03 Feb 2023

What Is Fulfillment Center and How It Works?

A fulfillment center speeds up the order fulfillment process, ensuring that a company's product reaches its customers on time under pre-requisite cost, workforce & space metrics, leading to enhanced customer experience & revenue contributing business model.

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Every company's growth is a byproduct of how effectively it processes its count of orders right from its initiation to the delivery of the product. Any lag in order processing renders an awful customer experience and undoes a company's brand value. A situation more telling in today's world of e-commerce, where an unsatisfactory user base reposts its honorary view about an unfulfilled transaction on social media. To avoid such a bad rep on the back of failed order fulfillment, companies employ third-party logistics (3PL) services in the form of fulfillment centers. These logistic centers cut down on long-drawn warehousing plans and focus on essential components of required inventory to enhance customer retention and quality of services. Here we'll cover the key features defining the fulfillment center and its impact on supply chain operations.

Table of Contents

What Is a Fulfillment Center?

A fulfillment center or fulfillment house makes for a core vertical taking care of end-to-end logistics processes in a supply chain. All the stages of the order lifecycle, from order picking & processing to packaging and shipping, are duly accounted for, planned, and taken care of. An e-commerce fulfillment center's core existence is defined by its robust timely delivery mechanism and by letting the organization focus on planning verticals.

How Does the Fulfillment Center Work?

A fulfillment house takes care of everything from order placement to delivery. A client asks its 3PL partner to house inventory & deliver the orders to manage daily transactions boosting its commerce and customer experience. Here are the key pillars defining the working of the fulfillment center.

Step 1: A client lines up its ordered products

The first stage is providing the relevant stock to the global fulfillment center, which later gets accounted for with a unique SKU (stock-keeping unit). Third-party logistics keeps track of every stage of the order and provides real-time updates to its merchant. This transparency in stock keeping, usually done through fulfillment center software, helps a client stay up-to-date with its phase-wise production of the given inventory.

Step 2: Fulfilling received orders

As soon as the targets are set (read: when orders are received), a third-party fulfillment center communicates amongst the critical stakeholders of the operation, i.e., merchants & customers, and keeps them updated with a timely reminder from processing to delivering with the precise timeline of actions. A marquee 3PL service provider will have the latest technology & highly qualified trained staff to label, pick & pack a particular SKU and even customize the packaging if required.

Step 3: Delivering the packed items

The key driving factor that pushes an organization to opt for a fulfillment center is delivering ordered items timely to its user base. A global fulfillment center’s USPs lie in delivering products across demography in a cost-effective and time bounded way. A 3PL provider has many working ties with key carriers and courier partners, who also prove to be a big boon when a company requires a capable operation during peak order season. This innate quality of titled services makes its client scalable & adaptable in situations of sudden demand surge.

Step 4: Managing Returns

In an e-commerce model, instances of returning orders are a usual occurrence. For such backtracking order flow, having fulfillment center operations helps immensely. Also termed reverse logistics, a 3PL provider informs its clients about any return orders and takes the necessary steps (disposing of, returning it to the source, or restocking) to maintain the best practices of the supply & demand chain.

What Are the Types of Fulfillment Centers?

A fulfillment center, in practicality, gets divided into two significant forms: a Micro & Macro fulfillment center. The parameters that differentiate a micro from a macro fulfillment house range from cost, volume, purpose, technology availability, location, size & scalable capabilities.

Micro Fulfillment Center

A micro fulfillment center is a relatively low-ground coverage inventory operations center strategically located near a densely populated metro/urban station to improve delivery times. With e-commerce businesses promising flash order fulfillment to their customers, having a micro fulfillment center empowers the concept of same-day delivery and, thus, help organizations keep them trending for all the right reasons while effectively saving on infrastructure and delivery cost.

Macro Fulfillment Center

Covering a sizeable operation center for e-commerce dealings, a macro fulfillment center supports a large geographical area & manages the maximum SKUs involved in a business's transactions. A macro fulfillment house generally works in tandem with many micro-fulfillment centers and benefits an organization with reduced handling costs.

What Are the Benefits of Using a Fulfillment Center?

A fulfillment center optimizes logistic operation by reducing overall manual effort & has a domino effect in the shape of cost reduction from a company’s supply chain budget. Listed below are the crucial driving factors helping organizations finalize a fulfillment center.

  • Economical Delivery Cost

    An order fulfillment center operates strategically near a densely populated user base, resulting in a relatively low infrastructure cost in delivering goods. This also proves more practical as fulfillment partners have daily transactions with supply chain partners providing attractive shipping rates owing to their long-lasting business relationship.

  • Optimized Operation Cost

    A fulfillment center requires relatively less warehouse space, which translates into a small workforce to run an efficient logistical operation.

  • Increased Focus on Order Fulfillment

    With all the right ingredients in place, having a fulfillment center centralizes all efforts to deliver products at the right time. This pushes order accuracy and helps a company put effort into brand building, sales, and trying out new marketing avenues.

  • Better Ground Coverage

    An organization usually has many 3PL partners, allowing more ground coverage of territory and formulating more sales opportunities. Thus, driving better revenue by cashing in on present market opportunities.

  • Enhanced Customer Experience

    With a 3PL fulfillment center driving improved order fulfillment scores, a company directly benefits from increased customer retention and a higher user score for its user experience. This allows an organization to grow organically (read: word of mouth) while edging out its competition in a wholesome manner.

What Are the Differences Between a Warehouse and a Fulfillment Center?

While there might be some crossover in their functionality, a warehouse operation is more significant than a fulfillment center. With the capabilities underlining the efficiency of both storage facilities, we will list the fine line which captures the differentiation between a fulfillment center & a warehouse.

  • Long-Term vs. Short-Term Storage

    While both entities are responsible for stock keeping, a fulfillment center keeps a complete inventory of 30 days (not more than that) to quickly fulfill its seller orders with better turnaround time. At the same time, a warehouse manages long-term storage for its many 3PL partners. If a fulfillment store houses products for a longer duration, it levies higher storage fees from its client, which is not an ideal scenario from a company's financial point of view.

  • Operations Scale

    A warehouse's primary logistics functions are intermittent when put in context to an e-commerce fulfillment center. A micro fulfillment center's fundamental goal is completing the order delivery cycle cost-effectively and timely. This involves generating pick lists, labeling, shipping orders & managing reverse logistics as well. A warehouse, though, puts its focus while transferring or adding inventory.

  • Order Frequency

    An extension of the above point, a fulfillment center has many shipment partners doing multiple rounds to fulfill nearby deliveries of its customers. This results in frequent order pickups and more daily transactions, unlike regular warehouse operations with lesser scheduled shipping duties.

Instances of Fulfillment Center

Many conglomerates with logistical capabilities have created a mark with their 3PL Fulfillment services. E-commerce giants like Amazon & Flipkart render their operational capabilities for clients from product listings to shipment. With verified services handling small & large-scale industries with ease, companies get better coordination amongst supply chain stakeholders with a logistics model that drives day-to-day operation smoothly and helps organizations achieve revenue goals.

3SC's Fulfillment services help your company achieve the primary objectives of getting your products delivered to your customer faster by managing your inventory, improving customer service, and handling reverse logistics, all the while ensuring an enhanced customer experience contributing towards enterprise growth. So, if you're looking for a leading service that integrates your requirements with the latest technology & supply chain expertise, connect with us now.

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