How a fulfilment centre works and is different from a warehouse
Fulfilment centres work by streamlining the operational tasks of getting orders to your customers. They're different from warehouses, which only store inventory. Whether you're starting an online business or ready to scale your order fulfilment, fulfilment centres and warehouses will eventually become critical parts of your supply chain.
This guide explores fulfilment centres versus warehouses and the benefits of working with a third-party logistics provider (3PL).
What is a fulfilment centre?
A fulfilment centre is a hub for all logistics processes involved in getting a product from your business to your customer. Third-party logistics providers (3PL) typically operate fulfilment centres – companies that specialise in order fulfilment – and can process orders for B2B and B2C businesses.
What does a warehousing solution do?
A warehousing solution is usually an industrial space used to store inventory. Unlike a fulfilment centre, orders aren't necessarily picked, packed and shipped from a warehouse. Fulfilment centres offer temporary storage for products likely to be sold imminently, while warehousing is more of a long-term solution.
Cost-effective storage solutions with warehousing
For most small businesses, leasing warehouse space is typically the most cost-effective storage solution for bulk inventory. But without proper optimisation, warehousing can quickly cause fulfilment errors and suck up financial resources.
To streamline your warehouse storage for maximum efficiency, you'll want to consider:
Physical structure and layout
Does your shelving and racking system make the most of vertical space in your warehouse?
Storage
Are items stored in a way that helps reduce carrying costs?
Product placement
Are your most popular items located as close as possible to packing stations?
Retrieval methods
How long does it take your warehouse team to pick an order? Could different retrieval methods or systems help boost productivity?
Warehouse flow
How quickly do products move in and out of your warehouse?
Fulfilment centres vs warehouses
The primary role of a warehouse is to store inventory. At the same time, a fulfilment centre helps streamline the ordering process to ensure products get shipped and delivered to your customers on time.
Key differences between fulfilment centres and warehouses:
Inventory storage vs order fulfilment
A warehouse is a storage facility, whereas a fulfilment centre's operations are much more complex. A 3PL provides a variety of order processing and fulfilment services, including:
Receiving inventory
Picking – generating pick lists and locating products
Assembling items (if required)
Packing orders
Labelling shipments
Organising the shipment of customer orders
Managing returns
Frequency of pick up by shipping carriers
Because a fulfilment centre processes direct-to-consumer orders, shipping carriers usually pick up orders at least once daily, particularly if customers require expedited shipping. Pick-up times and frequency will vary depending on the 3PL, but this is something they'll negotiate with shipping companies on your behalf.
On the other hand, pick-ups from warehouses are more sporadic – it's more cost-effective to schedule a shipment when you've multiple parcels to send. However, this can impact order processing times and delay deliveries.
Short-term vs long-term storage
While there's a storage component to a 3PL fulfilment centre – your inventory is held in a designated location close to your customers – the main goal of a fulfilment centre is to turn inventory over quickly. If inventory sits in a fulfilment centre for too long, you'll get stuck paying high warehousing fees. However, you should also schedule regular stock replenishment so your 3PL always has enough products to fulfil customer orders.
Location and impact on shipping rates
Fulfilment centres can ship products to customers faster because of their location – usually closer to customers – which helps reduce shipping costs and time in transit. Warehouses are often (but not always) located in more industrial areas. You may rent or lease warehouse space near your base of operations (your residential home or office), which may not necessarily be near your customers.
Benefits of a fulfilment centre
The benefits of a fulfilment centre are varied, including:
Automated warehousing and order fulfilment
One of the most significant benefits of a fulfilment centre is the technology. Most modern fulfilment companies use the latest warehouse management systems that directly integrate with ecommerce and marketplace platforms. Every step of the fulfilment process is recorded in real time so you can check inventory levels or the status of an order. This visibility will also help you identify areas for improvement in your fulfilment operations.
Facilitating faster delivery times
The purpose of a fulfilment centre is to process orders quickly. The flow-on effect is that products get shipped out faster, cutting back delivery times – a big customer experience win. Alongside speedy delivery, fulfilment centres can leverage their volumes to negotiate more favourable shipping rates and access expedited shipping options.
Reduced overhead costs
For many online businesses, order fulfilment comes with a hefty price tag. There's the cost of storing inventory, hiring and training staff, and the various tasks involved in processing orders. By working with a 3PL fulfilment centre, you can significantly reduce your operating costs by leveraging their systems, labour, and relationships with shipping carriers – and you can redirect those financial resources towards other core business activities.
Ability to scale business operations
As your business grows, your fulfilment needs will get more complex – increased volumes and bigger product ranges will put pressure on order fulfilment processes. Fulfilment centres have the infrastructure and resources to scale their operations without impacting order processing times. This means during peak seasons or promotional periods, your customers can expect the same seamless ordering experience.
Fulfilment centre operations
Fulfilment centre operations – or the order fulfilment process – consist of all the tasks in getting your product delivered to your customer's doorstep.
Here's a breakdown of that process – and how a 3PL works at each step:
Receiving inventory
The 'receiving' of inventory refers to the process of a 3PL accepting your incoming inventory and storing it.
Picking orders
When a customer places an order, the 3PL fulfilment process begins. If the fulfilment centre uses warehouse management software that integrates directly with your ecommerce platform, the order will be automatically assigned to the warehouse picking team. The picker will take the picking list and collect the correct items and quantities.
Packing boxes
When all the items are collected, they'll get packed securely. If you're using custom packaging, they'll use that. Otherwise, using standard packing materials like unbranded boxes or bubble mailers is common practice. It's a 3PL's job to choose the best packing materials to ensure every order arrives intact and shipping costs stay as low as possible.
Shipping orders
The next step is shipping. Most 3PLs will purchase and print shipping labels from their preferred carriers. Once the order ships, tracking details will be sent automatically to the customer.
Managing returns
Many 3PLs also offer return processing services – if a customer returns an order, they'll process the return in line with your online returns policy. To make returning an order even easier for your customers, you may get your 3PL to include a return shipping label in each order.
Utilising a 3PL provider to handle warehousing and order fulfilment
3PL fulfilment companies provide a comprehensive solution for businesses that need to outsource their warehousing and order fulfilment.
If you're considering working with a 3PL, here are some local providers:
Fulfilment centre FAQs
What are the different types of fulfilment centres?
There are three main types of fulfilment centres:
In-house fulfilment – your business manages the order fulfilment process internally.
3PL – your business outsources order fulfilment to a third-party logistics provider.
Dropshipping – your manufacturer ships your products directly to your customers.
How does a fulfilment centre differ from a 3PL?
Most fulfilment centres are 3PLs that provide various fulfilment services – some may focus on basic functions like picking and packing, while others will offer additional services such as managing returns.
What's the difference between a distribution centre and a fulfilment centre?
A fulfilment centre processes and ships orders directly to consumers and can provide fulfilment services for many different clients. A distribution centre is where manufacturers deliver products before they get distributed to a retailer's stores. Usually, a distribution centre would only process goods for one company, not multiple like a fulfilment centre.
Pick, pack and ship with MYOB's help
Seamless order fulfilment requires complete visibility of picking, packing and dispatching. With MYOB's CRM software, you can oversee those order management processes across multiple warehouse locations while maintaining a clear overview of inventory levels – all from one business management platform.
Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.