What is a Fulfilment Centre: A Definitive Guide (2022)

10/28/2022

What is a Fulfilment Centre: A Definitive Guide (2022)

If you closely analyse the most successful eCommerce businesses, you’d find one common factor in all of them—exemplary order fulfilment operations. 

In this age of instant gratification, where customers want their orders fast and accurate, you’re not left with any room for shipping errors or delays. One mistake and you end up losing a customer to your competition.

As an eCommerce business, you don’t have a choice but to keep up with your customer's expectations. This makes order fulfilment operations more important than ever. 

At the same time, you also know that setting up a robust logistics infrastructure in-house is quite capital-intensive and time-consuming. That’s where partnering with a fulfilment centre can be one of the smartest moves for your business. 

In this detailed guide, you’ll learn everything you need to know about the fulfilment centres and using them for your eCommerce business. 

Let’s begin. 

What is a Fulfilment Centre?

A fulfilment centre is a hub where all the eCommerce logistical activities are carried out to deliver the sellers’ products to their customers. 

For instance, if you’re an eCommerce business owner and you’ve outsourced your order fulfilment process to a third-party logistics (3PL) provider, your products are stored, packed, and shipped from their fulfilment centre. 

A fulfilment centre is the hub of all logistical activities including stocking, packing and shipping. 

What-is-a-Fulfilment-Centre

Such services help you take the complicated and time-consuming logistical processes off your plate and focus on your business growth, while logistics professionals take care of your eCommerce order fulfilment

A fulfilment centre is also referred to as a 3PL warehouse or fulfilment warehouse. 

Difference Between Fulfilment Centre and Warehouse

Owing to some of the similarities between fulfilment centres and warehouses, people get confused and use these terms interchangeably. But, they’re not the same. 

A warehouse is a large storage facility where businesses like manufacturers, wholesalers, retailers, etc. store their goods. They’re usually located in industrial parks or special economic zones, and within close proximity to transport facilities for easy movement of goods. 

However, warehouses are mainly used for the storage of products or raw materials before they’re transferred to a different department or location of the company. In other words, warehouses are used for businesses’ internal usage, they don’t serve external customers. 

On the other hand, a fulfilment centre—as the name suggests—is a place to store and manage inventory until they’re sold and shipped to the customers. Fulfilment centres are typically operated by 3PL providers and that’s why it’s also called 3PL warehouses. 

It allows you to outsource your storage, inventory management, and the rest of the order fulfilment tasks. 

Simply put, you just need to procure your inventory and send it directly to your 3PL warehouse. They’ll take care of everything else. We’ll discuss all that in a later section. 

For now, let’s come back to the difference between a fulfilment centre and a warehouse. 

Fulfilment-Centre-vs-Warehouse

Here are some key differences: 

  • A warehouse is mainly used for storage. But for a fulfilment centre, storage is only one of the many other order fulfilment activities carried out within the facility. 
  • Warehouses store inventory for both short and long tenure. Whereas, the main goal of the fulfilment centre is to turn around inventory quickly. 
  • Warehouses are not involved in serving customers. The fulfilment centre has a customer service component. 

How does a Fulfilment Centre Work?

Now that we know the difference between a fulfilment centre and a warehouse, let’s take a dive into the fulfilment centre’s operations. 

Here’s how a fulfilment centre works typically.

logistical-operations-managed-at-a-fulfilment-centre

Receiving Inventory

Whether you manufacture products or procure inventory from external suppliers, you need to forecast demand accurately before producing or procuring products. 

This would help you optimise your inventory levels according to market demand and reduce storage costs with a quick turnaround of goods. 

Now, assuming that you’ve outsourced your order fulfilment to a 3PL provider, here’s what happens next: 

  • If you’re a manufacturer: You’d send your finished goods to your fulfilment partner either directly from your manufacturing facility or warehouse.
  • If you’re a retailer: You’d get the supplier to deliver your inventory directly to your 3PL’s fulfilment centre. 

