Customers expect speedy delivery and excellent customer service, which means companies need a way to distribute, not just store, their products. Distribution centers are integral to the supply chain because they do just that: distribute. And they do it quickly.
With complex and efficient processes in place, distribution centers provide hyper-organization and expedited deliveries, taking the pressure off your resources so you can focus on more high-impact work. Here’s a guide to what a distribution center is and how to optimize it.
What are distribution centers?
A distribution center, also known as a distribution facility, is a type of warehouse for receiving, storing, and distributing goods quickly. Unlike traditional warehouses, which primarily focus on long-term storage, distribution centers operate with a focus on speed and order fulfillment, moving goods more efficiently.
The primary functions of a distribution center include:
- Receiving shipments from manufacturers or suppliers
- Storing products temporarily until they’re needed to fulfill orders
- Processing orders, which involves picking and packing products based on customer needs
- Preparing orders for shipment to their final destinations
Third-party logistics companies (3PLs) typically own and manage distribution centers. That’s because running a whole distribution system requires extensive resources, which is out of reach for most companies. It’s easier to work with a 3PL that does most of the work for you. And on top of that, 3PLs typically host multiple businesses within one distribution center, saving space and money. All you have to do is ensure the center has enough of your stock to fill orders.
Distribution center versus warehouse: 4 key differences
These two facilities play important roles in inventory control, but they aren’t one and the same. Warehouses are run by individual companies, while distribution centers are managed by third parties on behalf of the individual, for a fee.
They differ in four notable ways:
1. Functionality
Warehouses hold goods for weeks, months, or even years. Distribution centers instead focus on quick turnover and efficient distribution, often acting as a hub for order processing, packing, and shipping.
2. Technology
Distribution centers typically employ more advanced technology than warehouses such as robotics, sophisticated stock management software, and automated sorting systems. These enhance fulfillment efficiency and speed.
3. Services
Storage, shipping, and receiving happen at both locations, but the main difference is who performs the actions. Warehouses are generally managed by the company directly. But most 3PLs, which own distribution centers, offer a larger selection of add-on services, including picking and packing, shipping, and even return processing. And their team members do it, which takes the weight off your company’s resources.
4. Inventory management
In the supply chain, warehouse storage is usually closer to the manufacturing process than to shipping, whereas distribution centers often ship goods directly to retailers and consumers. This means distribution centers require more dynamic inventory management systems than warehouses. Goods move in and out fast, so they need to track and manage stock levels on a minute-by-minute basis.
Pros and cons of distribution processing centers
Distribution centers can be a game-changer, but they don’t work for every organization. Here are some pros and cons to know.
Pros
Some of the benefits of distribution centers include:
- Enhanced efficiency: Distribution centers can process orders quickly and accurately, expediting delivery times.
- Improved customer satisfaction: Faster order fulfillment directly contributes to higher customer satisfaction and loyalty, which are key to long-term business success.
- Reduced costs: Moving lots of product within one center lowers transportation and holding costs.
- Saved time: When a distribution center covers order fulfillment, you have more time to focus on customer service, product design, and sales.
Cons
Despite distribution centers’ many advantages, they also present a few potential drawbacks. These include:
- High costs: Distribution facilities charge more than warehouses because they provide far more services. While this is worth it for larger companies, it might be a stretch for smaller ones.
- Labor shortages: These facilities often ask people to work long hours and difficult shifts, leading to high turnover and labor shortages. Productivity is unpredictable.
- Increasing demand: More businesses are seeking distribution services, which drives up prices and limits available space.
How distribution centers work
Distribution centers have several core processes supporting efficient operations. These include:
Receiving and storing inventory
These centers receive, inspect, and store goods until needed. They have efficient storage systems that prioritize organization and quick retrieval so products are accessible when someone needs to find them.
Remember, most distribution centers serve multiple brands. Large amounts of products are always going in and out, and organization is key to tracking everything and avoiding mishaps.
Inventory restocking
Distribution centers constantly monitor stock levels and replenish items to avoid shortages. Many have automated the reordering process, which involves setting reorder thresholds and getting more stock when levels get low.
Picking and packing
Workers pick items from storage, pack them securely, and prepare them for shipment. Some distribution facilities also use automated systems to improve accuracy and speed while packing orders.
Returns management
Many 3PLs offer returns management services via their distribution facilities. They process returned goods, restock items that aren’t damaged, and issue refunds or ship out replacement items.
Outsourcing returns to a 3PL reduces friction both for you and your customers so people get their replacement products or refunds quickly.
5 types of storage systems in distribution centers
Distribution centers use various storage systems to organize items and facilitate rapid retrieval, but the specific methods depend on the types of goods they manage. Here are some common systems you’ll encounter.
1. Pallet racking
A pallet racking system stores goods on pallets vertically. This maximizes space and provides easy access to palletized items. It’s one of the most common storage systems because it’s versatile and supports pallets of various sizes and weights, accommodating different item types and turnover rates.
2. Shipping containers
Shipping containers, which are also called intermodal containers, are another versatile way to store large amounts of product. Though they’re most common in transport, they’ve become increasingly popular with distribution centers. These containers offer secure, adaptable storage and are particularly useful for overflow, seasonal inventory, or temporary space during peak periods.
Shipping containers are durable, weatherproof, and easy to relocate as storage needs change. Most are also the same size, facilitating easy handling and stacking. This makes them a solid option for distribution centers needing scalable and resilient storage solutions.
3. Shelving
Shelving systems organize smaller, non-palletized items, allowing for manual picking and placement. They have clear visibility and item accessibility, which are pivotal for order fulfillment operations involving individual goods or small quantities of products.
Adjustable shelves accommodate changing product sizes and inventory levels, so they’re great for distribution centers that hold many kinds of items. But you can’t stack bundles of goods on top of one another, which is a potential downside.
4. Bulk boxes
These boxes are large, often collapsible containers that store and transport bulk items or lots of smaller goods. They save space in distribution centers, consolidating loose items into single, manageable containers. Bulk boxes also protect contents during storage and transit, reduce handling requirements, and organize bulk or irregularly shaped products.
5. Bin storage
Distribution facilities use the bin storage method for small parts or items, as workers can easily label and divide items so they don’t get lost. This system supports a clean and organized warehouse environment, enabling rapid item identification and retrieval.
Bin storage systems can integrate into larger shelving or racking systems, keeping multi-business distribution centers organized. The goal is to optimize space usage without losing track of odd objects and small, irregular goods.
Ready to optimize your distribution center operations?
No matter how your distribution center operates, having access to real-time inventory data is a must. That’s where Fishbowl comes in.
Fishbowl manages inventory across multiple locations. Its suite of powerful features and integrations takes the guesswork out of stock management and order fulfillment. And thanks to its QuickBooks integration, it also helps with expense tracking, payroll management, and financial reporting.
Take control of your inventory and drive success with Fishbowl. Book a demo today to learn more.