What Is a Fulfillment Center and How Do They Work?

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Are you an ecommerce entrepreneur with a growing business and finding it difficult to fulfill the fast influx of orders?

Good news – you’ve come to the right place! With our years of experience in ecommerce and delivery solutions, we can advise you about a solution that can help you store, pack, and distribute your goods quickly and efficiently to customers; fulfillment centers.

We cover what fulfillment centers are, the pros and cons of outsourcing to one, how they work, whether Amazon is a good option, as well as some frequently asked questions.

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What Is a Fulfillment Center?

Broadly speaking, a fulfillment center supports the entire process of getting a product from a storage facility to a customer.

They handle all the logistic processes, including order picking and processing, packaging, and shipping.

Fulfillment centers are usually associated with large multinational companies like Amazon, but smaller companies can use them too. Outsourcing you fulfillment so can help improve customer satisfaction as it enables you to get online orders to customers in a timely fashion and relieve ecommerce companies of managing this arduous yet crucial process.

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Is a Fulfillment Center the Same as a Warehouse?

Both words probably bring to mind large open buildings with shelves stacked full of products.

And it’s true, both warehouses and fulfillment centers are large buildings storing products in bulk, though there are subtle differences between them.

Warehouses are geared towards longer-term storage, while fulfillment centers are for shorter-term storage. Typically, products don’t usually sit in a fulfillment center for longer than a month.

The goal of fulfillment centers is to – you guessed it – fulfill orders, so they encompass the picking, packaging, and shipping of products. For this reason, they are bustling with activity around the clock to fulfill orders, unlike warehouses which may be static for long periods.

Since they need to run smoothly, fulfillment centers are equipped with the best technology for processing orders, managing inventory, organizing transportation, and more.

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What Are the Benefits of Fulfillment Centers for Online Stores?

Larger Product Selection

Simply having the space of a fulfillment center means you can stock a wider variety of products rather than limit yourself to a select few. And the average size of a fulfillment center is over a whopping 50,000 square feet! For context a football field is between 300 and 400 feet.

Benefit From Specialist Expertise

By outsourcing your storage, packing, and shipping to an experienced and reputable fulfillment center, you gain the experience of their employees, software, and equipment. This can ensure a streamlined service.

More Delivery Options

Many fulfillment centers offer same-day or two-day shipping, so this offers you more flexible delivery options to suit your customers. This of course depends on the geographic location of the fulfillment center, the technology and operations in place, and the carriers used.

Better Customer Experience

Having more flexible shipping times and costs, better returns process, and faster order processing all result in a better experience for the customer.

The Use of Technology

Fulfillment centers keep track of the inventory on hand. Most fulfillment centers provide technology to help ecommerce businesses manage their inventory remotely, including tracking tools so you know when to reorder products to prevent stockouts.

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What Are the Cons of Fulfillment Centers?

Lengthy Contracts

Some fulfillment centers will tie you into long-term exclusive agreements, so if the arrangements fail, you’re locked in regardless. It’s worth checking the terms and conditions of each contract and whether you want to commit.

Less Control

You must trust your new fulfillment partner and be willing to give up control over the packing and distribution side of your business. For some, this move can be a difficult adjustment. To alleviate this, ensure that you do your due diligence to ensure it’s a reputable and financially stable company.

Less Customization Than You’re Used To

When you use a fulfillment center, you may not be able to add the same forms of customization or personalization that you’re used to, such as branded shipping boxes, custom packing materials or even personalized notes.

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How Do Fulfillment Centers Work?

The process:

  1. The fulfillment center receives your products and stores them in a suitable way. They should keep track of every single item and SKU (stock-keeping unit) that enters their warehouse.
  2. Orders are received from customers.
  3. Product is picked up, processed, packed, and labeled for shipment.
  4. Delivery is arranged and orders are given to shipping carriers.
  5. Returns and exchanges are managed.
  6. Fulfillment centers can work with B2B or B2C orders.

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Amazon Fulfillment Centers – Are They Good Options?

For your fast-scaling ecommerce business, you might want to consider ecommerce giant Amazon.

