What is a Fulfillment Center & How Can It Help Your Business Grow?

Apr 20, 2021 | Blog, Fulfillment

Fulfillment centers, also known as 3PLs, provide a great option to expand your fulfillment capabilities. ShipHero Fulfillment provides an easy outsourced fulfillment option without the need to engage with a 3PL directly if you’re running a Shopify store and are looking for simple fulfillment services.

Online shopping has made it easier than ever for consumers to find the products they want at the best price. As brick-and-mortar stores slowly fade into the background, eCommerce stores are taking advantage of nearly limitless scalability and a worldwide customer base.

Though the convenience of online shopping is a major draw for many consumers, a positive customer experience is still vital for success. If purchases take too long to process or if shipments are delayed, your business could suffer and you may lose potential repeat customers. Rather than limiting your inventory to prevent backups and shipping mishaps, consider using a fulfillment center to manage your store’s inventory. These companies help your business deliver global eCommerce order fulfillment.

Fulfillment centers, also known as third-party logistics companies (3PLs), provide a great option to expand your fulfillment capabilities. If you’re an eCommerce merchant selling products on Amazon or another eCommerce platform, a fulfillment center handles all the order processing for you. They’ll receive the order, prepare it for shipping and get the order delivered to the customer. ShipHero Fulfillment provides an easy outsourced fulfillment solution for many eCommerce merchants running on a variety of marketplaces including Shopify, WooCommerce and more. 

In this article, we’ll explore fulfillment centers as a convenient option for online merchants. You’ll learn what a fulfillment center is, how it compares to warehousing and the specific benefits of using a fulfillment center. We’ll also provide helpful tips for choosing the right fulfillment center for your business. Another option if you’re looking to outsource your shipping is to use a fulfillment service, a new option for using a fulfillment platform to manage and ship your orders without engaging with a fulfillment center directly. We’ll add an article that details more about this and how you could use Shopify store fulfillment.

What is a Fulfillment Center?

A fulfillment center is a location, typically a large building, that fulfills eCommerce retail orders. A fulfillment center handles the entire order process, from picking and packing to shipping. 

Without a fulfillment center, an eCommerce retailer must take items from their inventory, pack them and send them through a shipping carrier to the customer. If you run an especially popular business, you may be swamped with orders and spend most of your valuable time processing shipments instead of developing your business.

Not just that, but more orders mean a larger chance of human error in the shipping process. If your team loses focus because they’re overwhelmed, they may make mistakes that result in unhappy customers. 

To prevent errors and save valuable resources, third-party logistics companies often offer fulfillment center access to their clients.

How Do Fulfillment Centers Work?

Fulfillment centers work by storing your inventory so your 3PL’s team can process orders whenever they come in. Here’s a quick overview of how fulfillment centers process your orders:

1. You receive customer orders, which will then be forwarded to your 3PL provider.
2. The fulfillment center team picks the ordered items from storage for packing.
3. The shipping carrier accepts the ordered items and delivers them to the customer.

The general process is similar to doing it yourself, but fulfillment centers do it at a larger scale to take the burden off your hands. Fulfillment centers are generally more experienced in fulfilling orders, so they can do it more efficiently.

Fulfillment centers can process business-to-business (B2B) and business-to-customer (B2C) orders cost-effectively. B2B orders are usually shipped to the client’s shop or storage, while B2C orders are shipped to the customer’s residence.

Understanding the Challenges of Online Stores

Online stores provide customers access to a wide range of products they might not have access to in traditional brick-and-mortar stores, depending on their location. By shopping online, consumers also can compare prices. However, online shopping is about more than just finding the best price; it’s also about efficient shipping and an overall positive customer experience.

On the seller’s side, online shopping opens up a whole new customer base that isn’t limited to a specific region. Though this creates the potential for much higher sales margins, it does come with a few challenges. Overselling, for example, is a common problem among online merchants. This happens when the merchant receives more orders for an item than they have the inventory to fulfill. They are then forced to contact their customers to tell them that the item is out of stock or shipping will be delayed. Both options can lead to low customer satisfaction levels and potential lost sales.

All it takes is one angry customer to write a bad review that could dissuade other customers from buying your products.

In addition to overselling, many online merchants encounter specific shipping issues such as mispicks and misships. A mispick happens when the merchant selects the wrong product for an order, and a misship occurs when the wrong item is sent to the customer. 

Both of these situations result in returns. Plus, there’s a high probability that the customer will simply cancel the order instead of waiting for the correct item to be sent.

The larger an online business’s inventory, the higher the risk for problems. It might be time to consider a fulfillment center if you’re currently trying to manage your inventory directly and experiencing these and other issues.