Once your inventory reaches the fulfilment warehouse, they’ll:

  • Receive the goods on your behalf
  • Inspect the incoming stock
  • Verify it against your purchase (or dispatch) order
  • Confirm the receipt of your inventory

Storage and Inventory Management

After receiving your inventory, the fulfilment centre team sorts the inventory. And if they find any discrepancies while sorting goods, they’ll inform you before proceeding further.

Then they log the inventory into the system using their tagging system. This process may vary depending on the 3PL service you’ve partnered with. 

Nonetheless, tagging is the most commonly used stock tracking system in the logistic community. These tags can also communicate with the SKU (Stock Keeping Unit) codes that you’ve assigned to your products. 

Then, your goods are stored on shelves, pallets, or—if required—in a special storage facility such as cold storage, high-security storage, etc.

Besides, your 3PL’s inventory management system also integrates into your eCommerce website so that stock levels are accurately reflected in your systems. 

Thus, you get real-time updates on incoming and outgoing inventory even though it’s not stored under your supervision.  

Moreover, the fulfilment centre also provides additional services such as product kitting or bundling, if you sell product kits or bundles on your e-store.

Generating Pick Lists

Now that your inventory is received, checked in, and stored in a fulfilment centre, you’re all set to accept customer orders on your website. 

As soon as a customer places an order, your system routes the order to your 3PL warehouse. And even if you don’t have an order receiving system in place, the fulfilment service providers go the extra mile and provide you with an online portal for manual order entries. 

In short, they do everything it takes to make the order management system automated and seamless. 

On receiving the orders, the 3PL warehouse generates pick lists for the items that need to be shipped to the customers. 

Picking, Packing, and Shipping Orders

Once picking slips are generated, the fulfilment team initiates the pick-pack-ship process. Let’s understand all three aspects. 

  • Picking: The pick list is handed over to the picking (or picker) staff in the warehouse. The pickers move around the storage area and retrieve the products from the stored inventory. Fulfilment centres also keep a small number of best-selling products from your inventory near the packing station to speed up the pick-pack-ship process. 
  • Packing: The pickers pass on the retrieved items to the packaging station. Here, the packaging team packs the products in a way that ensures the safety of the items in transit. Fulfilment centres provide you with multiple packaging options like shipping boxes, mailers, etc.

    In addition, they also help with custom packaging for your brand so that you can offer your customers a great unboxing experience. This service comes in quite handy if you’re selling subscription boxes and product kits. 
  • Shipping: Once the products are packed, the packaging team forwards them for shipping. Then the fulfilment team makes the parcels ready for shipment by sealing, weighing, and labelling them.

    Unless there’s a pre-assigned carrier requirement, the shipping staff rate-shops the carrier service. This helps them find the lowest shipping rates while ensuring a reasonable delivery time.

And finally, the carrier company collects the shipments from the fulfilment centre and transports them to the destination. 

Managing Reverse Logistics

It would be wrong to say that the fulfilment process is completed once the product is delivered to the customer. Product returns are quite common in eCommerce and managing reverse logistics in-house can be a nightmare since you can’t have a local presence in every market you ship to. 

But if you’ve partnered with a fulfilment service provider, you don’t need to worry about managing the product returns. They’d take care of the reverse logistics for you. 

Just like it happens when an order is placed on your website, whenever a product return or exchange request is generated, it’s diverted to the fulfilment centre’s system. 

Consequently, they arrange the product pickup from the customer’s shipping address and replenish the item back into the inventory. 

While some 3PL providers include the reverse logistics costs as a part of their fulfilment service package, some also charge separately for it. So, understand the pricing structure thoroughly before partnering with any fulfilment service.

Advantages of Using a Fulfilment Centre

Here, we’ve outlined some of the main advantages of using a fulfilment centre for your eCommerce order fulfilment.

