Logistics Centers and Their Role in the Supply Chain
May 28, 2021
If you’re an online retailer that wants to grow your business, it’s important to have a ‘scale up’ mindset.
To stay competitive, expand customer reach, and meet expectations around fast and affordable shipping, scaling your business means you’ll have to invest in optimizing your logistics operations.
Logistics centers play a key role in supply chain optimization as it determines how well you distribute inventory and how efficiently you fulfill orders.
In this article, you will learn how logistics centers work, the different types, and why most online retailers choose to partner with a fulfillment provider that offers an expansive distribution network.
What are logistics centers?
Logistics centers are warehouses that offer brands storage space and in some cases additional logistics services.
It’s not uncommon for logistics centers to offer more than one location within a single network. This allows online brands to distribute inventory strategically across various locations, streamline the picking and packing process, and have finished goods shipped to another location or to the end user.
However, some logistics centers are more limited than others. For instance, some logistics centers specifically focus on the transfer of goods from one distribution location to the next, whereas other types of logistics centers focus on storing, fulfilling, and shipping orders to their final destination.
The different types of logistics centers and facilities compared
Not all logistic centers and facilities are equal. There are a variety of logistics centers that offer different capabilities, from warehousing services to order fulfillment solutions.
It’s important to understand your needs before you choose what type of logistics center to store goods in, or build out your own network of logistics centers. Do you need simply need inventory storage? Or are you looking for support in fulfillment and other value-added services?
Here is an overview of the different types of logistics centers that ecommerce businesses have to choose from.
Fulfillment centers are physical locations operated by third-party logistics (3PL) providers that not only store inventory but also fulfill orders on behalf of online retailers.
Oftentimes, fulfillment centers are powered by 3PL software that allows merchants to connect their online store with their technology. This enables orders that are placed online to be automatically sent to the closest fulfillment center to be picked, packed, and shipped as soon as possible.
Storing inventory in a fulfillment center and outsourcing fulfillment to a 3PL makes it easier to manage inventory, meet customer expectations, and spend less time and money on logistics tasks, such as packing and shipping orders.
“ShipBob has multiple fulfillment centers, and all locations filter back into one centralized warehouse management system, so everything is under the ShipBob umbrella.
By distributing our inventory across these countries and regions, all of our customers are able to get their orders much faster while paying reasonable domestic shipping rates.”
Wes Brown, Head of Operations at Black Claw LLC
Though the term ‘distribution center’ is often used interchangeably to refer to a ‘fulfillment center,’ some distribution centers don’t offer fulfillment services for online brands.
Some 3PLs like ShipBob consider their fulfillment network as distribution center due to the ability to split inventory across different locations within the same network to efficiently distribute product. That way, orders can be fulfilled from the fulfillment center closest to their destination.
In some cases, distribution centers act as transit hubs for finished goods that need to be further moved down the supply chain or redistributed. Many big box retailers use this method for internal transfers, for example to restock their brick-and mortar stores.
Sometimes, products are sent to a distribution center to be transferred to a new mode of transportation to efficiently reach their final destination — whether it’s the end user or a different warehouse to be stored.
On-demand warehousing solutions offer ecommerce businesses the ability to store and have orders fulfilled by a third-party on a temporary basis with warehouses that have excess space. This means that the on-demand warehouse acts a middleman, matching warehouse supply with order demand, during the fulfillment process.
There are benefits to on-demand warehousing, such as no long-term commitment. But unlike fulfillment centers operated by 3PLs, on-demand warehouses lack consistency and operational oversight, so it puts your ecommerce supply chain at higher risk.
If your growing ecommerce business is looking to outsource fulfillment but still maintain a sense of control and streamline your supply chain, choosing a 3PL with a growing fulfillment network that actually operates locations with the same software deployed at each location may be the smart, efficient, and cost-effective option that also provides vast expertise and hands-on customer support.
“With an on-demand fulfillment network we briefly worked with, each process relied heavily on someone else rather than feeling like we have control of our store. We couldn’t actually see what their warehouse associates were picking.
We always had to play detective. Their response to any issues were very slow with lots of uncertainty.
It was the exact opposite of our experience with ShipBob, where you can outsource your fulfillment while still maintaining full control.”
Gerard Ecker, Founder & CEO of Ocean & Co.