Fulfillment Center vs Warehouse: Comparison

The term fulfillment center is often used interchangeably with warehouse, but the fact is that they are different. Both are large buildings used to hold business inventory, but the services offered can differ.

A warehouse is a long-term storage solution used to store products for an extended period. In many cases, a warehouse is an industrial space designed to house inventory items in bulk. If you were to walk into an inventory warehouse, you’d see products being moved by a forklift on large pallets stacked high with large quantities of similar products. Warehouses are primarily used by wholesalers and businesses that fulfill B2B orders.

Generally speaking, a warehouse is usually the best option for retailers that have a diverse inventory and stock large quantities of products. Large retailers sometimes have the capital to purchase  warehouse space, but leasing is usually the most cost-effective option for small and mid-sized retailers. For small businesses, renting a storage unit is sometimes the best option.

A fulfillment center performs some of the same roles as a warehouse but with additional services. In addition to storing inventory, a fulfillment center will fulfill customer orders. When an order is placed through an eCommerce store, the order is forwarded to the fulfillment center, where the inventory is picked and boxed up, then labeled for shipment and sent to the customer.

Using a fulfillment company means outsourcing order processing which takes the burden off your shoulders and lets you focus on other areas of your business.

How Does a Fulfillment Center Compare to a Warehouse?

Despite their surface similarities, fulfillment centers and warehouses offer different services. Here’s a look at three elements that set fulfillment centers apart from warehouses.

Long-term vs. Short-term Storage

Warehouses are designed for long-term storage, where your items are kept for months or even years. Meanwhile, eCommerce fulfillment centers are more common for short-term storage because your inventory frequently changes as orders come in and out. 

In fact, your inventory shouldn’t stay in fulfillment centers for a long time because storage fees can get expensive. At the same time, you should keep sending inventory to fulfillment centers to avoid running out of stock.

Facility Operations

Warehousing operations are generally very simple. Items come in when you send them and come out when you need them. There’s not a lot of processing involved aside from moving items around.

Meanwhile, fulfillment centers have more complex operations because they handle order processing. Here are some key operations of a fulfillment center:

• Receiving items from factories or manufacturers
• Picking products to fulfill customer orders
• Assembling items, if required
• Packing items and labeling shipments
• Shipping items through carriers
• Accepting and managing returns

Frequency of Pickups by Freight Companies

Warehouses don’t see a lot of shipping company pickups because you can get items shipped in bulk instead of individually. That’s why we typically see scheduled truck pickups at warehouses, with items being stacked together in big batches with pallets.

Fulfillment centers often see daily shipping company pickups or even several times a day if you run an especially prolific eCommerce business. eCommerce fulfillment centers get multiple shipper pickups daily because they need to fulfill customer orders that come in even after business hours.

Fulfillment Centers vs Warehouses: A Summary

Here is a quick summary of the differences between a warehouse and a fulfillment center:

• The primary function of a warehouse is to store inventory, while a fulfillment center’s goal is to turn inventory over quickly and ship orders.
• Fulfillment centers handle all stages of the order fulfillment process, including negotiating rates with shipping carriers.
• Operations at a warehouse are relatively static, whereas operations at a fulfillment center are much more complex and in constant motion. Some of the services provided by a fulfillment center include the following:
  • Receiving inventory from merchants
  • Picking products for individual orders
  • Gathering inventory and packaging orders
  • Labeling shipments for delivery
  • Turning over orders to the shipping carrier
  • Managing customer returns and exchanges
• Warehouses typically have scheduled less-frequent pickups, whereas fulfillment centers typically have daily pickups from shipping carriers.
• Fulfillment centers can guarantee same-day or next-day shipping.

Every 3PL provider is different regarding their services and the size and type of businesses they cater to.

Later in this article, we’ll talk about how to choose the right fulfillment center for your business, but for now, let’s take a closer look at the benefits fulfillment centers provide.

What Are the Benefits of Using Fulfillment Centers?

Simply put, the benefit of using a fulfillment center instead of directly managing your inventory is that you don’t have to deal with the inventory management’s ins and outs (e.g., storing, shipping and returns). It may sound simple, but you will never go back once you make the switch. The supply chain for eCommerce companies is complicated, and fulfillment centers make the supply chain easier to manage.

After using a fulfillment center to manage your inventory, you’ll find that the order fulfillment process not only goes much smoother, but you’ll be able to free up time on your end which can be dedicated to growing the business (rather than managing it).

Here are some of the top benefits of using a fulfillment center:

Extra Storage Space

Working with a fulfillment center means you don’t have to find extra space for your inventory on your premises. This is especially useful if you run a small business at home or in a small office.

