How Logistics Centers Revolutionizing Way We Think About Supply Chain

Logistics is often considered a process of efficiently acquiring, storing, managing, and transporting goods within the supply chain. The process of logistics planning involves identifying suppliers, manufacturers, distributors, and shipping carriers. The nodal point in each of these events is the logistics center. Logistics without a logistics center is thus crippled. 

Given the global demand for affordable storage, order fulfillment, and shipping, companies like FedEx, DHL, 3PLs like ShipBob, and global eCommerce companies like Amazon have their own logistics centers. Here we discuss everything you need to know about logistics centers and their role in supply chain management.

Logistics Center: The Cornerstone of Physical Distribution

Logistics centers are facilities that primarily offer space for storage along with supplementary order fulfillment and dispatch services.

They are a key component of an eCommerce company’s physical distribution network. These facilities are equipped to receive goods and preserve their natural condition, prepare shipments, and distribute them. 

Over the years, logistics centers have become modernized infrastructures. They are equipped with robust industrial flooring, loading docks, racking systems, and pallets for efficient storage. Many logistics centers are built to cater to imports and exports, thus, are integrated with multimodal transportation channels. 

The most common form of a logistics center is a warehouse. In fact, it is estimated that there are 150,000 warehouses in the world, and the number is expected to reach 180,000 by 2025. The largest proportion of warehouses is in the U.S., signifying the country’s prominence as a global trade center. 

Owing to the rapid expansion of eCommerce stores, another category of logistics centers has gained traction- fulfillment centers. Many eCommerce companies use them to sort, prepare, package, and dispatch online orders to customers. They are especially required to handle product returns and exchanges in eCommerce. 

List of 6 Different Forms of Logistics Centers in eCommerce

Even though all logistics centers offer storage, they aren’t limited to that single function. Some of these centers specialize in order fulfillment. Some in transferring products from wholesalers or suppliers to retailers and others in cold storage. In this section, we discuss the most commonly regarded categories of logistics centers:

1) Distribution Centers

Warehouses that specialize in storing and managing inventory based on region, in addition to shipping them to their intended destination, are distribution centers. Most distribution centers receive goods and store them in bulk bins, pallets, cartons, totes, and intermodal containers. 

One major function of a distribution center is to facilitate split inventory management, i.e., keeping more inventory in regions with frequent demand for it. Therefore, they become transit hubs for allocating inventory across the supply chain of a company. This way, products are always present in locations where they can be easily shipped to customers. 

Nike, for example, has 50 distribution centers around the world to sell their products directly to wholesalers, retailers, and customers. Distribution centers are sometimes considered ‘standard logistics centers’ for their purpose of picking, packing, and shipping merchandise.  

2) Fulfillment centers

A fulfillment center is a large warehouse typically supervised by a third-party logistics company (3PL). Their elementary function is to fulfill orders for online retailers. Thus a fulfillment center operates under the regime of warehousing and shipping. 

They are larger in structure than a warehouse. Fulfillment centers are equipped with the latest state-of-the-art technologies like RFID systems, automatic guided vehicles, and automated storage. 

The typical workflow in the fulfillment center involves keeping stocks, processing online orders, picking and packing them, and dispatching them with a shipping carrier. Additionally, it provides inventory management in real-time and customized packaging like kitting and bundling.

They play a singing role in shipping orders on time for eCommerce brands and in offering shipping services like same-day, one-day, and two-day shipping. Owing to its large network of 100 fulfillment centers in the U.S., Amazon vendors can conveniently offer on-time shipping.

3) Logistics Zones and Hubs

Logistics zones and hubs are massive industrial spaces allotted to logistics services like transportation, goods storage and distribution, and freight forwarding. 

These are prized locations near urban centers or transit communication hubs like airports. They are dedicated to carrying out large-scale shipping operations with multiple transportation modes, synchronizing with production centers and distribution hubs. They are also fitted with customs handling, bulk shipping, goods receipt, and returned inventory control.

4) Logistics Freight Villages and Industrial Parks

A logistics freight village is an epicenter for heavy transportation and urban distribution. They are designed primarily for cargo shipping, including cargo docking, loading and unloading, and freight consultancy services.