A dark store is a retail store (e.g., grocers, home goods retailers, and clothing brands) converted into a micro-fulfillment center, and its layout is organized and optimized for retail fulfillment for online orders, often for local orders (e.g., to service the neighborhood in an urban area).
Dark stores are not open to shoppers but instead provide more space to store inventory and fulfill online orders for customers. They also offer pick-up or home delivery options, which allows local customers to place an order online and pick it up in-person.
Dark stores are often used by retailers that once only relied on selling products at a physical location but want to also expand their business online and have the space to efficiently run fulfillment operations.
The role logistics centers play in ecommerce
The core benefit of ecommerce is that you don’t need to invest in premium physical retail spaces and storefronts, allowing you to sell to anyone 24/7.
On the other hand, not having a brick-and-mortar store means you need a plan to store inventory and fulfill items efficiently as soon as orders are placed.
Logistics centers play a key role in ecommerce because they determine where you will store your inventory, how soon you can deliver customer orders, and the different types of shipping options you can offer your customers.
Ultimately, scaling your online brand comes down to how well you distribute inventory in order to fulfill and ship customer orders fast and affordably.
But if you store inventory in multiple locations across the US or a centralized location in the middle of the country, such as Chicago, then you can reach more customers quicker, speed up transit times, and reduce shipping costs.
The important thing is to note the difference between a warehouse and a logistics center that offers fulfillment solutions.
Logistics centers operated by 3PLs also provide dedicated support as well as the infrastructure, technology, data and analytics, and best practices to save business time and money in the long run.
“My end goal when I started Drop FX was to create something that was fully automated, so I could focus on driving sales. I didn’t want to have to worry about inventory and distribution as much.
When I was gearing up to launch the business, I was looking for someone who would automate fulfillment for us. I chose ShipBob, and it turned out to be a very easy and scalable solution.”
Josh Hollings, Founder & CEO of Drop FX
Leave logistics to the experts
The processes involved in running logistics centers can be overwhelming for a retailer to manage all on their own. Not to mention the coordination with suppliers, transportation and shipping carriers, and fulfillment staff makes it a full-time job (or jobs) that many ecommerce business owners don’t have the bandwidth or knowledge to manage.
That’s why direct-to-consumer (DTC) brands prefer to leave logistics up to fulfillment companies like ShipBob, a best-in-class 3PL that offers a growing international fulfillment presence, advanced fulfillment software, expertise, and premium customer support.
By scaling your operations and partnering with a global fulfillment provider, you can expand customer reach and still provide a consistent customer experience no matter where they live.
ShipBob’s entire logistics center network is powered by the same premium tech stack, which allows you to track inventory across locations in real time, view orders by status, and get access advanced data and analytics reporting you to make smart decisions.
“With our old fulfillment solution, because of a lack of ownership of the entire fulfillment stack, it was difficult to rectify, unlike with ShipBob who owns the entire stack: inventory and order management system, warehouse management system, and their fulfillment centers.”
Gerard Ecker, Founder & CEO of Ocean & Co.
As you grow your business and optimize logistics systems, ShipBob’s vast partner ecosystem provides a wide range of ecommerce solutions, from custom branded packaging and returns management to inventory planning and marketing help. This allows you to establish an end-to-end ecommerce solution with ShipBob as your logistics operational hub.
To learn more about how ShipBob can optimize your supply chain, click the button below.
Logistics centers FAQs
Here are answers to the most commonly asked questions about how logistics centers work.
What do logistics centers do?
Logistics centers are distribution hubs for finished goods that need to be transported to another location. There are different types of logistics centers, and some offer space to further distribute products before they reach their final destination, while others offer on-demand storage space. In most cases, ecommerce inventory is stored in a fulfillment center operated by a 3PL that offers not only storage but also fulfillment and shipping capabilities.
How does distributed logistics centers work?
For the best shipping experience, you want to have the goods located close to the end customer. This is where centers work best. For instance, ShipBob is a 3PL that offers a growing network of fulfillment centers that allow you store inventory, streamline fulfillment, and automate shipping. ShipBob partners with a major and regional carriers that pick up packages daily.
Can you outsource ecommerce logistics to a 3PL?
Yes, many fast-growing online brands choose to outsource fulfillment to a 3PL. Partnering with a 3PL enables you to keep fulfillment costs low while optimizing your logistics operations. For instance, tech-enabled 3PL ShipBob offers international fulfillment solutions with a robust distribution network, premium technology, and hands-on customer support.