Warehousing and fulfillment: What's the difference?

Warehousing, fulfillment centers, fulfillment warehousing - these terms can be very confusing for brands to get to grips with.

Warehouses and fulfillment centers might both be used to store inventory, but there's a world of difference between these facilities.

Comparing a fulfillment center to a warehouse is like saying that walking is the same as driving a car. They're both going to get you to your end destination, but one will do it much quicker and more seamlessly than the other. And in e-commerce, we all know that slow and steady doesn't win the race.

In this blog, we're going to cover what brands need to know in order to select the right warehousing and fulfillment strategy for their needs - and why partnering with a third-party fulfillment solution offers the best path to success.

What is fulfillment warehousing?

Fulfillment warehousing refers to the storage and distribution of products on behalf of a brand or retailer. In this arrangement, a third-party logistics provider manages a warehouse or fulfillment center and handles the end-to-end fulfillment process. This includes inventory storage, picking and packing, and shipping customer orders or replenishment to stores. 

The purpose of fulfillment warehousing is to streamline the supply chain and provide efficient, reliable order fulfillment services for the brand's customers or retail stockists.

A cost-effective fulfillment warehousing strategy is often used by direct to consumer brands that require highly streamlined logistics processes to meet consumer expectations for rapid delivery - something difficult to achieve with an in-house fulfillment operation. 

By outsourcing their warehousing and fulfillment operations, businesses can reduce fulfillment costs, increase operational scalability, and free up more time to focus on their core business operations.

What are the main differences between fulfillment centers and warehouses?

Warehousing and fulfillment services are often conflated because they are both carried out by fulfillment companies on behalf of clients. However, there's a huge difference between standard warehouse space and a full-fledged fulfillment center.

Before you decide on an outsourced fulfillment partner - or even whether you're going to outsource in the first place - you need a solid understanding of what each option gives you. Although both are places to store inventory in anticipation of customer orders or inventory replenishment, the fulfillment services on offer vary significantly:

Fulfillment services

A fulfillment center is far more than a place for storing inventory. Your fulfillment center operates as the nerve center of your entire logistics strategy where the following warehousing and fulfillment services are carried out:

• Receiving inventory
• Pick and pack fulfillment
• Value-added services (e.g. custom packaging, kitting, subassembly)
• Ship orders to stores/customers
• Return management

In sum, fulfillment centers are dynamic, bustling places that are full of activity. It takes a high level of organization and efficiency to ensure that all of these services come together seamlessly and ensure customer satisfaction.

A standard warehouse, on the other hand, is really just a place to store inventory until it's needed to fulfill orders. This makes warehouse management of a storage facility much more straightforward than a fulfillment warehouse, which covers the entire spectrum of storing, packing, and shipping products. It's also the reason why e-commerce brands may ultimately prefer to partner with a third-party logistics company for these services.

Storage capacity

The vast majority of fulfillment centers are not designed to hold SKUs for long periods of time, for example in anticipation of a sample sale or seasonal merchandise for the holidays. Instead, a fulfillment center prioritizes the fast turnover of SKUs that are currently in demand and need to be replenished regularly.

A fulfillment center stores inventory using active pick locations, where staff move throughout the facility to retrieve items required for customer orders. For this reason, having valuable space taken up for an extended period by slow-moving SKUs increases storage costs and reduces the flexibility of your space.

A warehouse, meanwhile, functions as a longstanding storage space for raw materials, finished products, or products that need some kind of additional ecommerce fulfillment services before they are ready for sale, such as subassembly or kitting. Once a SKU is required, the warehouse will manage distribution to the right fulfillment centers.

Focus on customer experience

A subtle but distinct difference between a warehousing service and a fulfillment center is who these services cater to. A well-oiled fulfillment strategy is a major asset for a brand, but it's the customer that benefits the most from a streamlined order and delivery experience.

From the moment an order is received to when it's dispatched for shipping, a fulfillment center operation is centered on the customer and ensuring that their needs and preferences are met. This includes everything from what packing boxes are used to the shipping speeds available for shoppers to choose from.

In most cases, warehousing companies don't touch the customer experience at all. This is because they manage inventory before the point where it becomes part of the customer order lifecycle. Warehouses are there to offer merchants, suppliers, and stockists more cost-effective space for storage.

Why your warehousing fulfillment strategy matters

Achieving superior inventory management

There's far more to managing inventory than sticking it on a shelf and waiting for it to sell. No matter whether you're an online store or brick and mortar retailer, the effectiveness of your inventory management strategy hinges on your ability to store products in a way that optimizes space and makes it easy for pickers to find the right SKUs.

A cluttered, confusing warehouse can result in large quantities of inventory going under-utilized, resulting in excess inventory or missed cost savings. In the reverse, a retailer could struggle to identify when a popular SKU has reached its reorder point, which creates avoidable stockouts and lost sales.

Ease of scaling

If an ecommerce business experiences a spike in order volumes, this is great news for growth - but only if your fulfillment operation is able to handle this increase without compromising speed or accuracy.

Your ability to scale effectively depends in part on whether you have adequate fulfillment warehousing space to store more inventory ready for picking and packing. If your brand doesn't have ready access to additional space, labor, and resources to fulfill orders, growth can end up stagnating and customer satisfaction can suffer.

