Fulfillment centers: types and characteristics

When a business starts to take off, it might not have enough resources to accommodate all its inventory. Similarly, it might lack the staff to fill the increasing order volumes. But there’s good news: an outside alternative can enable the company to continue providing top-rate customer service.

What is a fulfillment center?

A fulfillment center is a hub where logistics service providers engage in activities relating to transportation and distribution. They typically have differentiated areas for different types of products and computer systems to manage inventories. Fulfillment centers are usually owned by 3PL (third-party logistics) service providers and strategically located close to major air, sea, rail, and road routes. Their purpose is to receive goods, classify them, and store them for short periods before delivering them to end customers as quickly as possible.

What does a fulfillment center do?

These spaces — which include warehouses, yards, intermodal transportation hubs, and offices — are responsible for performing these functions:

• Goods receipt
• Intake and logging of new items
• Short-term storage
• Picking
• Packing
• Last mile delivery
• Returns management (reverse logistics)

Characteristics of a fulfillment center

Although there are various types and there may be differences among them, fulfillment centers tend to share some common characteristics:

• They are designated spaces where multiple 3PL providers work.
• These companies can own or lease the fulfillment center’s buildings, machinery, and facilities.
• They operate under a free competition framework and are usually managed by a single entity, which can be public or private.
• They handle both national and international transportation.
• They are intermodal and offer their potential clients large spaces.

Differences between a fulfillment center and a warehouse

Although they perform different functions, these two types of facilities are sometimes confused due to the similarities between some of their processes:

In addition, warehouses tend to be located in industrial areas or near transportation hubs. By and large, they’re outfitted with loading docks and material handling equipment. Part of their space can be climate-controlled to accommodate refrigerated or frozen goods.

Benefits of a fulfillment center

Leveraging fulfillment centers can have numerous advantages for businesses such as e-commerce retailers:

• Faster, more efficient shipping. This is possible due to their specialized infrastructure and strategic location.
• Cost savings. Their high volume of activity allows them to offer special rates.
• Flexibility and scalability. They adapt easily to changes in their clients’ demands.
• Improved customer satisfaction. The comprehensive service they offer for orders and returns, along with faster shipping, strengthens relationships with users.

Choosing the right fulfillment center for your business

Selecting the most appropriate partner is essential to ensure that logistics operations go smoothly. After all, this will have a direct impact on customer service and deliveries. These are some aspects to consider:

Technology

An efficient fulfillment center has advanced inventory management systems compatible with the omnichannel strategy and the latest tools for addressing tasks carried out in these facilities. One example is autonomous mobile robots (AMRs) to transport goods in-house. Another is distributed order management (DOM) systems. These order management software programs are designed to optimize the choice of shipping locations for businesses with multiple distribution centers.

Specific needs

Before contracting a fulfillment center, it’s advisable to calculate the orders you expect to receive each month. This will let you determine your required storage capacity. Likewise, you’ll need to take into account the final destination of your goods (national or international), their size, and their characteristics. Not all fulfillment centers are equipped to handle all product types. If you work with fragile, large, or high-value merchandise, you’ll have to contract a specialized facility.

Location

It’s preferable to choose a fulfillment center close to the markets you operate in or in a strategic area. This will lower your delivery costs.

Types of fulfillment centers

There are several different kinds of fulfillment centers, each with different objectives:

• Logistics distribution platforms. These infrastructures are designed to offer freight delivery services to cities.
• Customs clearance centers. Located near border areas, these facilities are used for customs inspections.
• Industry cluster fulfillment centers. These warehouses carry out activities for a specific industrial sector and are located within the vicinity. They house finished or semi-finished products.
• Port-centric logistic zones. These refer to areas near maritime terminals where cargo is handled and distributed within a port’s scope. As multimodal facilities, they have good access to road networks and rail connections.
• Dry ports. These inland terminals are connected to the seaports they service by road and/or rail.
• Micro-fulfillment centers. Set up near urban consumption centers, these facilities primarily house direct commercial activities related to food. Therefore, they typically attract a high volume of customers.
• Agricultural logistics centers. These provide support for farming production.
• Air cargo centers. These logistics facilities specialize in processing air freight. They are located next to airports, with access to runways and road networks.
• Intermodal rail/road facilities. These centers handle transfers of goods between rail and road transportation.

Technology for your fulfillment center

When setting up your own fulfillment center or warehouse, it’s essential to conduct a thorough analysis of the activities to be carried out. You’ll also need to determine the ideal location and select the tools to be used for material handling and inventory management. Whatever your logistics challenge may be, at Interlake Mecalux, we have automation and software solutions to drive efficiency in all kinds of logistics centers. Contact us to find out which solutions will best suit your company’s processes and maximize your throughput.