Warehouses vs. Fulfillment centers, and how to choose the right one

To set the record straight, there is a whole world of difference between a warehouse and a fulfillment center. This is especially true depending on where a business is standing in its growth cycle.

Warehouses and fulfillment centers have been used interchangeably especially in the field of logistics, So let’s dive into the difference of the two spaces and together determine which facility will better suit a business’ needs in the Philippine context.

Let’s start with a warehouse

A warehouse is simply a large enclosed space where a business usually stores large volumes of products. Do note, however, that the storage in case of warehouses are normally on a long-term basis.

These warehouses would usually stack pallets upon pallets of products that sit and wait to be shipped to fill in orders from other businesses.

Movements inside a warehouse are normally stagnant except when boxes or pallets need to be brought in, or pulled out and shipped to a customer. A case in point are fast-moving consumer goods (Also known as FMCGs), their products fly off supermarket shelves quickly. When the supermarkets’ inventory is depleted, these FMCG products are hailed from the company’s warehousing facility and are shipped as needed.

There are several warehouse hubs in the Philippines such as Manila, Valenzuela, and Bulacan. Experts foresee these hubs to grow even further as the country’s top retailers transition to a pandemic-ready model of e-commerce.

Ok, got it, so what is a fulfillment center?

Fulfillment centers, or more technically called 3PL (third-party logistics), are also housed within a large enclosed space. They store large volumes of products too, albeit for a wider set of product sellers or businesses. Companies that use 3PL are normally e-commerce sites that need professional assistance in delivering their products to their customers at the shortest amount of time possible

The difference between a warehouse and a fulfillment lies with the movement of products within the space. Storage within fulfillment centers is normally on a shorter term, usually not more than a month. This is mainly due to the quick turnaround of the products that are shipped directly to the customers. The fulfillment center takes charge of picking the right product out of storage, packing it properly, coordinating a delivery and sending it away.

Because of the usual fast turnaround of products, the activity level inside a fulfillment center is very high. In each corner of the place you can see busy people packing, labelling, sorting, and dispatching products. Fulfillment centers also serve as a dispatch area where couriers pickup the products and send them directly to the front porch of customers.

and now to the question itself:

When to use a warehouse and when a fulfillment center?

A warehouse is more straightforward. If a business needs an extra space to store inventory, which will eventually be needed for replenishing stocks, then using a warehouse is the proper way.

A fulfillment center, on the other hand, is proper when a business needs to source out his distribution to customers and keep up with customer demand.
Fulfillment centers can also save on business expenses significantly, as it can serve as a local presence, saving the business from having to deliver package by package over air/maritime delivery.

Finally, a fulfillment center is a growing business’ solution to the usual problem of keeping customers happy especially for demanding customers that want to get their products asap. In other words, a fulfillment center may be seen as a path by way a growing business can expand further.

How to choose the best 3PL provider for your business?

Once you’ve made the decision to have a 3PL partner to grow your business, the natural next question is, how do I choose one?

There are several factors to consider in choosing a 3PL. The list below will flesh out the details to help you in your decision making.

Market to be entered

The first thing when considering which 3PL to get for your business is the 3PL’s experience and exposure in your business’ desired target market. It will be important to know if the 3PL has an extensive list of clients and sufficient network for your business to penetrate the new market.

In the context of the Philippines, setting up a successful e-commerce business in the country can be quite challenging. The overall behavior of the market is unique compared to other Southeast Asian markets. After all, the Philippines is still heavily reliant on physical cash in doing transactions. This bit of information is not commonly known to new entrants.

Therefore engaging an experienced 3PL partner can help the business streamline its understanding of the Philippine market.

Infrastructure to accommodate a new player

Entering a new market is full of challenges. Importing products across borders alone is enough to cause severe headaches for most business owners. As such, choosing the right 3PL with the right infrastructure in place to accommodate a new entrant in the market is crucial.

In the same context within the Philippines, importation can be a major pain in the neck. and the chosen 3PL partner assistance may prove invaluable, otherwise the business can end up spending more than what it earmarked for.

As for the cash based transactions, a 3PL partner must have an infrastructure setup to accommodate cash-on-delivery which is the most common method of payment, and without it, it will be close to impossible for a new entrant to do business in the Philippines.