Advantages-of-Using-a-Fulfilment-Centre

Leveraging Expertise of Logistics Professionals

When you start your eCommerce business, it’s easy to manage logistics in-house since you don’t have many orders coming in. 

But as you scale your business, things start getting a little complex. On one hand, you’re busy experimenting with multiple vendors, marketing tactics, customer support processes, etc. While on the other hand, a growing number of orders may get you occupied in managing the logistics. 

Once you feel that you're spending a lot of time on logistics which you’d rather spend on core business activities, consider outsourcing order fulfilment to a trusted logistics company. 

A 3PL fulfilment centre handles order fulfilment of eCommerce brands of all scales & sizes and they ship millions of products. In other words, they’ve got the expertise of managing the inbound and outbound logistics at scale. 

So you can leverage their logistical expertise and get your orders fulfilled with greater efficiency while reducing your shipping costs in the long run as you scale. 

Faster Deliveries

Well-established fulfilment companies have their fulfilment centres in multiple locations within a country and internationally. So you can also choose to distribute and store your inventory in multiple locations where your target customers are located. 

For instance, your business is based out of the western part of Australia. But your target audience is spread across the country. Hence, by partnering with a fulfilment service like PACK & SEND, you can store your inventory in our fulfilment centres in multiple regions. 

Now, when a customer order comes in, our system will automatically route the order to the fulfilment centre that is closest to the shipping address. 

Thus, your product gets delivered faster as compared to when it’s processed from a central warehousing facility. 

Reduced Shipping Costs

Shipping costs—by and large—are determined by factors such as: 

  • Shipping distance or destination
  • Weight of the package
  • Dimensions of the package
  • Value of the contents
  • Delivery times, etc. 

But of all the factors above, shipping distance is a major deciding factor when calculating shipping costs

And by having a choice to fulfil your orders from a fulfilment centre that is close to your customer’s address, you can trim down the shipping distance. As a result, your shipping costs come down too. 

Furthermore, 3PL companies ship packages in high volume on a daily basis. So carriers offer them special discounted rates and your 3PL can pass this benefit to you. 

Thus, you get better service at affordable shipping rates. 

Lower Operating Costs

When you partner with a fulfilment service, you don’t have to incur overheads like warehouse rent, warehouse employees’ salaries, delivery vehicles, and many more. Instead, you’d pay fulfilment charges on a per-order basis (or as per the agreed package) to your 3PL partner. 

This saves you from an upfront large capital investment in setting up your own fulfilment facility. Hence, you can invest these funds in areas like:

  • Research and development (if you’re a manufacturer)
  • Expanding your product line
  • Marketing campaigns
  • Improving customer support systems, etc. 

Needless to say, all of the above investments can help you scale operations, improve brand value, and increase revenue & profitability eventually. 

More Time to Focus on Core Capabilities

As an online business owner, you already know that logistics and supply chain are the backbones of your eCommerce venture. 

At the same time, you would’ve also experienced that logistics can take up a lot of your time if you manage order fulfilment in-house. 

That’s where things get a little delicate and need to be handled thoughtfully. If you ignore the logistics, your supply chain would crash. And if you stay too occupied with logistics, you’re left with no time to focus on growing your business. 

In times like these, a reliable fulfilment centre can be a blessing. With their expertise, they’d handle all your logistics professionally and efficiently while you focus on your core business activities. 

So if you had to pick a 3PL service for only one of the advantages mentioned in this section, it would be for this benefit. You can consider this as the biggest reason to work with a fulfilment centre. 

Better Reach in Different Markets

As a small business or eCommerce startup, you may not have extensive logistical infrastructure and presence in multiple locations. So you may not be able to fulfil orders on your own in multiple regions across the country. 

But with fulfilment services, you can not only expand your reach in Australia but you can also grow internationally. Reputed 3PL companies have their logistics network spread across the globe. 

Thus, they can help you deliver your products wherever your buyers are. 

