Fulfillment Center vs Warehouse: What is the difference?

Icon Warehouse

Let’s start with the short answer. A warehouse is where you store your goods. A fulfillment center is where you store your goods but also get them to your customers. Here we look at what that difference between fulfillment center and warehouse means for your business.

Warehousing or Fulfillment Center?

The terms warehousing and fulfillment get bandied around and mixed up quite easily. A fulfillment warehouse is often used as a synonym for a 3PL fulfillment center or, more precisely, to mean a warehouse within a fulfillment center. People also use distribution center to mean the same thing.

What is a warehouse?

Businesses which supply physical goods need to store them somewhere. Simple mom and pop enterprises might use a shed or garage. The larger the scale of the business, the more storage you need, and properly designed warehousing becomes more important. Warehousing is vitally important because it is at the heart of your operations – you ship in bulk to one or more storage center, before distributing goods to retail outlets, trade centers or end users.

Warehouse buildings

The warehouse you use must be structurally sound. You don’t want to store goods anywhere with leaky roofs or flimsy walls. You need to be able to lock up securely, and you need the right power supply for lighting and possibly for heating and temperature control.

You also need smooth, level flooring to allow pallet trucks, forklifts, or even robotic vehicles to move around freely. You’ll need delivery bays for loading and unloading vehicles and you may want large enough access for big vehicles to come into the warehouse.

Warehouse locations

Your warehousing must be in the right place to work efficiently in your supply chain. Being off the beaten track may be cheaper in terms of rent or purchase, but will most likely mean higher transport costs and longer times for delivery and collection. Storing goods in multiple warehouse locations may incur more cost, but can also help you to make delivery to customers a whole lot more efficient. 

Warehouse capacity

How much warehousing do you need, now and in the future? Your business plans should give you an idea about the number of pallets you need to store, and/or the cubic capacity you need. Your plans need to include any items needing non-standard treatment, such as any items which are oversized, fragile, or potentially dangerous. Your space requirements also need to include packing areas and space for labeling, wrapping, palletizing and depalletizing, as well as aisles and pathways for the warehouse workflow.

Racking and shelving

You’ll find pallet racking in almost every warehouse in the USA. Pallets were first patented in 1925. A century later, they are still fundamental for transport and warehousing. To store pallets vertically, you need properly designed and installed racking with aisle access for forklifts, whether they are manually or automatically operated. Smaller boxes and bins can be stored on open shelving and are usually at floor level and in reach of warehouse staff. 

Warehouse equipment

The equipment you need in your warehouse depends on the number and type of goods you are storing and handling. Your main requirements will fall into the following categories:

  • Docking equipment for safe loading and unloading
  • Conveyors for moving goods and packages around the warehouse, and as part of picking and packing
  • Storage – in addition to racking and shelving you need bins and totes for smaller components
  • Lifting – including hand trucks, forklifts, carts, hoists, cranes and monorails
  • Packing – weighing scales, strapping and banding machines, stretch wrap and packing tables

Warehouse management system (WMS)

A WMS is a system for controlling warehouse operations, from when goods arrive to when they leave. The software tells warehouse staff about inventory, and provides workflow details for picking, packing and labeling, as well as for managing staff and equipment. With so much information in one place, a WMS can generate accurate real-time reports which allow warehouses to operate with maximum efficiency. Your business doesn’t have to be particularly upscale to benefit from a WMS – but as scale and complexity increases, a WMS becomes an ever more important asset.

Warehouse automation

Automation is major consideration in modern warehousing. By replacing manual tasks, automated processes allow warehouses to operate 24/7 at speed and with minimal errors. Data from a WMS can drive automated processes (such as stock replenishment), and, in technologically advanced warehouses, is increasingly being used with robots running AI and machine learning. Robots are able to perform complex and challenging tasks, from handling fragile goods to lifting heavy weights. Unlike a human workforce, robots can work without breaks and without safety risks.  

Should you rent or buy a warehouse?

Your business plans need to include all the costs involved in warehousing, including staffing, equipment and property costs. Owning a warehouse may be the right option for businesses with adequate financial resources, but you need to be sure you want to tie up capital in such an expensive asset. The more common way to pay for warehousing is to rent complete or part units. While there’s always a commitment to lease periods, warehouse rentals can be factored into company budgets without tying up large capital amounts.

When you don’t need a warehouse

The only businesses which supply physical goods and which don’t need warehousing are those purely based on dropshipping – the logistics practice of taking products directly from bulk transport and delivering direct to customers.

