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The world of supply chain processes is evolving. The days of handling all needs in a warehouse are both inefficient and fail to meet customers’ basic expectation for omnichannel service. Supply chain leaders faced with the prospect of evaluating the use of a fulfillment center vs. warehouse need to understand the challenges in making a strict decision, their differences, and how to choose the right fulfillment facility for your organization’s needs.

Challenges to Determining Between the Use of a Fulfillment Center Vs. Warehouse

The challenges of deciding between a fulfillment center or a warehouse vary. Supply chain leaders may lack the existing resources to launch a new fulfillment center in critical areas. Various locations may already be home to numerous warehouses, presenting other challenges in securing trucking space for shipping. Furthermore, some may believe that fulfillment center and warehouses are two terms used interchangeably for any activity involving order fulfillment. These facilities have stark differences that affect performance and customer experiences.

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Key Differences Between a Fulfillment Center and Warehouse

As explained by Shopify, the decision between using a fulfillment center versus a warehouse will affect every organization engaged in any form of e-commerce. A warehouse stores inventory until it is needed to fill either store replenishment orders or consumer orders. As a result, warehouses tend to be highly industrialized, not designed for customer visits. On the other hand, a fulfillment center is any facility responsible for the process of handling an order and getting it to consumers. Therefore, all warehouses are basically fulfillment centers, but not all fulfillment centers are warehouses.

For example, supply chain leaders can utilize brick-and-mortar stores as fulfillment centers. Since the employees and customers are already engaged in work, it makes sense to use in-store inventory for moving product which is especially valid for customers leveraging buy-online pick-up-in-store (BOPIS) services. Additional examples of fulfillment centers include the actions of Sam’s Club in late 2017 to convert storefronts into fulfillment centers for areas of high e-commerce demand. Even leveraging dropshipping is a type of fulfillment center operation.

How to Choose Between Fulfillment Centers and Warehouses

To make an informed decision in considering fulfillment centers versus warehouses, supply chain leaders should follow these steps:

  1. Know your demand for the local and regional area. Warehouses can be useful in sending product across great distances. Meanwhile, fulfillment centers are better equipped for local and regional services.
  2. Think about available carriers and their rates for intermediate- and long-distance shipments. Moving more inventory means lower shipping rates. However, it is essential to note whether these rates compare to or are significantly different from the costs of sending the product to a fulfillment center for pickup.
  3. Consider your inventory needs, such as in-demand items, which require more significant on-hand inventory and necessitate warehouse storage space, says  Jeanna Courter of the PBD Worldwide Blog.
  4. Evaluate your current carrying costs. Higher carrying costs might allude to better performance and efficiency upon implementation of a fulfillment center.
  5. Recognize and track what your customers want. Since the primary purpose of a fulfillment center is to serve customers, not store inventory, any activity involving in-person interactions, including BOPIS, may benefit from a fulfillment center. 

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Know the Type of Facility or Operation Right for Your Organization

Deciding between a warehouse or fulfillment center is a significant hurdle that businesses face with the rise of e-commerce and omnichannel processes. Although maintained for traditional supply chains, warehouses add to costs and could decimate a company’s profit margins in today’s world. Supply chain leaders should take the time to learn the difference between a warehouse and fulfillment center and choose the facility that will most benefit their needs based on location, cost, and customer expectations.

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