Drawbacks of Using a Fulfilment Centre

While the benefits of working with a fulfilment centre easily outweigh the drawbacks, here are some caveats you should consider before you partner with them.

Disadvantages-of-Using-a-Fulfilment-Centre

Loss of Control 

Outsourcing your order fulfilment to a 3PL provider means you won’t have control over the micro-management of your logistics. Being a business owner—especially if you’re a startup or small business—it can be hard to give up control on order fulfilment. 

However, that’s more of a psychological barrier that you need to overcome. Once you partner with a fulfilment centre and see the efficiency of order fulfilment rise, you’ll easily get through this challenge. 

Moreover, 3PL warehouses are equipped with the latest inventory & order management software and communication systems to keep you updated on fulfilment activities in real-time. So virtually you’re always in control.  

Lack of Visibility

Since inventory is not stored in your own warehouse, the only way to stay updated is through constant communication and real-time updates from 3PL providers. 

So, if there are communication gaps from the fulfilment centre, you end up losing the visibility of operations. Consequently, you can’t provide order updates to your customers in a timely manner.

However, most reputed 3PL service providers give you full visibility into your order fulfilment activities with their robust communication systems and integrations. 

Possibility of Siloed Data

Order fulfilment operations are not just about getting the products delivered to the customers. Fulfilment centres also generate a goldmine of data such as:

  • Inventory performance
  • Customer satisfaction levels for delivery service
  • Highest/lowest selling products
  • Most returned items, and more.

These data can provide valuable insights to improve your business operations and strategies. If this information is siloed at the fulfilment centre, you can miss out on many improvement opportunities. 

Hence, you must ensure that your fulfilment partner forwards this data to your in-house management team. 

Also, note that all of the above drawbacks can be eliminated by vetting the fulfilment centres thoroughly for their services and processes. And that’s exactly what the next section is about. 

Let’s understand how to assess a fulfilment centre before you strike a deal with them. 

How to Vet a Fulfilment Centre while Choosing Fulfilment Services

The fulfilment centres play a vital role in building your brand image since they’re the ones who’ll ensure that your customers receive their orders on time. So you don’t want to leave any stone unturned to make sure that the fulfilment service you choose is the best one. 

That said, here are some of the key aspects of a fulfilment centre that you must assess before you partner with a 3PL provider.

points-to-vet-fulfillment-centres-on

Evaluating Picking and Packing Processes

To evaluate the fulfilment centre’s picking and packing processes, consider asking them questions like: 

  • What type of products (generic or niche) do you ship? 
  • Do you provide packaging recommendations to ensure product safety?
  • How do you handle special shipments such as fragile items or hazardous materials?
  • What type of picking methods do you use?
  • Do you use warehouse order picking software
  • Do you offer kitting and bundling services?
  • What type of packaging materials do you use?
  • Can you create custom and/or branded packaging materials if needed?
  • Do you have expertise in shipping large, oversized, or heavy items if required?
  • How do you ensure an optimal warehouse layout for smooth picking and packing?
  • What is the percentage of picking errors for your fulfilment centre?

Understanding Order Fulfilment Costs

Now, let’s look at the questions that can help you better understand the order fulfilment costs:

  • Do you charge for setting up an account and integrating sales platforms?
  • Are there any hidden costs that are not mentioned in the service agreement?
  • Who will bear the costs if the fulfilment centre ships an incorrect order?
  • In case of shipping mistakes, do you offer express redeliveries free of cost?
  • What’s the inventory shrinkage percentage, if any?
  • How do you compensate for inventory shrinkage?
  • Do you charge on a per-order basis or offer customised plans?
  • What are your picking and packing charges?
  • Do you charge for inventory storage or is it included in order fulfilment costs?