That means ready-to-deliver parcels coming from your suppliers to port, airport or transport hub, and then being routed direct to consumers or trade clients. There are plenty of examples of ecommerce businesses in sectors from apparel to household goods and niche products who use this model. You need to be working with a dropshipping supplier, and to have your transport and delivery model properly in place.

The advantages of dropshipping are significantly lower costs, and cashflow is healthy if you take money with the order, then pay suppliers subsequently. However, the number of suppliers prepared to operate on a dropshipping basis are limited, compared to the many companies whose business is based on a more traditional supply model.

Is a warehousing-only solution right for your business?

Warehousing by itself can be the right choice for a business, but only if you have the time and resources to manage the rest of your logistics, from order taking to final mile delivery. In-house logistics management can be successfully handled by individuals or teams, but it requires plenty of expertise and a lot of focus. 

The choice you need to make is between:

Handling fulfillment for your business with warehousing support

or

Committing to a 3PL supplier who will look after your overall fulfillment needs.

If you go with the first option, it’s important to understand the full costs of doing so. You have to factor in staff costs, including training, and the money you will need to spend on systems which you will need to run in-house. You will also need to take a view on how much you invest in keeping up with developments in technology, including new sales channels and transport routing systems.

On a purely financial basis, the comparison to make is:

Cost of warehousing + cost of in-house logistics team vs cost of 3PL provider

Then, critically, you need to make a judgement about whether your in-house approach is going to keep your customers as happy as the 3PL option. That may be tough to evaluate but consider how well your team is performing. Can they match the service standards of a 3PL? What is the error rate? How easily can problems be solved? Are your in-house systems as good as 3PL systems? How does your performance stack up against your competitors?

Outsourcing can challenge your sense of being in control. But if you choose the right fulfillment partner you can realize significant operational and financial benefits.  

What makes your business special?

Here’s something else to think about. One way of looking at any business is that it has core strengths – USPs that make it special and give it a unique place in the market. Those USPs are invariably based on the products you supply, your approach to marketing and communications, and the relationships you build with customers.

I am a passionate believer in the need for the very best in warehousing and logistics – after all they have a major bearing on customer experience. Get fulfillment right and customers will keep coming back for your products.

But you mustn’t forget your USPs. Do you want your people focusing on the nuts and bolts of logistics? Or would they be better off spending time and energy improving and developing the core activities which make your business what it is? Put another way, would your business be better if you worked with a partner who provided a complete fulfillment service? 

What is a fulfillment center?

A fulfillment center is a core part of a business which manages the end-to-end logistics for taking orders, and delivering finished shipments to individuals and organizations.

Almost invariably, fulfillment centers are based in the same location as warehouses, so that warehousing can be managed alongside order processing, pick and pack, shipping and reporting. While logistics information can be managed from other locations (including head offices or connected home offices), being on site allows hands on management and immediate communications.

Large fulfillment centers with sizeable warehouses are increasingly common across the USA, especially in key locations for distribution. Ecommerce has been a major driver of fulfillment center development, as shopping has moved from retail to online channels. Many fulfillment centers are focused on direct-to-consumer services, while others are optimized for business-to-business needs, such as shipping big box items from manufacturers to retailer warehouses or stores. 

What systems do fulfillment centers use?

For ecommerce businesses, orders are processed from consumer-facing online channels including:

As well as APIs such as: 

  • Shopify
  • Magento
  • Netsuite
  • Volusion
  • X Cart
  • Cin7
  • Quickbooks online and desktop
  • Woo Commerce for WordPress
  • Commercehub
  • BigCommerce
  • SPS Commerce

A key service from 3PL providers is managing integration with these and other APIs, to allow for a seamless flow of orders and payments from consumers. The same technologies overlap with business customers who may also use bespoke software solutions developed for commercial organizations.

What is the fufillment workflow?

Fulfillment workflows top and tail the warehousing functions described above. The starting point is the receipt of goods and materials from suppliers, followed through to delivery to customers and the handling of returns of unwanted or damaged goods. The main steps are as follows:

  • Receiving inventory from suppliers with documentation
  • Checking goods received for quality and quantity
  • Storing inventory in warehouse
  • Receiving orders from customers
  • Picking goods for each order from warehouse locations (via a picking list)
  • Packing orders in suitable cartons, wallets and mailers
  • Labeling packages using carrier shipping labels (from FedEx, USPS, UPS and others) with customer address details and shipment references
  • Handover to carriers
  • Receive tracking information to share with customers
  • Process returns and return to storage

Fulfillment management also includes planning and strategy aligned with business plans.

What do you need in a fulfillment center?

For fulfillment centers to do a thorough, efficient job, key activities and skills are involved. As you can see, there is plenty of time-consuming activities to look after, all of which can be performed by a 3PL partner.

