What Are Distribution Centers & How Do They Work?

It used to be that virtually all manufacturers and retailers operated out of warehouses. They housed all their inventory in a warehouse and fulfilled orders in-house. But today, distribution centers are shaking up this traditional model.

With the ability to use distribution centers all across the country, businesses can cut fulfillment costs. Distribution centers offer businesses the benefit of their established infrastructure, streamlined processes, and cheaper fulfillment costs. As a result, businesses can cut their overhead and boost their bottom line.

How Does a Distribution Center Work?

A distribution center is basically a customized warehouse that specializes in order fulfillment. These centers store inventory, pick and pack orders, and ship out orders. 

Retailers often work with distribution centers to simplify their order fulfillment process. They can save money on storage costs and benefit from the distribution center’s established infrastructure to quickly and efficiently pick, package, and ship orders.

How Is a Distribution Center Different Than a Warehouse?

A distribution center and a warehouse are similar, but their specific operations vary according to the specific company. In the traditional sense, warehouses only store inventory. 

Distribution centers are more robust operations that handle order fulfillment. This includes receiving orders, picking products, packing orders, and shipping them out to customers. 

Distribution centers often handle outbound logistics, whereas a warehouse requires that you coordinate shipments yourself. These centers focus on efficiency, helping retail partners to increase order accuracy, reduce storage costs, improve the packing process, and speed up delivery times. 

What Processes Are Handled in a Distribution Center?

While specific distribution centers may offer tailored services, most centers offer the following services:

Receiving

When raw materials or finished products are delivered, the distribution center will handle the receiving process. They’ll unload the goods, inspect them, and check them into the inventory management system. 

Inventory Storage

A distribution center will store inventory until it is ready to be packed and shipped out to customers. E-commerce businesses can often save on storage costs since they share the storage space in a distribution center with many other businesses.

Picking

Most distribution centers use advanced technology to manage inventory and order fulfillment. Good inventory management can simplify the picking process by storing similar items in the same area of the distribution center. Pickers can then pick items for orders more quickly, shortening your fulfillment timeline.

Once an order is placed, a picking list is created. This will list the product name, item number, quantity, and its location in the distribution center. Once the picker gets an item, they scan it and inventory counts are updated in real time. 

Packing & Shipping

After the order is picked, it’s ready to be packed and shipped. The picker will often crosscheck the picking list, ensuring order accuracy, before proceeding to pack and label the package. The order leaves the distribution center once it is passed off to the shipping carrier.

Restocking

Restocking inventory is essential to ensuring that your orders are fulfilled correctly and speedily. Distribution centers have advanced inventory management systems that forecast demand, thereby reducing stockouts and back-ordered items. As a result, you run into fewer issues with delayed shipments. 

Returns

Returns are inevitable with e-commerce businesses, and they can be time-consuming to manage. When you use a distribution center, they handle returns management for you, processing items as they come back into the center and putting them back on the shelves. Your inventory is then accurately reflected, so those items can be ordered by another customer.

Benefits of Using a Distribution Center

Depending on the size of your business, using a distribution center (or many across the country) can make a lot of sense. If your business is very small, you are likely fulfilling orders in-house, but as you grow, you might turn to a distribution center for assistance. Here are some of the benefits:

Reduced Costs

Fulfilling orders in-house requires many processes, from processing orders to picking and packaging products. If you don’t have systems in place to do all of these well, labor costs can quickly add up.

When you use a distribution center, you benefit from their established operations. Since they process many orders from many companies, you share some of the costs with these other companies. This means you may pay less out of pocket. 

More Efficiency

Distribution centers specialize in order fulfillment. They know how to manage each stage of the process incredibly well. Put simply, they are better at this part than you might be. 

When you transfer this workload to a distribution center, you can focus your energy on the other aspects of your business. This means your time and energy are better spent where you are an expert.

Better Technology 

Since distribution centers manage these operations for many businesses, they are often outfitted with the best technology. They can provide you with detailed data on all aspects of the fulfillment process, including real-time inventory counts, processing times, and delivery specifics.

If you are fulfilling orders in-house, this minute degree of management will take you a lot of time. You’ll also have to purchase software solutions like a warehouse management system. 

Opportunity for Growth

Every e-commerce business wants to grow. When you partner with a distribution center, you are positioned to grow rapidly. As your orders increase, you’ll be more easily able to fill them when you work with a third-party partner.

Faster Order Fulfillment

Again, since distribution centers specialize in order fulfillment, they can simply do it faster. The faster you fulfill orders, the more satisfied your customers will be. This will equal more repeat sales and a loyal customer base. 

Logistipedia Can Optimize Your Work With Distribution Centers

We want you to enjoy better operations. That’s why we can analyze how your business currently moves goods and optimize your processes for better results. With our help, you can reduce your costs, improve your delivery timelines, and manage your inventory better. Contact us today to get started.

Distribution Center FAQs

What is a distribution center?

A distribution center doesn’t just store goods like a warehouse. They can process orders, pack and ship orders, and manage your inventory. Essentially, they manage all aspects of order fulfillment.

Why do I need a distribution center if I have a warehouse?

A warehouse simply stores goods, whereas a distribution center manages all aspects of the order fulfillment process. 

How can a distribution center save my business money?

You can speed up delivery times if you use multiple distribution centers throughout the country. Your products will have less distance to travel, resulting in fasting shipping times and lower shipping costs.

What are the benefits of distribution centers?

Since they specialize in order fulfillment, distribution centers can fill orders more efficiently. This efficiency cuts costs in the process and results in happier customers since there are fewer errors and orders are received faster.

References

How to Find and Choose a Fulfillment Center for E-Commerce. (October 2020). Forbes.

Retailers Look to Expand Warehouse Capacity, With Some Converting Store Space. (April 2022). Forbes.