The most straightforward difference between a fulfillment centre and a warehouse is that warehouses are designed for storage, while a fulfillment centre is more of a distribution hub.
A warehouse is also more likely to be owned by a business, whereas fulfillment centers provide a scalable solution for smaller-scale operations or for businesses not in the position to fully purchase (or even want to own) their warehousing space.
They each play their part in the world of logistics and eCommerce, so let’s have a closer look.
Imagine you have a factory making garden furniture, or Christmas decorations. Your factory might operate all year round, but in both cases you’ll have a window of about two months where you’ll sell the majority of your stock. In such cases, you’ll be storing your produce in a warehouse for those remaining 10 months.
But when your season comes, the warehouse is hardly the most efficient way of getting your stock to your customers. The warehouse is probably very large, possibly in just one location, and is focused more on delivering medium-sized batches to retailers than sending single items to individual addresses. That’s when the fulfillment centre is needed.
In essence, the fulfillment centre is a type of warehouse that’s designed not for storage, but as a place where goods are sent in bulk and split up to send out to individual addresses. The idea is to have as little stock as possible there at a given time, because it shouldn’t really be in the fulfillment centre unless it is on its way to a customer.
None of that means fulfillment centres are small – some of them are enormous. But whereas warehouses tend to have large volumes of a small selection of products in them, fulfillment centres have small volumes of thousands of different products temporarily stored inside.
Productivity and demand aren’t always equal. The garden furniture example is pretty extreme, but practically everything that’s manufactured has fluctuations in demand and sales. The best way to cope is to make more than is needed and to store goods until there is demand. To make products on demand would require much bigger, faster factories and a larger workforce, which would have to be hired and fired at a moment’s notice – in short, it wouldn’t work.
Warehousing provides that buffer – somewhere to keep product until it’s needed. Anything that isn’t perishable can be made throughout the year and sold when it’s needed. It’s the most sensible way to go about the task.
Generally, warehouses are used by manufacturers and by large retailers who can afford to have large amounts of stock in storage.
Fulfilment centres are used by manufacturers or retailers who know that there is a market for their goods in the near future. That can mean that the order has been placed, so the stock is moved from a factory or warehouse to fulfilment for shipping to the door. However, it can also mean that the vendor has reason to believe that there will soon be a demand.
The company making Christmas decorations might move some stock from warehouse to fulfilment in October, and keep up regular deliveries until mid-December. The garden furniture seller might be keeping an eye on the long-range weather forecasts as well as the calendar before shifting their stock from storage.
Other sellers will have more subtle indications about when demand will peak and trough, and will send their goods to fulfillment accordingly.
Fulfillment centres are therefore used by any company that sells direct to the customer, as well as those that sell to small to medium sized retailers and independent stores.
Online retailers owe their existence to the promise of convenience. They know their customers are just as likely to be sitting at a desktop computer as standing on a commuter train, and are buying something they need quickly without having to go to the shops. For this reason, they need quick, nimble and reactive ways to get goods to their customers’ doors.
Fulfillment centres are designed for this very purpose. Their stock is stored with a view to being easily picked, packaged, addressed and handed to the distribution driver to take for delivery. In warehouses, goods are often stacked high, wrapped in plastic and stored on pallets that need a fork lift truck to reach them – not ideal when you just want one toaster.
The other advantage fulfillment centres have is that they tend to be distributed around their territory in line with population densities. Cities and large towns each have numerous fulfillment centres in and around them. It means goods can be taken from storage, put in a van and sent out on a delivery route within hours or minutes of the order being taken.
Warehouses don’t necessarily need to be close to customers. They tend to be located near to industry and close to motorways, railways and ports to make it easier to move products in bulk.
A manufacturer might use just one warehouse for all its stock, but that stock will eventually be split between numerous fulfilment hubs to meet demand.
This explains why online retailers have fulfillment centres at the heart of their operations. By keeping just enough stock in storage to meet their known or expected demand, they are just one step away – a van drive – from their customers.
If they are selling multiple different products, it’s even better. They can pick them all from their stock, package them up and send them in one box for maximum efficiency and minimum cost. That would simply be impossible if sourcing various products from different manufacturers’ warehouses for next-day delivery.
Of course, it’s not always the retailers themselves who are personally packing and distributing the products. Some businesses may opt for a more hands-off approach as part of the fulfillment centre’s role.
At Zendbox, because every single product is electronically tagged and their current status is available through Zendportal, it might feel like they’re personally picking and delivering their goods, however this is a process fulfilled away from the retailers personally.
Another reason online retailers use fulfillment centres is because they’re secure. Nobody and nothing gets in or goes out of our centres without the relevant clearance, and the sites themselves are designed with security as the number one priority. That includes not just the integrity of the products to protect them from theft or tampering, but also with customers’ personal data.
Finally, our service integrates seamlessly through all the major eCommerce platforms. As an online retailer, you can be even more hands-off, because you know that if someone places an order on your website, it will be in Zendbox’s system; Zendportal and working its way to the customer. That means you can get on with sourcing or making new products, marketing yourself, or even sleeping – we do operate 24/7, after all.
Artificial intelligence is inevitably going to change the way eCommerce orders are processed and fulfilled. The ultimate measure of success is having as little stock in the centre as possible at any given moment. The smaller the volume of stored stock, the more efficient the process must be. The downside is that having too little stock means there’s a risk that orders cannot be fulfilled; and there’s also the fact that it’s not very efficient to keep transporting small batches of produce from the factory or warehouse to the fulfillment centre.
AI’s role will be to become better at predicting surges and reductions in demand, even at the relatively micro scale. It’s not unthinkable that algorithms will soon emerge that monitor social media and traditional media to gauge potential upticks in demand for products.
Mentions and likes, the activities of influencers and news stories can all steer demand for products in certain ways. Who remembered to order extra toilet rolls and hand sanitiser in early 2020?
Maybe AI could have triggered a large demand from retailers and supply could have been ramped up. It’s that kind of effect but in more everyday scenarios that will ultimately make eCommerce distribution and fulfillment closer to 100% efficient.
At Zendbox, we even have our own AI, Magic Ship. As a Shipping Intelligence Tool, its role is to continually analyse and provide the best rates for shipping as an order is received. This approach is not only efficient, but meticulously crafted to ensure each order is assigned shipping that is low cost and will still enable speed of delivery.
Another thing that needs to change is the environmental impact of eCommerce. People once bought their new gadgets in the shop, popped it in a bag and went home. With eCommerce, it needs to be protected in transit, and we all know what that means in terms of packaging. At Zendbox we’re committed to leading the way with our approach to sustainability.
It shows itself not only in our packaging but also where we get our centres’ energy, and how efficient an operation we operate. We’re working hand in hand with manufacturers, suppliers and vendors to get the balance right. It’s all about making the way we operate a cleaner, greener process. If this is important to you, join us.
What is the role of AI in the fulfilment process, and what does it mean for your e-commerce business? Find out inside our latest guide.
Wondering what E-Fulfilment is and what you need to know as an online retailer? Take a look at our latest fulfilment guide to find out!