Reducing storage costs

Storage costs make up some of the biggest fulfillment fees that ecommerce companies need to pay to operate their businesses. Palletizing, racking, and setting up picking locations are essential to achieve a streamlined warehousing and fulfillment strategy. If storage space isn't being used effectively, brands can end up paying for more facility space can they really need, which leaves fewer resources available to invest in other areas of your business.

Strategic locations

It's not just size that matters when it comes to warehousing. Where your facility is located has an outsized impact on your shipping costs and how quickly you can deliver orders to customers. Warehouse space located miles from major transport networks might be cheap, but it's certainly going to cost you when it comes to speed and connectivity. But due to their favorable locations, strategic fulfillment nodes can be tough to come by independently for smaller brands.

Can a brand make do with standalone warehouse space?

For emerging ecommerce businesses, their first 'warehouse' usually takes the form of an office or home garage that's used to store inventory. In many cases, it's also the fulfillment warehouse - the place where orders are packaged and labeled for shipping to the end customer.

But what happens once a brand outgrows this limited space? Should they look at leasing warehouse space independently, or is this the time to consider outsourcing to a fulfillment company?

The decision of whether to outsource fulfillment is tough for every business owner. For many brands, taking a DIY approach and getting your own warehouse is more in their comfort zone than the prospect of losing direct control over order fulfillment. However, there are some very good reasons why a simple warehouse isn't going to meet your long-term needs.

Why you need a fulfillment center, not just a warehouse

It's technically possible for direct-to-consumer brands to store, fulfill, and ship orders from a warehouse. The question is: Should you?

As we've outlined above, there's a world of difference between what a fulfillment center achieves versus a warehouse. Warehouse management also involves a lot of other considerations, such as:

Managing long-term leases

A difficulty of leasing warehouse space independently is that an ecommerce business can get stuck in a fixed-term contract that isn't favorable to their operational needs. Spikes in growth can happen in e-commerce with little warning, and it's essential that your storage strategy is able to keep up.

A move to a larger, better-equipped warehouse could be thwarted by a contract without an early termination clause, requiring you to search for additional space which could come at a higher cost.

Space is tough to come by

Finding a suitable warehouse isn't a very straightforward task to begin with, as many brands are finding out the hard way. During 2022, warehouse asking rates surged by 22% YOY, while rising construction costs are making it more expensive to overcome the shortage of industrial real estate.

In this climate, it's the larger, better-resourced businesses that have the economy of scale to take on leases for large warehouses, which often locks out small businesses. If products have special storage requirements, such as climate control or FIFO/LIFO sequencing, this can make the search for warehouse space even more challenging.

Inflexible storage costs

Thanks to the peaks and troughs in the sales calendar, most brands will see their storage needs fluctuate from month to month according to sales events and demand for different products. This means that e-commerce companies can end up spending a lot more on storage fees than they need during quieter periods of the year, or not having enough for peak season.

Moreover, a warehousing company will routinely charge more for inventory storage during the holiday season, when demand for third-party storage is higher. Amazon fulfillment centers, for example, use seasonal pricing to determine how much merchants pay to store inventory - and these charges can be revised with little notice.

Outsourcing warehousing fulfillment allows brands to focus on the big picture

Coordinating warehousing fulfillment independently is more complex and time-consuming for an ecommerce store than it might initially appear. Managing the day-to-day grind of orders, shipping, and storage takes valuable time away from other areas of your business, which could affect your ability to grow customer loyalty.

By outsourcing warehousing and fulfillment services to an experienced e-commerce fulfillment provider, your brand no longer has to worry about those tiny operational details. Best of all, an order fulfillment company with the right infrastructure to support you will not only streamline fulfillment, but reduce your costs in the long run.

So, how do fulfillment providers do this?

First-class automation and infrastructure

3PL providers have a vested interest in maintaining a competitive edge and ensuring that their services remain best in class. This means that brands outsourcing fulfillment warehousing get to leverage the automation technology of their 3PL partner to streamline the fulfillment process.

Fulfillment automation enables fulfillment companies to re-deploy their workers for more complex tasks and lower error rates, while offering real-time visibility over inventory levels and order status - something that's out of reach of most self-fulfilling brands.

Selecting the right fulfillment location for your needs

A nationwide fulfillment provider will have multiple fulfillment centers at their disposal, carefully chosen to maximize connectivity and last-mile delivery timeframes. Your partner will work with you to find the ideal location or locations, based on factors such as order volume, planned expansion, where your customers and suppliers are based, and which fulfillment services you require. This ensures your fulfillment center will be able to keep servicing your needs in the long term.

A tailored fulfillment strategy

There's so much thing as a one-size fits all fulfillment strategy in retail. Every business has unique needs that need to be met in order to provide its customers with the brand experience they expect. This includes what packing boxes are used, whether there is an integration with their chosen ecommerce platforms, or how fast orders need to reach the end customer. 

A reliable fulfillment partner will customize your strategy and fulfillment center layout to suit your business's goals. Why? Because the right 3PL knows that your success is their success.

With a state-of-the-art network featuring over 10 million square feet of multi-client omnichannel fulfillment space, Ryder is a full-service 3PL that can handle every stage of the fulfillment process, from inventory receiving to order processing and returns. Our streamlined e-commerce technology gives businesses unparalleled visibility over their fulfillment operation and flexible, rules-based automation to control granular details of the brand experience. To learn about Ryder, contact us today.