What is a fulfillment center?
A fulfillment center/house or third-party logistics (3PL) are service hubs that take care of all logistics processes needed to get a product from the seller to the customer.
Generally, eCommerce companies hire these big spaces to take care of the logistics activities, including managing their inventory, storing the inventory, shipping orders directly to customers and/or retailers, and assisting them in managing the entire vital & extensive process of storage and distribution.
Inventory management requires immense efforts, cost, and time, which is often not possible for most businesses. At the same time minimizing delivery time, shipping cost, and streamlining the order fulfillment process becomes another set of responsibilities in times of quick/rapid deliveries. Hence, fulfillment centers take away the extra baggage from the shoulders of business and take care of the entire process and movement of products from the company to their end customers.
Fulfillment by Amazon (FBA) or Amazon Fulfillment Center is one of the famous examples of fulfillment centers worldwide. FBA stores your products in the facility and also pick, pack, ship, and provide customer service for these products.
What are the differences between fulfillment centers and warehouses?
The primary difference between warehouses and fulfillment centers is obvious with their names; warehouses are known for stocking or holding the inventory (raw, finished goods, unfinished products, etc), and fulfillment centers are known for providing supply chain assistance to the companies. Although, there are other differences that we are pointing out below.
How do fulfillment centers work?
As we discussed earlier, fulfillment centers play important logistic functions & processes for businesses, moving final products from the manufacturers to the customers or retailers.
So, when a company outsources this process to fulfillment centers, they take the entire responsibility of the process from assortments to packaging and delivering the products to the customers' doorsteps.
Following is the wireframe of how fulfillment centers operate or how the fulfillment process is carried out. (Process and functions depends on the requirement and needs of the businesses)
- Final product/goods are been stocked in the third-party logistics center (fulfillment center)
- When an online customer complete the transaction and place an order for a particular product;
- The fulfillment center picks the product and start the packaging and labeling process;
- Later these packages are dispatched from the center and given to the shipment partner;
- Shipment partner delivers and carries the product to the final destination;
- The entire process is been tracked by the fulfillment center.
Fulfillment centers ship products to B2B customers also. Depending on the demand and order values they pack the large orders in the boxes and forward them to the shipment partner for deliveries. Another small factor to mention here is the negotiation of shipping costs, which the fulfillment centers themselves have taken care of.
Fulfillment centers cater to thousand of orders & shipments daily with a quick turnaround time. For that, the entire facility gets strategically divided into multiple units. Each unit corresponds to the specific processes like Inventory receiving unit, Sorting & Storage Unit, Picking, Packing & Labeling Unit, and Dispatch/Shipping Unit.
What are the advantages of using fulfillment centers?
1. No physical infrastructure or own warehouse space
Fulfillment centers eliminate the need for owning a physical space or a warehouse for inventory management and order fulfillment.
2. Faster order processing
As the centers are completely focused and specialized in order processing & fulfillment, the turnaround time significantly reduces, which helps in faster deliveries and processing of orders.
3. Outsourced inventory management
Inventory management is a mammoth task that takes a plunge on the cost and other resources of the organization. Outsourcing the inventory management function gives cost leverage to the organization and saves time & effort for other operational activities.
4. Discounted shipping rates & Lower staffing costs
As fulfillment centers negotiate the shipment cost and rates with the shipping partners, organizations can save their necks from this trouble. At the same time, they don’t need to invest in the labor cost as it has already been taken care of by the center itself.
5. Returns processing
Due to severe competition in the marketplace & increased focus on customer experience, eCommerce companies have introduced return policies that add ons to the entire reverse logistic process. But, fulfillment centers take care of the return processes as well without putting a load on organizations' shoulders.
6. More time for other work
Outsourcing the fulfillment process saves organizations valuable time that can be utilized elsewhere or in some other function that needs constant or close attention of the human resource.
What are the key features or characteristics of a fulfillment center?
An organization needs to consider a lot of factors while choosing a fulfillment center as a partner, as it brings a lot of advantages and leverages the entire logistic process, and improved customer service. There are a few key features that a successful fulfillment center have:
- Flexibility & Quality Control
- Inventory optimization
- Fast Turn-Around
- Technology & Automation
- Big network with Scaling opportunities
- Expertise/ Error reduction
- Improved customer service