What Is A Distribution Center?

There are many things to take into consideration before starting a business. Who is going to handle administrative work? What platforms are you going to utilize to speak to your customers? What do the numbers look like? And how are you going to get your product to the consumer? While we can’t help with the first few points, we can give you more insight into the things to look for when you are working to establish an effective supply chain.

So what goes into supply chain management? This involves anticipating product shortages or challenges before they occur, allocating resource inventory, and creating an efficient business that will lead to higher customer value and an advantage over competitors.  Before being received by consumers, a product must first go through a series of spatial and temporal processes. These processes are widely known as a supply network. The networks can function in different ways but are primarily used to highlight interactions between organizations or monitor the flow of materials across facilities. A complex supply network isn’t required to start, but due to the ever-growing advancements in technology, it isn’t uncommon for networks to evolve over time. Successfully delivering your product to consumers is of the utmost importance and integrating technology can help optimize this process.

The structure of supply networks is often compared to that of a cell. Many processes are done simultaneously in different areas of the membrane, but they all work together for a single purpose. The distribution center can be viewed as the nucleus of the supply chain. As a  foundational point in the network, it is here where goods are received, stored, and eventually shipped out to fulfill orders. 

Distribution Center vs Warehouse

Oftentimes, business owners will speak of distribution centers and warehouses as if they are one in the same, but upon understanding how the inventory is processed, their differences will become quite noticeable. Varying types of technology and layouts are required to support the inventory goals of each facility. 

Although the terms are often used interchangeably, distribution centers and warehouses handle different operations within the supply network. Essentially, the primary function of the warehouse is to serve as a place for the storage of surplus goods. Warehouses can vary vastly in the type of items that they will hold on to. It is common to see storage such as clothing, books, or furniture – and dry goods such as boxed foods, sauces, etc. Are you specializing in cold goods? Many warehouses can support your needs by usage of cold storage equipment within the building but not all are prepared for this. Lack of correct equipment can lead to a loss in products if they are perishable goods, but warehouses can avert this outcome by implementing cold storage facilities within the building. Different products require different care, therefore, when looking for a warehouse, it is critical that you search for one that fits your specific needs.  These items could lead to a loss in products if they are perishable goods, but most warehouses avert this outcome by implementing cold storage facilities within the building. 

In contrast, the functions of a distribution center primarily support the movement of materials. These operations involve but aren’t limited to creating SKU assortment, processing products, assembling shipments, de-aggregating vehicle loads, etc. Essentially, distribution centers are vital in your operations, if you have multiple product types and need an efficient way to keep them organized, stored and distributed.

The Distribution Center Process

There are two primary functions of distribution centers: inbound and outbound operations. Inbound procedures begin when a shipment arrives at the facility. Upon arrival, preparation for storage begins. This involves unpacking, inspection, and sorting. Typically, receiving functions are 10% of operating costs.

After unpacking and inspecting the merchandise, it is important to find a proper location for storage. For this process, it’s vital for the team to have an effective and reliable means of communication.  Accurately recording actual storage location and confirmation will assist with the prevention of any miscommunication that could slow down the flow of the supply network. 

The outbound process begins the moment an order is received by the facility’s processing system. Once received, the facility’s management system will check to see if the item that has been requested by the customer is in stock. The system will then proceed to lay out the steps needed to successfully fulfill the order. These steps usually involve coordinating automation systems, beginning replenishment, and scheduling shipping times. 

Order-picking is estimated to make up 50-60% of facility costs. This increases if workers need to travel across locations to fulfill an order. Keeping this in mind while designing the layout of your distribution center can help increase the efficiency of the fulfillment process. Before shipment, the orders are checked for accuracy and packaged appropriately to avoid damage.

How Do They Work?

As a primary node in the supply network, all of the operations conducted in distribution centers assist with the transportation of goods from facility to consumer. Here are a few workflow methods that distribution centers use for daily operations: 

Make & Break Bulk

One of the traditional functions of a distribution center is breaking and making bulk. When receiving a long-distance bulk shipment directly from a plant, it is broken down into smaller shipments and is delivered locally to customers. This process is known as a “breaking-bulk.” The make-bulk process is the exact opposite. During this process, small amounts of different products are grouped together to form larger shipments. If a customer has multiple orders, this process is used to determine which items can be safely delivered within the same package. 

Cross-docking

One of the most basic distribution strategies is cross-docking. This occurs when a product arrives at the facility but isn’t stored, as it is just passing through. The product, seldom joined by another going to a similar destination, is shipped out as soon as possible. On average, cross-docked items are reported to spend between 2-3 days at a distribution center before being shipped out. To ensure that this process runs smoothly, it is suggested that you coordinate a schedule with all who are involved in the supply chain before commencing with cross-docking.

Transshipment

Sometimes switching transportation modes or vehicles is necessary when shipping items.  When an item is taken from one truck and placed inside of another, it is a process known as “transshipment.” Consolidation and deconsolidation might be involved, but in the event that it isn’t, this process is referred to as “transloading.” For example, if the goal is to deliver more items during a specific route, switching to a vehicle with a larger capacity will help achieve this.

Product Fulfillment

In some cases, the distribution center will function as a fulfillment center. Optimal customer service procedures are necessary when taking on this role, as the staff will be dealing directly with the end customer. When hiring a distribution center to serve as a fulfillment center, you are more removed from the process. In doing so, it is important to know what you are looking for in terms of customer service and communicate those goals appropriately.  Most of the orders will be received through electronic means and will be smaller in size, but filled at larger rates. Having a distribution management system in place is critical for this operation.  

Additional Responsibilities

The operations of distribution centers and warehouses all vary based on who owns them and where they are located. Some additional services that may be offered by a Distribution Center include:

Returned Goods

When handling returns, also known as reverse distribution, transferring the product back into the forward flow of the network with as low of a cost as possible is the main objective. During this transfer, a mixing of SKUs between reverse and forward channel products can occur. To prevent this, some companies opt to have their reverse logistics handled by facilities whose sole purpose is to handle such matters. 

When starting a business, establishing and optimizing a solid supply chain network is of the utmost importance. As the nucleus of your network, distribution center operations assist with storage, order fulfillment, and other logistics processes required to support and retain consumer growth. With the addition of a distribution center comes control, as it will permit your business to set and oversee service and delivery windows. When opening a distribution center, it’s important to take its location into consideration. Centers located near main highways or roadways are ideal since they would make the transportation of products more efficient. If you are in the Spokane area and are in need of a distribution center, contact us today!

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