In short, fulfillment centers are essential for some eCommerce brands to ensure customers’ expectations are met efficiently and with satisfaction.
Fulfillment Center Characteristics
Fulfillment centers, also called 3PL providers, are an important component to the eCommerce business model. 3PLs help eCommerce brands and retailers fulfill customers’ product orders. Fulfillment centers:
- Work to get products into customers’ hands as soon as possible
- Have functionality to handle multiple tasks
- Are most often highly active, with operations running around the clock
- Serve external customers
- Process, pack and ship orders
- Receive inventory
- Are great for eCommerce brands
- Can help small to mid-sized businesses who are growing and moving away from handling their own shipping needs internally
- May be a solution if businesses are running out of space
Warehouses store products for extended time periods, generally much longer than fulfillment centers. Think about needing to store seasonal items or items that aren’t in demand at a particular time of the year. Warehouses:
- Store items or product for a long time period
- Have high-stacked shelves, often to the ceiling
- Usually have a static operation, where product is received, stacked, moved to new locations and stored until needed
- Might work for brands who deal in wholesale or B2Bs who have very large quantities of product
- Can be private or shared
- Might not make sense for small businesses who only need minimal storage spaces
Advantages of Using a Fulfillment Center
Many businesses (particularly eCommerce and high-volume brands) find fulfillment centers advantageous for a number of reasons:
1. Reduce the need for internal storage
Using a fulfillment center to receive, store, pack, label and ship product means you don’t need to keep inventory in your own physical location (or pay to store it in a warehouse). Instead, your stock is temporarily housed at the same location it will be packed and shipped from.
2. Allow more focus on customer satisfaction
It’s no secret that keeping a customer means keeping them satisfied. It is then that you can turn a one-time buyer into not only a lifetime customer, but also a brand advocate. Quick shipping, seamless exchange processes and quality ship-practices all add to the likelihood that you’ll have a happy customer who loves your brand.
3. Protect against market volatility
With the price of fuel wildly (and regularly) swinging so forcefully, transportation and shipping costs can fluctuate too. If you’re managing shipping costs yourself, the result can be an intense hit to your bottom line. By outsourcing to a fulfilment center, you can protect yourself against costly price increases on the actual shipping. Other factors that may fluctuate with market swings could include payroll, rent and utilities. Fulfillment centers can shield you against raising costs here, too.
4. Leave more time for business development (BD) and strategy
Especially for small businesses who are more likely to handle nearly all aspects of their brands, tackling the shipping aspects on your own can be an incredible drain on resources and leave little time for anything else (like growing your brand). That old saying, when you fail to plan you plan to fail rings true here, because when time isn’t diligently allocated to growing your business, it’s more likely you will become stagnant. Outsourcing can free up useful time to work on business development and strategies that focus on growth.
5. Eliminate the hassle of packing and shipping boxes
Perhaps the best benefit to using fulfillment centers is simply the fact that you eliminate the time consuming hassle of packing and shipping. Shipping takes up a lot of time and can pull business owners from more important aspects of running their business. Managing the logistics of all that’s involved in getting product to your customer is not an easy task.
6. Leave time for daily operations rather than shipping logistics
There’s a lot to do when you run a business. Most business owners agree: they need more time in their day. Everything from responding to customer questions to handling A/R and A/P to dealing with ordering more inventory means time and focus. Feeling spread too thin? Handing over the reins and letting someone else deal with the logistics side of fulfilling orders can free up tremendous amounts of time.
7. Increase potential for scalability
For most brands, growing your business means more of everything. More product, more staff, more shipping materials, more time to organize – but you can’t move locations or warehouses every time something else is needing “more.” Fulfillment centers scale with you, so when your brand is ready to take that next step, the transition is seamless.
8. Get access to state-of-the-art technology
Fulfillment centers invest incredible amounts of time and resources in state-of-the-art industry technology that utilizes the latest and greatest software to allow for shipping, tracking, accounting and order and inventory management. When you work with them, you get access to all of that for very little cost.
Fulfillment Center FAQs
How much space do I need to handle shipping on my own?
Understanding how much square feet you would need to handle your own shipping logistics may be a key factor in your decision to outsource or not.
- Look at how many SKUs you offer. Every SKU (or product type) needs its own space (think: 1 T-shirt in 5 different colors in 3 different sizes. That means you need room to store 15 different sets).
- Analyze your monthly volume of orders. Will you ship 200 orders or 2,000 orders?
What is order processing?
Order processing is what happens after a customer orders a product. eCommerce platforms send order information to whatever fulfillment technology is used, which starts the process. Product is retrieved from where it is stored and then packed, labeled and shipped. Tracking information is generated and sent to the customer.
How much do fulfillment centers cost?
The cost of fulfillment centers can vary, but expect to pay a company to receive and store your inventory and then to process orders once they come in. More often than not, the time saved by outsourcing this process will allow business owners to focus on generating new leads and customers, which could mean utilizing a fulfillment center pays for itself.
Which Solution is Right for You?
To determine if a fulfillment center is the right solution for you, first decide if you need longer term storage for large quantities of inventory (warehouse) or an all-inclusive inventory management system that can store and quickly process and ship orders (fulfillment center). Determining which you need in place to help you run your business is your first step.
If you’re ready to learn more about how fulfillment centers can take your brand to the next level, reach out to ShipCalm today. Get a custom quote and find out why we’re the preferred 3PL solution for hundreds of brands, helping them grow exponentially with our seamless third party logistics solutions.