Logistics Terms What Are the differences? Warehouse vs Distribution Center vs Fulfillment Center

Registration dateDEC 12, 2023

Today’s business environment reveals a complex environment that is influenced by many factors including the sudden-changing economy, society, and culture. The key factor of logistics and supply chain management in today’s business environment is the warehouse. Following the trends, the traditional warehouse has changed into a distribution center, and into today’s fulfillment center. These facilities are used to effectively provide products to consumers. Since the purpose and the function are different depending on each facility, an appropriate facility should be used depending on the industry and business requirements.

Let’s take a look at the development process of a warehouse, distribution center, and fulfillment center that are used in today’s business environment.

A warehouse is a place to save and store products and goods. Generally, it is a central place to store and distribute products and resources. A warehouse plays a significant role in many industries, such as manufacturing, distribution, retail, and online sales.

The advent of a warehouse is closely related to the development of industrialization and trade. Manufacturers started to feel the need to store and manage raw materials and finished goods in mass quantity as industrialization proceeded. In addition, as trade grew at fast pace, many people felt the need to move and store products between different regions. Therefore, the need for a warehouse started to appear to maintain the supply chain from raw materials to finished goods.

Definition and Background : Distribution Center

A distribution center is a centralized facility that performs all the logistics activities, such as storing, distributing, packaging, and delivery. It is used for managing logistics activities efficiently and optimizing the movement of products.

The distribution center is the center of the supply chain. It receives products from many suppliers, warehouses them, takes products following orders, packages them, and delivers them to the end consumers. It is very helpful in efficiently managing the logistics process, optimizing the inventory, reducing the cost, and increasing the service quality.

The advent of the distribution center is because of the following reasons: industrialization, changes in customers’ expectations, and requirements for logistics efficiency. In the past, the warehouse was used for producing and storing products. However, the distribution center became important to meet the rapid customer service needs and consumers’ product demands. Moreover, as production and consumption started to be shown in various regions, a more efficient logistics system started to become more essential, and thus, the distribution center became more and more important. Nowadays, the distribution center is operated more efficiently with the development of technology and automation.

Definition and Background :Fulfillment Center

The fulfillment center is a facility where online sellers save, order, and deliver products. All of these processes are done in the fulfillment center. This includes all stages from warehousing, inventory management, order receiving, product packaging, and delivery.

With the explosive growth of the online shopping market, the fulfillment center became more and more important. The fulfillment center is a place that helps companies to store and manage products, efficiently process online orders, and quickly deliver to their customers.

The advent of the fulfillment center is closely related to the growth of online shopping and e-commerce. Online sellers needed a facility to keep and process products to quickly and accurately deliver them to their customers. With these needs, a fulfillment center appeared. Nowadays, it is more common to manage and deliver products using these centers with the help of a third-party service company.

The fulfillment center increases customer satisfaction and decreases inventory management as well as logistics costs. It provides the advantage of quickly responding to market changes and plays a vital role for online sellers.

In short, a warehouse developed into a distribution center after the 1980s as the need for the importance of logistics increased and the function of efficiently distributing products was added.
In addition, online shopping surged in the 2000s and companies needed a new logistics system that fit the online orders. As a result, a fulfillment center appeared.

1) Warehouse
The most basic purpose of a warehouse is to store and manage products or resources and provide a stable environment to hold inventory. Since storing inventory is a priority, warehouses are located in areas with low land prices. Warehouses are prioritized for their storage efficiency. Modern warehouses leverage information technology to collect and analyze data on inventory management, order processing, and logistics activities to increase efficiency and reduce costs.

These functions make warehouses an important part of the supply chain, and are essential to keep the process of moving products from production to delivery to consumers running smoothly.

2) Distribution Center
A distribution center is a space where products or goods are stored and held, and it serves as a logistics hub where inventory is managed and delivered to where it is needed at the right time. It is usually located in an area with good transportation access. Modern distribution centers are equipped with automation systems and the latest technologies to efficiently manage work processes, increase product traceability, and optimize logistics activities.