Managed Order Fulfillment And Shipping Services

Fulfillment centers handle everything from product picking to shipping, so you don’t have to do it yourself.

Affordable Carrier Rates

Many fulfillment centers work with shipping carriers to give you delivery cost savings. Lower shipping rates mean you save money with each sale, growing your profit.

Enable 2-Day And Overnight Shipping

Working with fulfillment centers allows you to offer 2-day or overnight shipping options to your customers.

Professional Inventory Management

Fulfillment center workers know what they’re doing, so you can trust your items will be properly organized and stored. You also get live updates to see which items are in and out of stock.

Returns Processing Assistance

Your fulfillment center assists with returns and exchanges, saving you a lot of time and effort.

Helps You Focus On Your Business

Fulfillment centers and 3PLs handle inventory and order fulfillment, so you don’t have to. This means you can focus on other tasks for your company, like marketing, customer service and product development.

By now you should have a thorough understanding of what a fulfillment center is and how it can benefit your business. If you’re ready to make the switch, you’ll be glad to know that there are 3PL providers all over the country waiting to handle your inventory. Keep reading to learn how to find them.

Things to Consider When Choosing a Fulfillment Center

A fulfillment center may seem like the perfect solution if you’ve been struggling to keep up with orders and manage your own inventory. While 3PL providers can take the burden of order fulfillment off your shoulders, there are some things you need to consider before you commit.

First and foremost, you need to determine whether it’s a cost-effective solution to start using a fulfillment center. Prices vary from provider to provider but will include costs for things like warehouse space, equipment, warehouse management, staff salaries, worker’s compensation and liability insurance, packaging supplies, postage and more. Some 3PL providers offer a flat rate while others add individual fees per task, such as picking and packing.

In many cases, outsourcing your order fulfillment services costs more than doing the work yourself, but what you’ll be saving is time. If managing your inventory and fulfilling orders is holding you back from doing the work you need to grow your business, outsourcing may be worth the extra cost.

Not only do you need to consider the cost of using a fulfillment center, but you need to make sure that the center you choose is compatible with your eCommerce platform. The type of software you use determines whether the 3PL provider will be able to receive, process and track orders. The easiest option is to choose a provider that can integrate with your existing software rather than changing your entire eCommerce platform to match the provider.

With these factors in mind, here is a simple process to follow when choosing a 3PL provider:

Review Your Existing Shipping Process

Sit down and take a closer look at your inventory as well as your shipping process. Take the time to identify existing problems and consider whether a 3PL provider could resolve them.

Do Some Research to See What Options Are Available

You may be able to find a 3PL provider in your region, or you could choose one closer to your largest customer base.

Compare and Contrast Services Provided

Each 3PL provider is different, so you’ll need to know your business’s needs before finding a company to match.

Narrow Down Your List to No More Than Three

Once you’ve created a list of options, narrow it down to the top three choices – these are the companies you’ll evaluate on a deeper level to make your decision. Any more than three will simply be too much to handle.

Dig a Little Deeper Into the Company You’re Considering

You’ll be relying on your chosen 3PL provider to fulfill your customer’s orders and handle returns efficiently. Choosing a company with similar culture and values to your own is important for maintaining a consistent and satisfactory customer experience.

Think About Technological Compatibility

Even if your business is still fairly new, you already have some kind of management software in place – save yourself the hassle of switching by choosing a 3PL provider that is compatible with your existing management software.

Plan Ahead for Scalability

Ideally, outsourcing your order fulfillment process will give you more time to focus on what it takes to grow your business. Choose a 3PL provider that can scale its operations to accommodate your changing business needs.

Choose a Provider That Uses Distributed Fulfillment

Depending on what your business sells, you’re likely to have customers from all over the country. You want to choose a 3PL provider with multiple distribution center locations to keep costs down and optimize your efficiency.

Consider Experience and Customer Satisfaction

Though the satisfaction of your own customers is paramount, you also want to be satisfied with your 3PL experience. Look for a company with a proven track record that you can trust to handle your business’s day-to-day order fulfillment operations. Financial stability is also an important consideration, and you should look for a provider with plenty of industry references – and don’t hesitate to check them!

Negotiate the Pricing

Each 3PL provider prices their services differently, some according to the size of your business and others by individual services. You’ll need to sit down with your chosen provider to determine the exact pricing and what specific services are included.

Once you’ve chosen a 3PL provider, you need to sit with them and discuss the details. Many small businesses who switch to using a fulfillment center skip this step and end up frustrated when there is no clear process.

Before you sign a contract, sit down and go over the details of exactly what you expect from the company and how they will fulfill those expectations. You’ll need to determine which responsibilities the 3PL will handle and which you will retain in-house. It’s also a good idea to establish a schedule for regular meetings between members of your team and representatives from the 3PL. This is where you’ll evaluate the 3PL’s performance and discuss any changes that need to be made.

