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Warehousing & Fulfillment

Benefits and Best Practices for eCommerce Distribution Centers

Warehousing & Fulfillment
November 12, 2021
7 min read
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Learn how including ecommerce distribution centers in your fulfillment network can lower time in transit (TNT) and reduce shipping costs.

As online shops evolve into multichannel selling, understanding the benefits of eCommerce distribution centers and fulfillment centers can make or break the business. While both store inventory, they serve distinct functions in ensuring customers across the country receive their orders intact and on-time without hurting profit margins.

Keeping up with Amazon and Walmart is extremely challenging. Beyond their spending power, these retail juggernauts continue pushing the limits of fast shipping. This has led customers to expect speedy delivery from shops of all sizes – even small-and-medium size businesses (SMBs).

Plus, 87% of shoppers begin their product search online and 54% prefer to make online purchases, further illustrating the importance of differentiating from eCommerce rivals with swifter, cheaper nationwide delivery that doesn’t break the bank.

One fast growing company to emulate on the multichannel selling front is O2 Recovery.

With deep ties to the CrossFit community, founder Dave Colina launched sales at independently owned gyms. Then, powered by word-of-mouth and customer loyalty, O2 expanded to grocery store shelves and a Shopify-enabled eCommerce store.

Flexible fulfillment options have helped O2 thrive – even during the COVID-19 pandemic, when the independently-owned gyms they depend on the most were forced to shut down. O2 has been able to pivot on a dime thanks partly to the scale and efficiency of their nationwide warehouse network.

Below we examine the benefits of eCommerce distribution centers and how they’re different from fulfillment centers to help merchants determine which one they may need.

What are the benefits of an eCommerce distribution center?

Acting as a waystation, eCommerce distribution centers give sellers more control over how inventory is stored and redistributed coast-to-coast. At these large warehouse transfer points, goods are moved from one form of transportation to another and passed to fulfillment centers or big box stores. Ultimately, distribution centers are one part of the larger logistics network designed to reduce shipping costs and accelerate transit times.

For example, national and large regional sporting goods shops could use distribution centers to forward stock inventory to individual stores. An inventory filled truck would arrive at the distribution center. Then, another truck would take goods from the distribution center to a store to replenish its shelves.

Or looking at Amazon, the world’s largest retailer outside China, their distribution centers are massive – about 600,000 square feet in size. Amazon’s eCommerce distribution centers take in large orders of inventory that are expected to sell quickly. This inventory is later reallocated to fulfillment centers nationwide to meet the eCommerce giant’s strict 1-2-day delivery requirements.

Accordingly, distribution centers have four primary benefits:

  1. Storing large quantities of inventory
  2. Long-term storage at low cost
  3. Delivering high volumes of items from business to business
  4. Less expensive than storing inventory at fulfillment centers

How does an eCommerce distribution center differ from an eCommerce fulfillment center?

While the terms eCommerce distribution center and eCommerce fulfillment center are often used interchangeably, subtle differences exist between the two.

Fulfillment centers, which are often operated by third-party logistics (3PL) providers, usually are preferable for eCommerce sellers shipping product directly to customers. On the other hand, distribution centers are better for larger businesses shipping goods in bulk, especially those with a large brick-and-mortar store network.

Additionally, while eCommerce fulfillment centers also act as warehouses, unlike distribution centers they provide receiving, storage, picking, and packaging services based on suppliers’ specifications.

For instance, HyVIDA, the world’s first and only hydrogen-infused carbonated beverage, utilizes customized packaging to ensure certain goods arrive undamaged and to increase brand awareness. Fulfillment centers make certain that these goods are packaged and shipped based on the beverage company’s high standards, along with handling the following day-to-day operations:

  • Securing inventory
  • Receiving and storing inventory
  • Successful inventory management, which features proper SKU management and optimal warehouse slotting.
  • Audit inventory stock levels
  • Re-order product in timely manner to foresee and prevent stockouts

Further, another major difference between eCommerce distribution centers and fulfillment centers is that the latter ships directly to wholesale customers or consumers. Distribution centers are designed more for replenishing fulfillment centers and brick-and-mortar stock, whereas fulfillment centers distribute directly to consumers countrywide much faster than if all inventory was stored in one centralized warehouse.

Fulfillment centers accomplish this complex process by utilizing a cloud-based warehouse management system (WMS). Besides automating fulfillment and warehousing functions, the WMS integrates with marketplaces, such as Walmart Marketplace and Amazon, and electronic data interchange (EDI) connectors. In other words, with multichannel fulfillment making selling increasingly complex, the WMS provides much needed visibility into daily operations and real-time logistics conditions

Consequently, since eCommerce requires quick turnarounds to deliver on customers’ expectation for fast, cheap 2-day shipping, fulfillment centers often make more sense than distribution centers for reducing delays in the supply chain.

How do eCommerce distribution centers help meet consumers’ fast, inexpensive shipping expectations?

Due to the Amazon Prime effect, shoppers expect free, guaranteed 2-day shipping from all stores – even SMBs. Delivering on this expectation affordably requires forward stocking inventory as close to customers as possible across a nationwide distributed warehouse network. This eliminates shipping to higher shipping zones, which improves shipping speeds and reduces transportation costs.

ECommerce distribution centers meet this expectation in three other ways:

  1. Following Organizational Best Practices – Inventory is managed, prepared, and shipped much more efficiently from eCommerce distribution centers and warehouses.
  2. Successful Inventory Management – Reduces the number of lost items and bolsters inventory tracking accuracy, resulting in fewer delays and wrong goods being shipped.
  3. Optimal Amount of Inventory On-HandPrevents costly stockouts and burning cash flow on inventory that sits on warehouse shelves for long periods of time.

The Bottom Line

Most online sellers lack the time and budget required to build their own eCommerce distribution and fulfillment center network. For this reason, O2 and other companies partner with an outsourced order fulfillment fourth-party logistics (4PL) provider.

Allowing an expert to handle the heavy lifting reduces supply chain and logistics costs, along with removing the operational inefficiencies created by managing multiple fulfillment solutions. Handling all sales and distribution channels via a single network reduces warehouse space and excess inventory costs, while making it easier to act on big data and ramp up sales in over-performing sales channels.

Ware2Go is a 4PL created by UPS to help rapidly growing businesses across many industries attain a nationwide 2-day delivery footprint through a single provider. O2 aligned with Ware2Go to guarantee fast shipping – and because they integrate seamlessly with Shopify and fulfill across all sales platforms.

To learn more about how Ware2Go can help you optimize eCommerce order fulfillment, reach out to one of our fulfillment experts.

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