Receiving goods

First off, there’s the process of receiving the right goods from manufacturers and producers in the right way and at the right time. Incoming goods need to be shipped in containers, on pallets or in other ways which are suitable for the fulfillment center. If necessary, the way goods are shipped may have to be negotiated with the supplier.

Warehousing

Warehousing and storage must be planned and implemented for the most efficient use of space, and for ease of access for warehouse operatives. Location of stock can have a major impact on how well a fulfillment center works.  A key planning measure for warehouses is stockturn – the number of times during the year that stock needs replenishment. Warehouse managers need to be aware of items for short term and longer-term storage and prioritize accessible locations for stock which is in high demand.

Order processing

Orders need to be entered into the warehouse pick and pack system. With proper integration, online channels will seamlessly feed into the warehouse systems to produce a picking list. Some warehouses operate on printed lists assigned to an operative. Others work through headsets, and automated picking systems are run by feeding directions through to advanced robots. The robots move through aisles and up and down racks in a similar way to human workers controlling forklifts.

Smaller individual items are generally picked manually from bins, and orders are assembled as set out in the picking instructions in cartons, envelopes, or other containers. Quality assurance procedures will be used to ensure that packages are put together in the right way. Some warehouses rely on trained staff to carry out inspections. But there is increasing use of advanced machine vision for automated inspections.

Labeling

Labeling takes information from the ordering system about delivery addresses and order references, and prints labels as required by carriers. Bar codes and 2D codes are created so that parcels can be scanned at different stages of their journey to the customer, including final delivery. Different systems show information on the label about shipping dates and the fulfillment center which shipped the package, while others hold the same information within the bar code.    

Shipping

Packages are taken to the loading dock for onward transport. The movement of goods around the warehouse can be by trolleys, hand trucks, forklifts, conveyors, or robots guided either by underfloor wires, programming, or machine learning. Packages can be loaded on pallets for bulk transportation, either to be delivered as one load, or for splitting into single parcels at the next stage in the supply chain. Pallet loads are held together most commonly by industrial shrink wrap, but also by straps and bands. Products which can’t be stacked on pallets may be shipped in bulk bags or drums.

Returns

Returns labels are often supplied with deliveries to allow consumers to return unwanted goods. Returns are very frequent for apparel, with customers often ordering a range of sizes and rejecting garments which don’t fit. Making returns easy is one of the important customer service considerations for many businesses, and fulfillment centers will be set up to process returns through a range of manual and semi-automated systems.

Each stage of fulfillment center work takes a significant amount of resource and expertise. The right staff, systems and equipment must be in place, as well as effective logistics planning. Efficient fulfillment also depends on working to agreed standards with suppliers of goods and carriers. There are no shortcuts to doing the work well, so any business taking on responsibility for fulfillment without the support of the right 3PL partner will need to allow for all the time and effort required.

What are the benefits of a fulfillment center?

The headline benefits of having an expert fulfillment partner are that:

  • Your customers are happy because they get their orders on time
  • You save the costs of looking after fulfillment yourself
  • You save money on shipping costs
  • You keep focused on your main business activity
  • You save money and make customers loyal

One of the drivers of successful businesses is recognizing what they do well and what could be done better by suppliers. Fulfillment often falls into the latter category. Getting orders to customers is a complex process, especially for business with a wide range of inventory delivering across the country to a significant number of customers.   

To keep up with the best ways to handle fulfillment, you need to understand how technology (including systems integration), carrier services and customers are changing. Fulfillment centers are very close to the action, whereas client businesses are mainly focused on their products and customers. It’s difficult to keep ahead if you’re not a dedicated fulfillment business.    

What are the disadvantages of a fulfillment center?

One of the perceived disadvantages of outsourcing fulfillment is loss of control. However, that’s not a problem if you have a fulfillment partner who communicates openly and shows you what is happening with your orders. Partner systems should be designed to provide the right information to give you full confidence in their performance.

A further issue is costs. To evaluate whether your business is better off with a 3PL partner, it’s important to fully understand the costs of not having one. Staff and systems take up a chunk of your budget, and there are the opportunity costs of putting resources into fulfillment when they could be deployed for other business priorities.

Getting the wrong partner is a risk, but that can be headed off by a thorough process of research and evaluation of suppliers (Check out our guide on how to choose the right 3PL partner). The right choice will let you run your business more efficiently and more profitably.

Outsourcing fulfillment can be a wrench, especially for businesses which pride themselves on being self-reliant. But that’s a hump in the road that any number of proud entrepreneurs, SMEs and enterprise businesses have got over.

Do you need a warehouse or a fulfillment center?