Freight villages are nodal points between roadways, railways, and airway terminals. They are tasked with storing, processing, and preparing cargo for intermodal transport, i.e., between road and rail. 

Similar to a freight village, industrial parks, aka logistics parks, are territorial regions that contain a number of warehouses and distribution centers. Its storage facility is shared by many companies renting the space. Ideally, these parks are located nearby industrial belts, dockyards, and airports. 

Its massive infrastructure is provisioned with cold storage features, high-tech warehousing, multiple transshipment terminals, and industrial machinery. 

From handling raw materials for production to shipping freight to regional or international distribution centers, both freight villages and logistics parks are central to the smooth running of supply chains.

5) Transfer Center

A transfer center is a warehouse that is solely responsible for cross-docking. It receives goods that are then sorted and immediately dispatched to the next location. 

They don’t offer inventory storage. Instead, they keep the inventory for a short period of time until it is shipped to a warehouse or distribution center.

Companies can use a transfer center for internal transfers or for restocking their brick-and-mortar stores. Therefore, a transfer center is only best used for transshipping goods.

6) On-Demand Warehousing 

On-demand warehousing is a rather new development in logistics. A company uses a warehouse or a fulfillment center for storing inventory temporarily. There are no long-term contracts, and the stocks are because warehouses have excess space to spare.

In on-demand warehousing, the fulfillment process is carried out by matching demand with warehouse supply. It is often remarked as a flexible warehousing solution with premium but short-term SLA agreements. 

The benefit of utilizing this model is its scalability. Fulfillment operations can vary according to seasonal demand and inventory availability. This benefits digitally native brands and D2C companies to test new markets and shift operations easily without incurring huge setup charges. 

The Role of Logistics Centers in the Supply Chain

Now that we have a fair understanding of the different types of logistics centers, in this section, we highlight the benefits of working with one:

1) Streamline procurement and goods reception 

Logistics centers coordinate material transportation and are part of material procurement. Retail companies can use transfer centers as an intermediary to dispatch products from factories to warehouses in a region. 

Alternatively, many brands use distribution hubs to organize materials received from suppliers and arrange cargo shipment.

Similarly, a logistics center is responsible for managing the flow of goods, from processing orders to analyzing information. They are the central agents in receiving inventory from the transport terminals and sorting them into appropriate SKUs (Stock Keeping Units).  

2) Handle inbound freight 

Freight shipping is a forte of logistics centers that manage inbound and outbound freight shipments. Often they come as FTL (full truckload) and LTL (less than truckload) shipments from manufacturers or suppliers. To handle this cargo requires heavy equipment like forklifts, pallet jackets, and motorized carts. And a logistics center is equipped with these.

3) Manage storage and cold logistics 

One of the purposes of a logistics center is to offer inventory storage until a product is delivered to a customer. In most cases, eCommerce stores lack a physical outlet like a brick-and-mortar store for its products. Hence having a logistics center like a fulfillment center or a distribution center becomes mandatory to keep their products in a centralized location.

Some logistics centers like Lineage Logistics and Americold Logistics specialize in cold logistics. They stock items that are temperature sensitive.  These facilities preserve the natural conditions of FMCG products and consumer goods like chocolates and cosmetics.

To ensure product quality and longevity of perishable items, these centers are equipped with coolants, compressors, and condensers. In some instances, large-scale cold logistics warehouse providers have in-house refrigerator-enabled vehicles to transport perishables over long distances.

4) Prepare orders for shipment

Preparing orders for dispatch is one of the many reasons why logistics facilities like fulfillment centers are in high demand. A logistics center optimizes the picking and packing so that packages are ready to be shipped later on time. They are adept at fulfilling orders of every size. 

They have the expertise in picking orders resorting to multiple strategies that in-house picking lacks, such as zone picking and batch picking. They also take charge of packaging customizations with different dunnage, flat shipping packaging, branded boxing, and eco-friendly packaging. Alongside this, a logistics center can also offer product kitting services.

