What is a Fulfillment Center?

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A flourishing e-commerce business requires thousands of goods to be stored and shipped globally. This comes with the added costs of inventory and shipment. As the business scales, it becomes more necessary to find the most efficient and affordable way to get goods to customers or retail locations fast and cheap.

This is when storing and shipping one’s own products becomes expensive and inefficient. And this is also where fulfillment centers can support sales to make the process a whole lot more efficient.

Many businesses, including e-commerce ones, utilize fulfillment centers (also known as 3PLs) to automate order fulfillment and dispatch.

In this piece, we’ll dive into what is a fulfillment center, its advantages, and why it may be useful for e-commerce store owners.

A fulfillment center is a physical location operated by a 3rd party logistics provider (3PL) to fulfill a customer’s order, and ship them directly to the customer’s delivery address.

It allows e-commerce shops to outsource this portion of their operations and, in return, save money to improve their products.

Fulfillment centers are experts in the order fulfillment process end-to-end. By having multiple clients, they can run large scale operations that are state-of-the-art and far more effective than a center run by an individual e-commerce owner.

How Do Fulfillment Centers Work?

Fulfillment centers operate by integrating with an existing order and inventory management system of a business.

When an order is placed, it triggers a process that identifies the appropriate fulfillment center that houses the specified order item. It then carries out the necessary steps to have it picked, packaged, and shipped to the delivery address.

These fulfillment centers work for both B2B and B2C orders. They can help route large volumes of product to a specific business location such as a big-box retailer sending inventory to one of its store locations. In other cases, it may be an online order from the customer. In which case, the item will be sent directly to the customer’s home address.

Fulfillment centers deal with this process end-to-end. They store the inventory, handle packaging of items for shipment, and even negotiate rates with carriers to have the items shipped off as inexpensively as possible.

There are many advantages to using a fulfillment center; let’s go through them below:

Reduce or Eliminate Costs Related to Storing Inventory

By using a fulfillment center, a company will realize an immediate cost savings. This is because it is much more expensive to store the inventory in one’s own warehouses.

Also, there are usually additional costs related to managing a warehouse space. These include the need to store packaging material and the labor required to pack and ship items. All of this can be eliminated by using a fulfillment center.

Scalability is another benefit, because a fulfillment center is built to handle larger volumes rapidly. While if one uses their own warehouses, this can quickly become a bottleneck.

Let Businesses Focus on the Big Picture

Order fulfillment, packaging, and shipping are cumbersome  tasks. These don’t add much value to a e-commerce business and are worth outsourcing so that the company can focus on customer service and other strategic tasks.

This is especially true when the business is young and the owners already have a ton on their plate. They can’t waste time on fulfilling orders when they should be focused on driving growth and profitability.

By outsourcing this function, more time can be spent on functions such as marketing and customer service – allowing the business to focus on strategy instead of operations.

Tap Into Expertise

With businesses that are handling their own fulfillment, often they are a novice in the field and are experiencing lots of inefficiencies in their process. This is due to both a lack of economies of scale and inexperience in knowing the best practices of order fulfillment.

By leveraging a fulfillment center, both of these issues are solved. Fulfillment centers understand this process and how to handle the complexities of inventory management or order fulfillment. As a result, they know how to anticipate issues related to peak shopping seasons, or optimizing specific routes across the different network of fulfillment centers they manage.

This means their savings can yield savings for business owners as well with cheaper shipping rates, faster delivery times, and lower inventory costs. Their ability to handle any size volume, ship to any part of the world, and anticipate issues makes them a valuable strategic partner to for a business to have.

Automation

Another added advantage of using a fulfillment center is its deep automation capabilities. Technological innovation is the bread and butter of what fulfillment centers strive to do in order to remain competitive and attract clients. This means nearly every aspect of their fulfillment process is automated and made transparent so that they can keep costs low and ensure businesses can view their order fulfillment in real-time and track progress.

Nearly all fulfillment centers will advocate direct integration into e-commerce platforms and marketplaces. This allows them to immediately receive orders and trigger fulfillment as fast as possible – allowing for the fast shipment of items. Moreover, this integration allows both the e-commerce business and the customer to be able to view the status of their item in real-time.

Expand to New Countries

airplane on mid air passing by above cargo ship

Starting up multiple warehouses globally to meet customer demand can be an expensive endeavor for most businesses. Luckily, most fulfillment centers operate many warehouses around the world and can optimize the routing of a store’s inventory. This means that when an order is placed, it can identify the best fulfillment center to retrieve and can send off this item to the customer internationally.

This is great when it comes to meeting customer expectations as an e-commerce owner. Additionally, it saves one the headache of having to deal with international customs laws and other regulations.

Why it Works for E-Commerce Stores

If the above hasn’t made it clear, e-commerce stores should seriously consider using fulfillment centers. They are great in ensuring there’s always enough inventory and that same-day or two-day shipping promises can be delivered. Moreover, a store’s ability to sell internationally without weeks of shipping time becomes feasible. And, by outsourcing the fulfillment process, the e-commerce shop can solely focus on strategic tasks instead of worrying about the operational side of things. So what are you waiting for? Contact us at SKU Distribution today!