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Importance of Fulfillment Centers in the Supply Chain



A shelf is a shelf, and a forklift is a forklift, so a storage building is a storage building right? Well, not exactly. While both fulfillment centers and warehouses are large buildings that store inventory for businesses that sell products, that is pretty much where the similarities end. The services that each provide and the cases where each are used vary widely, depending on the needs of the organizations that use them.


A warehouse is a general term for a storage facility, and may be owned by the manufacturer, their end customers, or other providers. A fulfillment center, however, is typically operated by a 3rd party logistic provider, and it actively participates in the packaging and shipping of the goods. Whereas a warehouse might only be used to keep the products from getting wet, it’s a fulfillment center’s duty to get products out to customers who just placed an order as quickly as possible. 


Because they often need to arrive quickly, especially in the case of e-commerce, retail orders are often shipped from a fulfillment center rather than from a warehouse. Even if you are storing extra products in a warehouse, they can be shipped from the warehouse to a fulfillment centre, where they move quickly through the fulfillment center and then out to their destination with the customer.


The cost effectiveness when using fulfillment centers totally depends on the specific needs of the customer and on some factors that may influence the overall supply chain design. Some of the main factors to take into consideration are:


Location

The location of a fulfillment center has a much bigger impact on operating costs than one might imagine. A strategically located facility can balance being close to a larger number of customers while also having easy access to transportation routes for truck, rail, and air transport. A fulfillment center in the middle of nowhere wouldn’t save much time or cost if it’s a three-hour drive to the nearest metro! Both inbound and outbound shipments could become costly.


Technology

The technology that a fulfillment center uses has a significant impact on all parts of their fulfillment operation – from order accuracy and processing speed to shipping costs and returns processing. The more sophisticated and automated a warehouse management and fulfillment system is, the more economically beneficial it will be for B2B and B2C order management. New physical developments in warehouse technology - like robotic and system developments, data integrations, and demand planning - allow both fulfillment centers and warehouses alike to improve efficiency and service. Of course, investing in these developments or choosing a more advanced fulfillment provider may cost more. But the benefits of improved data quality, transparency, and service can more than pay for themselves.


Allocations and Environmental Conditions

Risk management is an important factor when it comes to deciding on which fulfillment center to use. A particularly relevant example is the COVID-19 disruptions to supply chains, as many goods were not able to leave their origins and others were stuck for weeks to months at their destination warehouses or fulfillment centers. Many companies saw huge allocation problems and increased risks to safety. With limited allocations and available transport capacity, products like food, medicines, and dangerous goods were potentially stuck in improper conditions for longer than expected, leading to safety issues and potential losses. This was compounded by the fact that more goods than ever were being sold through eCommerce, meaning demand kept increasing while storage capacity, local transport, shipping routing, and staff availability quickly decreased. When facing these challenges, some companies were better able to respond and adapt than others, in part because of decisions made in terms of fulfillment partners. More advanced fulfillment centers - with better operational abilities, communication, and visibility - were able to help their partners. Other shippers who did not outsource such service perhaps felt it was an advantage to have more direct control.

RECOVERY WILL TAKE TIME, BUT THERE ARE STEPS TO GET THERE

Regardless of their fulfillment decisions and their success in navigating 2020, there are few companies out there that didn’t learn something during these challenging times. How to improve visibility and communication with 3PL partners and carriers is an issue on many supply chain leader’s radar. Fortunately, when it comes to fulfillment centers, inventory management, and risk management, the number of helpful tools and technologies for system integration, information sharing, and predictive capabilities appears to be growing at an exponential pace. Long before the pandemic, companies like Logward were building tools to do exactly this. Of course, identifying a problem and finding a potential solution are only part of the battle. Implementing a solution and getting your partners to adopt it is rarely a simple task, hence the importance of making your 3PL and fulfillment partnership decisions carefully. After all, not all storage facilities are the same, especially when it’s raining.

Logward is a Hamburg & Bangalore based logistics technology company.

We build software, move containers, and change mindsets.

If you have any questions or just want to say hi, reach out to mail@logward.com. Or you can visit us at www.logward.com.