5) Optimize shipment distribution and outbound logistics

A pivotal role of logistics centers is distributing inventory and tackling the outbound shipping process. Distribution centers and distribution hubs are centralized locations for keeping freight and inventory of all shapes and sizes. 

From here, the cargo shipments are broken down into smaller quantities. They are then promptly shipped to wholesalers, transfer centers, retailers, or any other logistics center for the final order delivery in the last mile. 

Many factors come into play in managing a company’s last mile shipping. Some of these include free shipping, same-day shipping, carrier pickup rate, determining the best route, etc. 

Partnering with a logistics center can resolve many of these issues. When an eCommerce company decides to offer a same day delivery option, it can partner with a fulfillment center or a distribution center. The chosen facility can prep orders for same day deliveries by successfully packing and distributing inventory to the nearest customer location. 

Similarly, many 3PL-led logistics centers have the capacity to negotiate carrier rates. They can help businesses get discounts, thereby lowering shipping costs. At the same time it can map the best routes to optimize delivery time and expense.

6) Assist in bulk shipping and quality assurance 

Most logistics centers have a dedicated department to handle bulk shipping, which involves high-volume goods. It manages the rack space and unloads pallets and cartons for a company’s bulky products. For example, managing the storage and packaging for furniture or electronics like refrigerators and washing machines.  

Similarly, it also has the wherewithal to check and ensure the quality of the products before they are shipped to the next location or the customer. The logistics team in any of these centers periodically inspects goods to verify product standards and meet customer requirements. This is a crucial task to avoid defective merchandise shipped to customers.

7) Manage export operations and processes

Some logistics centers are entrusted with the responsibility of managing exports of goods as a facilitator of international shipping. Exports often require a separate realm of activities, from storage to packing, getting the right shipping labels, and customs documentation for clearance. 

In many cases, 3PL-led fulfillment and distribution centers pick up this role of managing export processes. They prepare the necessary documents, ensure the correct labeling, and secure the proper lanes to get the shipment in the right container. 

8) Secure reverse logistics proceedings

A fulfillment center or a warehouse has a direct responsibility for managing product returns processes. In some cases, customers request a product return owing to the wrong merchandise, defective products, or damaged goods. In such cases, their products are returned to the warehouse. 

The warehouse team has to conduct product quality checks and either restock the item or dispose of it. They also have to fulfill exchange requests, following the pattern of picking, packing, and shipping the right product. 

Logistics Center Act as the Deciding Factor in Lean Supply Chain

Logistics centers are the deciding factor in compensation on the journey of a lean supply chain, where wastage is reduced, and productivity is increased.  A lean supply chain depends heavily on the use of technology such as AI, robotics, and IoT which logistics centers have now adapted in their systems.

These technologies mechanize and automate logistical processes like inventory replenishment, shipment tracking, and warehouse picking. With this, both the logistics center staff and the eCommerce company can save time, money, and resources. 

Over the years, many logistics centers have implemented smart technologies for picking and storing. An example is AS/RS (Automated Storage and Retrieval Systems) to gain a better height advantage in stocking SKUs than forklifts. Others include AI algorithms made with Machine Learning for demand forecasting, predicting stockout, and automating shipping label generations. 

Conclusion 

Given the multiple uses of a logistics center, it has become an indispensable part of a company’s supply chain. They are the main agents conducting inventory management and order fulfillment. At the same time they are principal logistics components in any physical distribution chain. 

We hope with this article eCommerce companies can understand the utility and functions of logistics centers for their supply chain efficiency. 

FAQs

1) What does a logistics center do?

A logistics center provides a variety of supply chain management services for eCommerce and retail companies. They manage inventory count and stock levels, and dispatch shipments after picking and packing them for the final delivery. A logistics center acts as a hub where materials are handled from one facility to another in the supply chain. 

2) How do distribution centers work?

A distribution center works by receiving inventory or cargo from suppliers and manufacturers for long-term storage. The main tasks of a distribution center are to forward smaller batches of shipments to retailers, wholesalers, for distribution and sending the shipment for deliveries to end customers. They are intermediate points where products flow to and from suppliers, brick-and-mortar stores, and shipping carriers.