Understanding the Differences Between an Order Fulfillment Center and a Warehouse

If you think an order fulfillment center is just a fancy way to refer to a warehouse, you couldn’t have been more wrong. These two facilities serve different purposes in the supply chain and knowing their function is important in deciding which option would best suit your business needs.

Warehouse and Order Fulfillment Center Defined

Even before the Industrial Revolution, businesses have used warehouses to store goods for commercial purposes. The modern warehouse still serves the same purpose but has increasingly incorporated new technology and methodologies in order to make storage and handling of inventory more efficient. 

Brick and mortar establishments consider the warehouse as an essential part of their supply chain. Aside from keeping products safely stored, the large capacity of the buildings also enables businesses to protect against price fluctuations with buffer stock. 

With the rise of the internet and e-commerce, a more specialized facility was needed. Order fulfillment centers were born out of that need to create a more efficient way to store, handle, and ship products ordered online to customers or other businesses. Aside from normal warehouse processes, the operations in an order fulfillment center include order processing and fulfillment. These particular processes are not typical of traditional warehouses.

There are many things that differentiate an order fulfillment center from a static warehouse. Here are a few key aspects to consider.

Location – While warehouses are traditionally located in industrialized zones that are far from residential communities, the order fulfillment center is strategically located near commercial and residential areas. Location is incredibly important because it’s a big factor in reducing delivery times to customers and business. If you’re looking for West Coast fulfillment services, for example, you’d want a facility that’s accessible to every west coast state and not just California. 

Business Transaction – Warehouses, for the most part, have B2B transactions. These facilities deal mainly in bulk inventory and often require minimum volumes in their transaction. On the other hand, order fulfillment center caters to both B2B and B2C transactions. In some cases, they completely eliminate the middlemen in the supply chain, getting the product directly to the customer from the product manufacturer.

Operations – Static warehouse processes are limited to receiving, storage, and shipment. While there are a variety of warehouses such as cold storage, retail, and overseas, the processes are largely the same. Meanwhile, order fulfillment centers include these 3 processes plus order processing and fulfillment. It’s safe to say that order fulfillment centers are more complex facilities with a lot more people and technology involved, creating a dynamic environment where goods come and go much quicker compared to traditional warehouses.

Advantages of Warehouses and Order Fulfillment Centers

There are a number of pros and cons to consider before deciding if your business would benefit from an order fulfillment center or a warehouse. For one, small start-ups can take advantage of the retail-centric nature of order fulfillment centers. Since there’s no minimum number of inventory required, you can easily hire their services and scale-up as your business grows.

Second, these facilities employ the latest technology in order to optimize operations and minimize errors. More importantly, the robust system means you can allocate more time in other business processes that contribute to your growth such as research and development, marketing, and manufacturing.

So does that mean warehouses should disappear altogether since order fulfillment centers offer more services? Not at all. Bigger companies often need specialized services of warehouses, especially for shipping and handling seasonal inventories. In addition, order fulfillment centers cost a lot more because of the complexity of the services it provides. For bulk orders, warehouse facilities are a more cost-effective solution in the long run.