Distribution centers, fulfillment centers, and warehouses of all kinds — with so many options available, deciding where to store and ship your products can be confusing.
Let’s say a small eCommerce shop needs to get its products to customers quickly. It would benefit from the fast movement and order fulfillment of a distribution center. A warehouse wouldn’t be as useful because the business doesn’t have to store products for a long time, if at all.
But sometimes, choosing between a distribution center versus a warehouse is more complex. And some businesses use both. Here’s a guide to each of these building types, how best to use them, and when they’re the right investment.
What is a warehouse?
A warehouse is a building where companies store and organize raw materials or manufactured products before they’re ready for shipping. These locations focus on receiving, storing, and retrieving goods. Solid warehouse management also involves tracking inventory, including where products are and how many are available.
Warehouses are large and accommodate a wide variety of products, usually using pallet racking or industrial shelving to organize inventory. Many are also climate-controlled to store sensitive or perishable goods, like produce, pharmaceuticals, and wooden furniture.
Because these facilities are more about storage than anything else, they have low operational complexity. This makes warehouses relatively easy to maintain — especially if you use automation, like systems that tag and track inventory, to organize things.
Warehouse structures vary depending on how much space and attention your inventory needs. Here are the most common types:
- Private warehouses: Companies own and run these storage buildings privately, giving them much more freedom and control over the space and inventory than other types of warehouses afford. However, these warehouses are expensive. Smaller businesses sometimes rent space from private companies for a more affordable option.
- Public warehouses: These government-run facilities rent storage space to private businesses. Public warehouses are a common option for small businesses that can’t afford a private warehouse or don’t need a full space for themselves.
- Bonded warehouses: In these buildings, businesses store imported goods without paying duty fees until the distributor completes customs processes, like receiving a government license. Both companies and governments can own this type of warehouse.
- Cooperative warehouses: These are shared storage facilities, and multiple businesses with similar needs and goals own and operate them. Because all parties have a say in the operations, these warehouses encourage a sense of community and shared accountability.
What is a distribution center?
Distribution centers are buildings stocked with products ready to ship to customers, retailers, or wholesalers. These facilities are for short-term storage and distribution, aiming to quickly receive and distribute merchandise. Distribution centers may also be responsible for assembling, repackaging, or checking item quality.
Businesses use distribution centers specifically for fulfilling orders, so workers have to maintain a strict inventory and ensure all products are ready to be packed and shipped. Most centers use technology to boost productivity and reduce errors wherever possible — for example, monitoring finished goods inventory data to avoid selling unavailable products.
You might also hear the term “fulfillment center,” which most companies use interchangeably with “distribution center.” But some distinguish between the two, using a fulfillment center when shipping goods straight to a customer rather than a retailer. In this case, distribution centers are just for spreading goods across retail locations.
Let’s take a quick look at the most common types of distribution centers and their main purposes:
- Retail distribution centers: These buildings ship goods straight to the consumer. They’re typically closer to densely populated areas to reduce shipping times.
- Wholesale distribution centers: This type of distribution center delivers goods to retail stores and wholesalers, so it typically has a large, varied inventory and complex operations.
- Cross-docking facilities: Cross-docking centers specialize in unloading and transferring merchandise from one truck to another. Their primary aim is to reduce storage and delivery time by immediately sending orders back out.
Distribution center versus warehouse: Pros and cons
Warehousing and distribution serve two very different functions with distinct advantages. Many businesses have both, storing goods in warehouses and sending those goods to distribution centers when they’re ready to ship. But you might choose to have one or the other, depending on the size and needs of your business.
If you’re trying to decide which storage solutions are right for your business, here’s a quick summary of the main pros and cons of warehouses and distribution centers:
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The key difference between warehouses and distribution centers is right in the name. Distribution centers redistribute goods, while warehouses don’t. Besides that, they differ in speed and operational complexity. Warehouses have simple operations and fewer moving parts, which makes it even easier to use warehouse logistics management software to create a smooth process.
Warehouse versus distribution center: Which is best for your business?
Here’s what you need to know to decide what facilities your business needs.
Functionality
Warehouses are spacious and designed for controlled, long-term storage. They can hold any product, from merchandise ready for sale to raw industrial materials.
Distribution centers have varied functionality, including fast-paced order fulfillment, repackaging, and cross-docking. They do store items, but for limited times while staff wait for outbound trucks or orders. The amount of product you need to store for longer periods determines which space better serves your operations.
Consumer focus
Distribution centers act as bridges between companies and customers, sending inventory to buyers as directly and quickly as possible. This is why they’re usually along major roads or transportation hubs.
Most warehouses don’t ship products to customers directly, which is why these buildings are often in less convenient, more remote locations. These buildings don’t need to be close to the products’ final destinations. Some small operations may ship from warehouse to consumer, but these orders have slower delivery times.
Flow velocity and duration
Flow velocity refers to how long a product stays in a facility before it’s shipped off. Warehouses generally have low flow velocity, with goods staying in storage for long periods. Distribution centers have a higher velocity because they prioritize quick delivery to consumers and retail stores.
Complexity
Simple operations and limited functions make warehouses easier to run efficiently. Most don’t need extensive staff, and some even use automation to streamline business. Distribution centers are much more complex because of their additional functionality and customer-centric operations.
Distribution centers are usually run by third-party logistics companies, or 3PLs. These services take the weight off sellers by organizing and fulfilling orders for them. Some 3PLs do run warehouses, but they’re best suited for the more complex and demanding distribution centers.
Streamline your inventory management regardless of your facility type
Companies looking for a long-term storage solution should lean toward a spacious warehouse, while businesses seeking rapid delivery should opt for distribution centers.
Easily manage either of these facilities with Fishbowl’s QuickBooks integration. Administer invoices, sales orders, and purchase orders from Fishbowl, and the software updates QuickBooks in real time so you never have to worry about doing it yourself.
Gain control over your warehouse or distribution center with Fishbowl. Try it today to manage your inventory, optimize workflows, and enhance productivity.