Businesses in the supply chain move a vast amount of inventory around the world, from raw materials to finished goods. Behind the scenes, two physical spaces play a large role in the complex logistics involved in the seamless movement of goods: warehouses and distribution centers. While both types of spaces are necessary in the global supply chain, and both involve storing and managing inventory, the two terms are not interchangeable, and the functions of these two types of spaces differ significantly.
In this post, we’re diving into the distinctions between warehouses and distribution centers, will explore their key functions and specific strengths, and will help you understand which option best suits your specific supply chain needs.
Key Differences Between Warehouses and Distribution Centers
Inventory-based businesses today are shipping goods all over the world, using both warehouses and distribution centers to complete orders and meet customer needs. While warehouses and distribution centers might seem like interchangeable cogs in the supply chain machine, their functionalities and purposes differ in several crucial ways.
Here’s an overview of the key purposes and distinctions between warehouses and distribution centers:
- Purpose: First and foremost, warehouses and distribution centers have different purposes. The primary function of warehouses is for storage, or to receive and hold bulk inventory for extended periods. On the other hand, distribution centers exist for order fulfillment: their purpose is to efficiently move products, and it’s typically the location where order picking and packing for individual orders for shipment takes place.
- Inventory management: Warehouses typically handle large quantities of inventory (with a slower turnover rate), while distribution centers deal with smaller, fast-moving inventory.
- Infrastructure: The layout and equipment of these facilities also reflect their distinct purposes. Warehouses may have simpler storage solutions (like bulk shelving or pallet racks), while distribution centers need to be equipped for high-volume order fulfillment.
- Locations: Warehouses can easily be located in more remote areas, while distribution centers are often strategically placed near transportation hubs or major customer bases, which allows them to be effective for speedy deliveries.
As you can likely imagine, both warehouses and distribution centers play critical roles in the global supply chain. Today, the global supply chain management market is worth around $24 billion, and it’s expected to grow in size by another $6 billion by the year 2030, which demonstrates just how much inventory is moving around the world. Not only that, but customers today expect quick product delivery, with research showing that 68% of shoppers look for shorter delivery windows at checkout. What this means, for inventory-based businesses that want to meet customer expectations and keep up with the pace of business, is that it’s important to understand the distinctions between warehouses and distribution centers, and use them properly in your businesses.
Deep dive into Warehouses
Now that we’ve touched on the basics, it’s time for a deep dive, starting with warehouses. Warehouses are large storage facilities for goods of all shapes and sizes, and their main purpose is to receive and hold inventory, often for long periods.
Their key functions include:
- Receiving and storing bulk inventory: Warehouses are equipped to efficiently accept and store large quantities of goods, whether from manufacturers, suppliers, or other facilities. They utilize shelving, pallet racks, and specialized containers to provide secure and organized storage solutions.
- Inventory management: Warehouses play a crucial role in managing stock levels and meeting customer demand. As warehouses receive, store, and ship goods, a warehouse management system (WMS) or inventory management system tracks goods, ensures accurate records, and makes predictions about future demand needs.
- Limited picking & packing activities: While some warehouses might offer fulfillment services, picking and packing are not typically part of their primary functions. Their focus remains on bulk storage and efficient organization for future distribution.
Deep dive into Distribution Centers
Now that we know the basics of warehouses, let’s discuss distribution centers. While warehouses are designed for long-term storage, distribution centers are critical when it comes to efficiently moving products and quickly fulfilling customer orders.
Their key functions include:
- Receiving, storing, and staging inventory: Unlike warehouses focused on bulk & long-term storage, distribution centers are hubs for individual items, quick-moving stock, and smaller shipments. They carefully sort and organize these goods, often using advanced systems (such as a WMS or other systems) to optimize processes.
- Picking and packing individual orders: Picking and packing is where distribution centers truly shine. This is when team members (or automated systems) select the items required for each order, and individual items are bundled together to form complete orders. At this stage, accuracy, speed, and organization are paramount, to ensure the right products reach the right customers.
- High-volume order fulfillment: Distribution centers are designed to handle a large quantity of orders, and seamlessly process them daily. They might use sophisticated conveyor systems, sorting machines, and barcode scanner systems to streamline the picking and packing processes.
Well-oiled distribution centers constantly receive, sort, and ship goods, and they’re integral to the order fulfillment process.
Choosing Between a Warehouse and a Distribution Center
Now that you understand the specific, distinct roles of warehouses and distribution centers, you might be wondering which is right for your business (or if you need both). The answer to that question will depend on your specific needs and supply chain strategies.
Here are some key factors to consider when making your decision between a warehouse and a distribution center:
- Storage vs. fulfillment: Do you primarily require long-term storage for bulk inventory, or is your focus on efficiently fulfilling a high volume of customer orders? Warehouses excel at the former, while distribution centers are vital for high-volume customer orders.
- Inventory volume & turnover: The amount and movement of your inventory play a role in your decision. Warehouses are typically best suited for slower-moving goods (and a large quantity of them). However, if you have a fast-paced operation with stock that often changes, a distribution center might be a better fit.
- Order fulfillment complexity: When deciding between a warehouse and a distribution center, consider the complexity of your order fulfillment process. Warehouses typically offer limited fulfillment options (and are better designed to move inventory in bulk), while distribution centers can handle a wider, more customizable range of order processing needs.
- Technology & infrastructure needs: Both a warehouse and distribution center have different technology and infrastructure needs (and costs associated with both). When it comes to physical infrastructure, your warehouse will need proper systems for long-term, bulk storage, while your distribution center needs systems to help with picking and packing. Both facilities will also need back-end support, such as an inventory management system, to help you track inventory, shipments, and fulfillment, as well as empower data-backed demand forecasts.
By carefully evaluating these and other factors, you can determine if a warehouse, distribution center, or both best suit your supply chain strategy.
StockIQ: Your Partner for Every Inventory Need
Whether your business has a distribution center or warehouse, you need a comprehensive supply chain planning solution to track inventory, create accurate demand forecasts, and monitor supplier performance. And for that, you can turn to StockIQ. StockIQ is a supply chain planning suite built for your business, which allows you to control inventory, simplify ordering, and improve forecasting.
Find out how StockIQ can support your warehouses and distribution centers by contacting us today, or requesting a StockIQ demo.