As a key element of the supply chain, distribution centers are responsible for the efficient transportation and storage of products, ensuring the smooth movement of goods between manufacturers and consumers. This contributes to increased efficiency, cost savings, and customer satisfaction along the production-to-consumer path.

3) Fulfillment Center
A fulfillment center is responsible for accepting and processing orders that come in online, locating and packaging products, and preparing them for shipment to customers. They are located in close proximity to consumers, so they can fulfill customer orders and get products to customers quickly. Because they utilize advanced logistics systems, they can more quickly track the quantity and location of products and replenish low inventory in a timely manner so that you can get your products to your customers. Some fulfillment centers consolidate orders from different sales channels (e.g., online marketplaces, social media, and one’s own website), allowing sellers to centrally manage their inventory and orders across all channels.

[Warehouse vs Distribution Center vs Fulfillment Center]

Image from the outside of the distribution center building

Automation : Warehouse vs Distribution Center vs Fulfillment Center

Automation plays an important role in warehouses, distribution centers, and fulfillment centers, but there are differences in the level and methods of automation in each facility.

1) Warehouse
Automation in warehouses is relatively low, with a focus on storing and managing products, so basic automation technologies are often used to track inventory and identify storage locations. For example, barcode scanners, conveyor belts, and RFID technology are used to track products, and this is usually done manually or semi-automatically.

2) Distribution Center
The level of automation in distribution centers is intermediate, higher than in warehouses, and is used for a variety of logistics activities, focusing on inventory management, product sorting, and transportation preparation. Automated conveyor systems, robotics, and automated packaging and labeling equipment are used to automate work processes. Some manual work is required, but the technology is more advanced than in a warehouse.

3) Fulfillment Center
A fulfillment center is a place where online sellers process orders, package products, and ship them out. Using a fast, automated system, it picks, packs, and ships products as orders come in. It focuses on fulfilling customer orders quickly and accurately using robotic technology, automated packaging, and expedited logistics systems. High efficiency and accuracy is achieved through integrated technology systems and real-time data processing.

These facilities employ varying degrees of automation depending on their business purpose and activities. Distribution centers and fulfillment centers may require a higher level of automation and often adopt a variety of automated systems, especially to make customer service and order processing more efficient.

Advantages and Disadvantages : Warehouse vs Distribution Center vs Fulfillment Center

1) Warehouse
Advantages

- Product storage and security: Products are protected from the weather, environmental changes, or damages.
- Inventory management: The inventory can be managed systematically in the warehouse and businesses can optimize the inventory level and reduce logistics costs.
- Efficient logistics: Since the warehouse stores products, it can increase logistics and supply chain efficiency.

Disadvantages

- Inventory cost: The warehouse operation incurs costs due to inventory management and storage. Depending on inventory changes, the cost may increase.
- Regional restriction: Since the warehouse is located in a specific area, there may be some regional or global logistics limitations.
- Fixed cost: There may be a fixed cost and it might be difficult to adjust the cost depending on demand fluctuations.

Image from the distance of the distribution center building

2) Distribution Center
Advantages

- Efficient logistics and inventory management: Since products can be efficiently stored and managed, it not only helps inventory optimization but also enhances order processing and delivery.
- Fast order processing: It helps enhance customer service since orders are processed quickly and products are delivered after packaging.
- Multinational logistics: It manages multinational logistics and provides the necessary functions to enter into the global market.

Disadvantages

- Initial investment: An initial investment is necessary to establish and operate a distribution center.
- Manpower management: Sufficient logistics and manpower management are necessary in a distribution center. In a distribution center, manpower problems may occur.
- Global logistics complexity: Multinational logistics may lead to unexpected situations because of customs, regulations, documentation, and complex problems between different countries.