Evaluating Shipping Costs and Processes 

Next, evaluate the shipping costs and shipping processes of the fulfilment centre with the below questions: 

  • Do you offer discounts on shipping costs?
  • Do you have special shipping rates for high-volume shipping?
  • Do you ship with only specific carriers or choose carriers based on shipping rate dynamics?
  • Do you provide international order fulfilment services?
  • What order tracking software do you use?
  • Do you provide real-time updates/notifications on shipment progress?
  • Do you send order tracking links to customers?
  • Do you offer expedited shipping services (two-day, overnight, same-day deliveries, etc.)
  • How do you handle product return or exchange requests?
  • What are the charges for handling product returns?

Assessing Infrastructure and Technology

  • What are the power backup systems in your warehouse?
  • What Warehouse Management Software (WMS) do you use?
  • What inventory management systems have you deployed?
  • Do you have internet connectivity backups if the main connection is dysfunctional?
  • How do you ensure the security of online data?
  • How do you secure the inventory in the storage area?
  • What kind of warehouse surveillance systems do you use?
  • Do you conduct a background check for warehouse employees? 

Additional Assessments

In addition to the above assessment criteria and questions, you should add any other relevant questions based on your industry and business type. 

Remember, feel free to ask as many questions as required to make you fully satisfied that you’ve chosen the right fulfilment partner for your eCommerce business. 

Succeed with Right Fulfilment Solutions

Order fulfilment is a crucial aspect of your eCommerce business. It won’t be an exaggeration to say that it’s significant enough to make or break your eCommerce venture. 

At the same time, the irony is: You must be prepared to hand over the control of your order fulfilment process to a 3PL partner if you really want to scale up. But make sure you assess their services and processes thoroughly to ensure they’re the right fit for your business. 

A right fulfilment partner like PACK & SEND can help you automate your order fulfilment while ensuring the highest level of service standards. We’re Australia’s top-rated freight reseller and order fulfilment solution provider with logistical expertise spanning close to two decades. 

We’ll provide you with customised order fulfilment solutions for your business. 

So feel free to get in touch with us and let us be your ally in scaling up your eCommerce operations globally. 

Frequently Asked Questions (FAQs)

What is a fulfilment centre?

A fulfilment centre is a warehouse of third-party logistics (3PL) service providers where they store and manage your inventory. However, it’s much more than a traditional warehouse. 3PL companies also fulfil your customers’ orders from fulfilment centres. 

Why is it called a fulfilment centre?

It is called a fulfilment centre because 3PL companies fulfil the eCommerce companies’ product orders from a fulfilment centre. 

What does a fulfilment centre do?

A fulfilment centre handles the end-to-end logistics requirements of your eCommerce business. Once your suppliers send your inventory to a fulfilment centre, they receive it, verify it against your purchase order, inspect for any damages, and store it. 

Once an order is generated on your website and routed to a fulfilment centre, they pick, pack, and ship your product to your customer. Thus, they take care of the entire order fulfilment cycle.  

How do fulfilment centres make money?

Fulfilment centres charge fees like: 

  • Set up fees: To set up your account and integrations with sales platforms
  • Inventory receiving fees: Charges for receiving and sorting your inventory
  • Storage fees: Charges for storing your inventory in their warehouse
  • Pick and Pack fees: Charges for picking and packaging your products for order fulfilment
  • Shipping fees: To transport and deliver your customers’ orders
  • Kitting fees: If you’re selling product kits or bundles and want the kitting service from the fulfilment centre
  • Reverse logistics fees: Charges for picking up the products from the customer’s address in case of a product return or exchange

What makes a good fulfilment centre?

There are numerous factors that make a good fulfilment centre. However, here are the basic ones: 

  • Right systems and processes to run order fulfilment operations efficiently
  • Effective warehouse and inventory management systems and software
  • Robust communication systems for real-time updates
  • Transparent order fulfilment and shipping costs 
  • Strong and reliable order fulfilment team
  • State-of-the-art infrastructure and technology, etc. 

 

Post by Topic