Definition: A fulfillment center is a physical facility where items are stored and distributed in a centralized manner to reduce logistic costs. It is a supply chain tool that allows companies to save money by centralizing all its products in one single point of origin.
What Does Fulfillment Center Mean?
For small to mid size businesses, increasing the effectiveness of its logistic processes is particularly important to attract and retain customers. E-commerce businesses often face the problem of storage and order-processing, since its organizational structure (or even physical space) is sometimes too small to handle the number of incoming orders. Fulfillment centers are created to fit this particular need. These companies provide storage and distribution services to third parties by having automated warehouses with the capacity to process and fulfill a large number of orders per hour.
Their services also include shipping, order tracking and returns. This reduces the cost and time involved in order processing and creates more time for the company’s staff to focus on key areas of the business such as product development or customer service. Companies like Amazon are an example of this practice. They have many fulfillments centers located across the U.S. to help smaller businesses to distribute its products more effectively. There are normally fees or markups involved, depending on the arrangement signed by the parties.
Example
We Collect Co. is a company that sells collectible items form a wide range of categories like toys, historic artifacts, movie films and comic books. The company sells all its products through an e-commerce platform that handles all orders. The founder of the company decided since the beginning that in order to be profitable the company will not handle the physical items.
Instead, he decided to hire a fulfillment center that is located nearby to handle all its logistics processes. These has created a very streamlined sales process where customers can access all the information regarding their orders online in real-time. The company has been very successful using this business model.