A simple way of helping you decide is to look at your business profile.

Your business profile

Business scale             Niche/start-up             SME                             Enterprise level

Customer locations     Local                            Nationwide                 International

Turnover                     Under $500,000          $500,000 to $5m        Over $5m

Number of SKUs          Under 100                   101 to 500                   Over 500

Existing systems          Spreadsheets              Web store                   Fully integrated

Number of stores        5 or less                       6 to 20                         Over 20

Online  trading            None                           Social media                Full web commerce

Staff numbers             5 or less                       5 to 50                         Over 50

Let’s look at your profile line by line.

Type of business

The smaller the scale of your business, the more likely it’s worth considering a warehouse-only solution. That includes cash-strapped start-ups who are yet to move into profit. You need to keep an eye on costs, and basic warehousing is likely to be all you need. For more upscale businesses, fulfillment centers are more likely the way to go.

Customer locations

If your customer base is local to your business, it makes sense to store goods nearby and rely on simple, low-cost delivery options. Once you go into multiple states, or across the country, you can benefit financially from your fulfillment partner’s multiple warehouse locations, as well as discounted carrier rates.

Turnover

Your sales in dollar terms go hand in hand with the scale of your business, and the amount you can afford to spend on subcontracted services. While 3PL partners can offer excellent value, they are best suited to companies with sufficient turnover and profit to benefit from their services.  

Number of SKUs

SKUs are an indicator of complexity within fulfillment and logistics. Remember that shoes, for example, in eight different sizes represents eight SKUs. Like turnover, the larger the numbers, the more you are likely to benefit from a partnering with a fulfillment provider. 

Existing systems

One of the key benefits of a fulfillment partner is getting your systems to talk to their systems. Any business which is only using the most basic software won’t benefit from integration. More technologically advanced businesses most certainly will benefit, for everything from inventory management to warehouse workflow and order tracking.

Number of stores

Bricks and mortar retailers run on having the right stock available in their stores. Managing store replenishment is a key activity, and fulfillment centers are perfectly placed to do so. However, stock management for single stores and small chains can be perfectly well managed through good warehousing disciplines and regular information and sales updates.

Online trading

Fulfillment centers are an ideal match for established ecommerce businesses. Mainstream web-based systems can be integrated with fulfillment centers and carriers to create a seamless flow of orders into deliveries. A word of caution – start-ups and small businesses using lightweight technology may be ruled out of using a 3PL partner because of negligible benefits for both parties. Simple warehousing may be better for now.

Staff numbers

For all businesses, it may be perfectly possible to manage warehousing and shipping as part of the duties of one or more member of staff. Larger businesses may have more people to take on responsibility for warehousing, logistics and fulfillment. The caveat is always that their time and effort may be better spent on core business activities. It’s also important to weigh up the costs of staff looking after fulfillment.

Warehouse vs fulfillment center FAQs

Is warehousing alone a fulfillment solution?

No, warehousing alone isn’t a fulfillment solution. Warehousing, however sophisticated, is one part of a complete fulfillment process. Warehousing operates alongside sourcing and receipt of goods, performance management and shipping to final destinations, together with detailed planning activities. Whether businesses look after fulfillment themselves or take on a 3PL provider, there is the need to have an overview of the complete process.

What fulfillment services do customers expect?

These days, customers expect orders to arrive promptly and in good order. The standards have been set by the likes of Amazon, and customers have high expectations of service levels. You need a focus on fulfillment that keeps your customers happy.

Are fulfillment services expensive?

Outsourcing fulfillment can look like an unwanted cost when you see quotes from suppliers, but you need to compare their prices with the true costs of looking after fulfillment yourself (including staff, systems, management time). Partnering with dedicated fulfillment experts also offers a range of expertise which your in-house team is unlikely to have.

What are the best warehouse locations?

Whether you opt for warehousing-only services or complete fulfillment solutions, your goods need to be stored in the right locations for your supply chain and delivery to your customers. National shipping for all types of goods is available to businesses of all sizes through large scale carriers, but the timings and costs will depend on how far goods need to travel. If you opt for working with a fulfillment partner, check that they have warehousing in the right places to provide the service you need. As an example, 3PL Center provide fast, cost-effective delivery for all of the US and Canada from our warehouses in California, New Jersey, Vancouver and Toronto.

How do you choose a fulfillment partner?

We’ve created a guide to everything you need to consider when you are looking for a fulfillment partner. In brief, you need to

  • identify your needs
  • research potential partners
  • make a shortlist and talk to them
  • evaluate services and prices

The more thoroughly you handle the process, the more likely you are to find a partner who will help to drive your business forward and deliver the fulfillment service your customers want.

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