3) Fulfillment Center
Advantages

- High customer service quality: Increases customer service quality by professionally performing order processing, product packaging, and inquiries.
- Inventory optimization: Actively manages product inventory, protects excess inventory or inventory shortage, and reduces logistics costs.
- Expandability: To meet growing businesses, the fulfillment center can easily be expanded and can respond to increasing orders.

Disadvantages

- External reliability: Since the fulfillment center is reliant upon external companies, the controllability is limited.
- Customer information protection: It is important to manage data protection and personal information privacy when dealing with customer order information and data.
- Prolonged inventory: The fulfillment center does not store products for the long term, so it may not be suitable for products that need to be kept for a prolonged time.

Warehouse vs Distribution Center vs Fulfillment Center Q&A

Q: What is the biggest difference between a warehouse, distribution center, and fulfillment center? A: Purpose of each facility!

- Warehouse (Main purpose: Facility to store products)
A warehouse is generally used to store products. It safely stores inventory, manages it, and moves it to the distribution center for shipment. It is not for processing orders or selecting products, and products are generally stored for a long time in a warehouse.

- Distribution Center (Main purpose: Adjusting logistics activities)
A distribution center is located in a strategic place to save and distribute products. It performs logistics activities, including adjusting the movements of products, processing orders, distributing products, and packaging, and ships them to customers. Compared to a warehouse, a distribution center is more active in dealing with products and plays a significant role when processing orders and shipping.

- Fulfillment Center (Main purpose: Order process, packaging products, and quick shipping)
A fulfillment center is generally used by online sellers and e-commerce companies to store products, process orders, package, and ship. When an order is received, the fulfillment center processes the order and finally ships products to customers.

Q: Which companies use the warehouse, distribution center, and fulfillment center? A: Various industries / logistics and delivery companies / e-commerce!

All 3 facilities are used in many industries. Among them, the warehouse is the most basic facility and is used in many different genres and areas. It is generally used in transactions between companies. The distribution center is generally used in logistics and delivery companies. It is focused on transactions between companies and retail. The fulfillment center is generally used by e-commerce and online sellers. Generally, it is used for online shoppers.

Q: What is the most important factor when deciding the location of a warehouse, distribution center, and fulfillment center? A: They are all different!

- Warehouse: Low land price is important.
The lower the land price, the lower the initial cost of constructing, maintaining, and operating the warehouse. This has two advantages: reduces the initial investment cost of a business and manages operation costs. By purchasing or leasing inexpensive land, it is possible to select an advantageous position to expand the facility in the future. If a large land is secured at an inexpensive price, it gets easier to expand and change in the future.

- Distribution center: Transportation access is important.
The distribution center is a place for managing product movement. The closeness to the transportation modes plays a huge role in quickly moving products and efficiently delivering them. The distribution center is located in a place where transportation is smooth and efficient. Therefore, it optimizes product movement and delivery process, and reduces time and costs.

- Fulfillment center: Proximity to customers is important.
Customers wish to quickly receive the products they order. Being close to customers allows the provision of customized services to customers in a certain area with low shipping costs. In addition, since the fulfillment center is in proximity to customers, it enables fast and easy returns and exchanges. This increases customer satisfaction and helps minimize negative customer experiences.

List

Category	Name	Purpose
Auto ID save upon visit	Customer Guide	Identify the visitor without Log-in
Activity reponse	Total conversation	To serve better interactions, this cookie tracks web behaviors of email subscribers and web form submitters
	Total Pages
	Total Time
	Total visits
	Most recent search query
	Most recent search engine
	Most recent referrer
	Most recent marketing campaign
	Most recent form submitted
	Last visit date and time
	Last page visit
	First visit date and time
	First page visited
IP address based information	City	To serve better interactions, this cookie assumes regions and companies of email subscribers and web form submitters
	Company
	Company DNS name
	Country(from DNS)
	Country (from IP)
	Latitude
	Longitude
	State/Province
	Timezone
	Timezone offset from GMT
	Zip code

Logistics Terms What Are the differences? Warehouse vs Distribution Center vs Fulfillment Center

Latest Blog Posts