21/06/2022
The difference between a fulfillment and a distribution centre
Selling online on an eCommerce allows you to overcome the barriers imposed by the physical store, but it is necessary to manage shipments efficiently. There are many services that can help you, but it’s important to understand the difference between a fulfillment centre and a distribution centre.
The distribution network is an essential part of any company that sells products, both in B2B and B2C. The shipment of goods from the place where they are produced to the place where they will be sold or to the final customer is an activity that involves numerous processes to which you must pay close attention.
There are several services that can help sellers with this activity, such as fulfillment centres, third-party logistics services or distribution centres. Therefore, it is easy to get confused if you do not understand well the specific characteristics and operating procedures of each one.
In this article we will explore the subtle but important differences between the execution of fulfillment and the distribution of orders, in order to understand what exactly fulfillment centres and distribution centres are thus make sure to choose the most suitable service for your need.
What is a fulfillment centre?
The fulfillment centre acts as a logistic warehouse entirely managed by a third-party company. In fact, it receives, processes and finally fulfils customer orders on behalf of other retailers, usually eCommerce sites. These centres are in fact a fundamental part of the supply chain of online stores, because they allow orders to be delivered conveniently and quickly.
The fulfillment center receives and stores goods from sellers. When a customer places an order on an eCommerce platform, the fulfillment centre staff immediately receives the notification and picks up the sold product from the shelves on which it was previously stored. The orders are then packed according to the customer's specifications, while another operator takes care of filling out all the documents and applying the labels necessary for shipping. Finally, the fulfillment centre notifies the courier that the package is ready to be delivered to the address indicated by the end customer.
Companies that offer fulfillment services provide their customers with a dashboard to be integrated with the eCommerce portal. This way, operators can quickly proceed with the preparation of the order and the online retailer can monitor the volume of orders and stocks. Consequently, the warehouse of the fulfillment centre can be replenished before the products are out of stock and there is no risk of having sold out products still marked as available on the eCommerce. This management system also allows you to keep track of the progress of an order and appropriately update the end customer on the status of their purchase.
Furthermore, having the fulfillment of orders managed in outsourcing allows you to entrust the management of returns and refunds to specialised centres. In fact, the faster the order is processed, the faster the customer will get a refund or replacement of the defective goods. The operations related to returns and refunds are among the longest, most expensive and complicated of the entire process, as you have to receive the product, check the problem, activate the refund/replacement procedure and make the product usable again or dispose of it. A fulfillment centre takes care of all this, shares information with the tracking systems and sends communications to the customer on the status of the product and/or the refund.
Since the speed with which orders are processed is essential, couriers go to fulfillment centres on a daily basis (and often several times during the same day). Some fulfillment services have also entered into commercial agreements with shipping services to deliver goods to the end customer in the fastest and cheapest way possible.
To ensure that all the activities listed above run smoothly, fulfillment centres constantly invest in new technologies and cutting-edge software that allow them to provide a quick and efficient service for all online commerce activities.
What is a distribution centre
According to the definition provided by the Cambridge Dictionary, a distribution centre is a facility that provides a service for receiving, storing and distributing goods based on the orders received. The distribution centre therefore mainly performs the function of warehouse and transit station that allows the redistribution of products.
Very often these distribution centres are also used to change the shipping method, in fact they are usually located near large transport hubs such as airports or harbours. For example, goods that were transported by ship will be stored for an indefinite period of time inside a distribution centre, from which they will be shipped by truck to their final destination.
Consequently, distribution centres are mainly used by distributors and large B2B retailers that have to supply other companies with large quantities of goods. To allow for a better management of deliveries and to reduce related costs, distribution centres store and ship large volumes of products destined to the same delivery location, such as a retail store. In fact, it is rare for a distribution centre to deal with small batches of products to be delivered individually to a final customer.
How to choose between a fulfillment centre and a distribution centre
Fulfillment and distribution centres are key components of today's e-commerce logistics infrastructure. Companies that sell products online but do not have the necessary resources to store and then ship orders efficiently must therefore rely on an external partner. As we have seen, fulfillment and distribution centres offer a service that can be very useful to better manage the supply chain.
However, their functions are very different. Therefore, the choice of the service to draw on depends on individual needs.
In general, if your company is relatively small, does not have its own internal division dedicated to shipping and relies on the delivery of goods directly to end customers, it is useful to rely on the services offered by a fulfillment centre. E-commerce companies need to fulfill orders as quickly as possible, so it's best that they minimise the middlemen in the supply chain. Fulfillment outsourcing also allows you to optimise production resources and focus on the creation and development of new products.
Some additional support services offered by fulfillment centres include the customisation of the order, based on customer specifications, and also inventory management.
On the other hand, the distribution centre helps economies of scale and companies that have to ship wholesale items often rely on this type of service. However, these companies have an entire team at their disposal that takes care of packaging, preparation of shipping documents and customer service.
Regardless of the type of service chosen, what matters is that they are reliable professionals that ensure the delivery of the goods on time, otherwise there is the risk of delaying the receipt of orders, dissatisfying customers and face additional costs.
Summing up
When preparing to start a business that involves the sale of products, one of the most important things to consider is the way in which customers – be they end consumers or other companies in the supply chain – will receive their orders. If you do not have a structure that allows you to manage all shipment processes internally, you can opt to rely on professionals who offer these services through a fulfillment centre or a distribution centre.
These two terms are often used interchangeably when talking about logistics and supply chain management. However, although they both share some functions, the processes they deal with are very different. Distribution centres are transit stations, where the received goods are stored and then shipped to another destination. Fulfillment centres are places that deal with the fulfillment of orders in its entirety.
While distribution centres are more suitable for B2B distributors, resellers and manufacturers who need to ship large quantities of products to a single destination, fulfillment centres allow you to outsource the packaging, boxing, documents and labels preparation and also shipping of a single commodity. Therefore, they are extremely useful for eCommerce and for anyone needing to entrust all the processes mentioned above to specialised personnel that can manage them quickly and efficiently.
IFS Italy makes its twenty years of experience available to offer an excellent fulfillment service, thanks to the professionalism of its employees and specific knowledge on customs documents and returns management. For more information on IFS fulfillment services, you can download the catalogue or visit the fulfillment & e-commerce section.
