In supply chain management, you frequently come across terms that sound identical but play very different roles. A fulfillment center and a distribution center are two such terms that are enough to confuse a new businessman.
The fact that many websites use these terms interchangeably, only adds to the confusion. In this article, we will help you understand the difference between these two.
A fulfillment center is a facility that is responsible for the collection, warehousing, and dispatch of goods. It can be an independent business (3PL fulfillment service) or a separate department in a company (in-house fulfillment) with responsibility only for the fulfillment function.
The merchandise received in fulfillment centers is usually shipped out as soon as possible to minimize storage costs and reduce lead time. In other words, it is designed for 24/7 order processing.
Each fulfillment company has a dedicated workforce, handling different departments or modules. Talking of modules, here’s an overview of the key processes that take place in a fulfillment center.
Receiving – Businesses will send inventory to the fulfillment center. A fulfillment center manager will receive it and make sure that the goods are stored in a secure environment. When the inventory is received, a receiving report has to be created.
Storage – Once items have reached a fulfillment center, they need to be packed into boxes, pallets, or bins depending upon the size and space required.
Order Picking – Order picking consists of the process of taking inventory from storage and consolidating it before sending it to the packing station. Each fulfillment center will have a picklist for this purpose. The pick lists are usually created using software and the task is completed by a skilled workforce consisting of pickers, and packers.
Packing – Each shipment will have its own custom packaging requirements as specified in the order. The packaging team will have to follow these requirements to complete the process.
Shipping – Once a package has been packed, it is dispatched to the shipping station. This completes the fulfillment center process.
Some fulfillment companies also handle kitting and returns.
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A distribution center is also a warehouse where goods are sent before being delivered to the customer/consumer, or before being redistributed to other warehouses or retailers.
In other words, it is a transit point in the supply chain, rather than a final destination for the shipment before it is dispatched to the customer.
For instance, a large quantity of inventory may be sent to a distribution center before the mode of freight changes from sea to road. Or a grocery chain may use a distribution center to redistribute the wares to smaller micro-fulfillment centers.
The biggest difference though is that distribution centers do not fulfill orders and ship them directly to customers. Instead, they can be used for in-store pick ups, or collection models where the customer chooses to drive down to collect the shipment themselves.
While both of these warehouses are designed for storage, fulfillment centers are optimized for order processing to minimize lead times. A distribution center on the other hand is only one step in the process. The shipment arrives at a distribution center and then moves out to various stores or customers or fulfillment centers depending upon where it needs to go next.
- A fulfillment center is designed for order fulfillment in the smoothest and most efficient manner. Everything from the workforce to the software to the machinery is designed to process orders as quickly and efficiently as possible. A distribution center, on the other hand, is just a transit point where shipments arrive and leave for different destinations. It is not just focused on getting shipments out fast: the purpose is to streamline the flow of inventory in the supply chain.
- Neither of these are ideal for long term inventory storage. Both, however, are designed for short-term storage of less than 30 days.
- That said, both fulfillment centers and distribution centers use the same types of processes.
- Both will receive inventory as shipments arrive, store them in order to consolidate and process them as required. They will both pick orders from storage before sending them to their destinations, which are very different.
- Fulfillment centers will ship it directly to the consumer, while distribution centers will distribute it to smaller destinations, which can be retail outlets like Walmart, fulfillment centers, or warehouses.
One way to separate the two is that fulfillment centers are used exclusively by D2C and B2C retail brands like eCommerce stores. Whereas distribution centers can be used by B2B brands as well as B2C businesses.