Examples of Fulfillment Companies

Looking for a great fulfillment center provider for your eCommerce business? Here are three example fulfillment companies to consider:

Fulfillment by Amazon

Fulfillment by Amazon (FBA) boasts over 170 fulfillment centers and 150 million square feet of storage space. Additionally, FBA users can offer free two-day delivery to their Amazon Prime shoppers – a great way to draw customers in and improve sales.

In addition to Amazon itself, FBA also supports numerous eCommerce platforms like Shopify and WooCommerce.

FedEx Fulfillment

Shipping carrier FedEx offers a full-service fulfillment center and third-party logistic service that includes packaging, warehousing and order fulfillment. In addition to its complete suite of services, FedEx Fulfillment also assigns small business owners a professional assistant to teach them about fulfilling orders.

Rakuten Super Logistics

Rakuten Super Logistics boasts 100% order accuracy and guarantees order turnaround by the next business day. Rakuten Super Logistics users can also offer customers two-day ground shipping to 98% of the United States.

However, Rakuten Super Logistics requires a minimum volume of 250 orders per month, so it may not be the best option if you can’t pass the threshold consistently. 

How ShipHero Makes Fulfillment Easy

Boasting over 4,000 eCommerce partners, ShipHero is one of the leading 3PL companies for online merchants. Here are some key benefits of working with us as your third-party logistics provider:

2-Day and Overnight Delivery

You may have lost sales because your store doesn’t offer 2-day delivery like Amazon. Customers expect 2-day shipping everywhere they shop, but building a fulfillment network that can do that is a lot of work for a business – especially a small one.

If you work with ShipHero, you can offer 2-day and overnight delivery to compete with Amazon and other eCommerce giants. Moreover, we offer shipping discounts so your customers can enjoy cheaper 2-day deliveries.

Nationwide Fulfillment Center Network

Storing your entire inventory in one fulfillment center usually leads to longer delivery times, excess inventory and higher shipping costs. For instance, if your fulfillment center is in Florida, delivering orders to California will be much more expensive than shipping to New York, due to distance and many other factors.

ShipHero’s distributed fulfillment network boasts eight warehouse facilities in the United States and Canada, with locations in Florida, Texas, Vancouver and more. We split your inventory across these fulfillment centers, so customer orders will be sent out from the closest location. By reducing the shipping distance, you save money and your customers get faster deliveries.

Integrations With Your eCommerce Platform

We support many popular eCommerce platforms like BigCommerce, WooCommerce, Shopify, Shopify Plus and Amazon. Our eCommerce platform integrations are very simple to activate and especially useful if you’re selling on multiple sites. In addition to handling all orders, we offer real-time updates from your multiple eCommerce platforms, so you don’t have to fumble through multiple sites to see everything.

Transparent Fulfillment Fees

Unlike other fulfillment providers that have unexpected hidden fees, ShipHero offers a simple and transparent pricing model. Our single flat rate covers the entire order fulfillment process for the lower 48 states. We don’t lock you into lengthy contracts like other companies, either.

The Final Word

Customer satisfaction is essential to the success of your online business. If customers like your products and experience a smooth order fulfillment process, they’re much more likely to recommend your business to others and become regulars themselves.

As an online business owner, you’re responsible for selling high-quality products that cater to your customer base’s needs. However, you can’t focus on that if you still have to process orders yourself. Outsourcing the order fulfillment process to a third-party logistics provider means you don’t have to spend hours a day dealing with customer orders and have more time to develop your business instead.

Fulfillment Center FAQs 

What is a fulfillment warehouse? 

A fulfillment center or a fulfillment warehouse is a place where your third-party logistics provider stores your inventory and processes customer orders. Whenever an order comes in, the fulfillment center team picks, packs and ships the product to the customer’s door.

Do fulfillment centers handle inventory management? 

Fulfillment centers handle inventory management as part of their order fulfillment services.

How does order processing work?

Here’s how your fulfillment center staff processes orders:

1. They receive inventory from your manufacturer or distributor.
2. They store and organize stock on the warehouse shelves.
3. They pick items from shelves according to the order.
4. They prepare the items for shipping.
5. They send the items to carriers for delivery.

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About ShipHero: We make it simple for you to deliver your eCommerce. Our software helps you run your warehouse, and our outsourced shipping solutions eliminate the hassle of getting your products to your customers. With over 5,000 brands and 3PLs relying on us daily, we’re here to help with all your logistics needs.

Let us know how we can help you today by scheduling a call HERE.