Amazon is one of the largest, if not the largest, sales channel for US sellers. In fact, data shows that it was responsible for 40.5% of US ecommerce sales in 2021. Amazon is renowned for its fast-delivery options and the sheer scale of its fulfillment centers. If you are considering starting an online store without storing your own inventory, FBA might be for you.

How Amazon Fulfillment Centers Work

Fulfillment by Amazon (FBA) is where Amazon manages your inventory at its fulfillment centers and will pick, pack, and ship orders to your customers.

  1. The goods entering the center: products get taken off trailers by forklift or manually built into pallets.
  2. The stow process: all of the inventory at Amazon fulfillment centers is stowed randomly, rather than being categorized by item type. This makes it easier for workers to pack a variety of products that are all tracked electronically. With the help of robotics and bar codes, products are ferried to the appropriate spot and made available for purchase.
  3. Picking orders: According to Amazon, next a robot brings pods full of items to associates working at pick stations. The picker reads the screen, retrieves the correct item from the bin, and places it into a yellow plastic box called a tote.
  4. Quality assurance: The quality assurance team makes sure the item’s location matches what’s in the computer.
  5. Packing orders: Orders are scanned, organized, and sent to the pack station where the computer system recommends box sizes to associates, who tape up the boxes with the aid of a machine.
  6. Shipping orders out: Packages are quality checked once again, labeled up automatically, and finally nudged from the conveyor down slides into the correct trailer based on shipping method.

Pros of Using FBA

Access to Prime Customers

Prime customers are the most coveted customers – they are frequent buyers who are loyal and may make larger purchases.

Experience

One of the main benefits of fulfillment centers is their years of experience in distribution and selling. They have a wide range of customers and will have refined their delivery process over the years.

Cons of Using FBA

Changing Fees

Amazon is renowned for frequently changing its fulfillment and storage fees and can be a pain point for sellers with these costs eating into profits and limiting your flexibility.

Cost

FBA costs money and that’s money you might not have to spend yet. Some argue that the service isn’t good for low-cost items because of the way fees are calculated, so you’ll want to be selective about products you enroll.

Furthermore, since Amazon’s fulfillment centers are structured to ship at a high-volume, units that are stagnant for longer than six months are subject to a semi-annual long-term storage fee.

Strict Guidelines

Your product must be ready for fulfillment upon arrival to Amazon’s centers and if you fail to adhere to these somewhat rigid rules, you can be charged for noncompliance or even refused the delivery of your product.

Summary

Essentially, outsourcing delivery logistics to fulfillment centers can take the burden of shipping away from your business by handling your product packing, storing, and shipping so you can focus on optimizing other areas of your business such as growing and marketing your website and products. It’s important to do thorough homework on each provider to decide if it’s right for you and your business and we hope this article has helped you make a decision.

FAQs

Here are some frequently-asked-questions to do with getting your products to a fulfillment center.

Each provider is different and will provide you with the right information on getting your products to the center. But generally speaking, it will be a case of booking your products into their warehouse, arranging collection and delivery.

You’ll need to supply a packing slip which outlines the contents and quantities. They can label your products with barcodes for you and they will likely inspect 10-20% of your products, but can check more if you request it.

When you’re struggling to meet increased order volumes, your speed has gone down, you’re running out of space in your warehouse, your technology is falling short, or you want to focus on other aspects of the business.
There are some factors to pay attention to when choosing a fulfillment center provider. These are:

  • What is the fastest shipping speed they offer?
  • Where are their centers based?
  • Features of Order Fulfillment Software
  • Can you trust them? Request full visibility into their fulfillment process – prioritize reliability and accountability
  • Do they provide branding and a range of packaging options?
  • How does the returns process work? A reputable fulfillment company will work with you on returns management to mitigate controllable returns
  • Costs

Unless you have limited cash flow, are highly specialized and therefore know your customer base better than a more general distributor, or have low daily order volumes, a fulfillment provider is likely to be right for your business.
Many logistics companies can also solve order fulfillment problems on your behalf. This includes processing returns and issuing refunds which you want to communicate with customers in your return policy.
Dropshipping is similar to traditional ecommerce however you don’t store any products yourself as they are all sourced from another supplier. If you want to learn more about the difference between dropshipping vs ecommerce fulfillment, check out our guide.

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