We’ve all probably heard of these in the same sentence but what are the differences between warehouses and distribution centres? It’s important that a business understands and defines these as how they manage supplies of materials and goods is critical.
Warehouses usually function as:
- Mid to long term storage – and are usually large
- Storage of slower moving materials and goods, that is goods not usually needed day to day
- Relatively fixed stock levels
- Less critical business requirements so a third party can manage for you.
- Do not need to have specialist production equipment
Distribution Centres (DCs)
Distribution centres will handle materials and goods:
- Short term storage, potentially with no long-term storage at all
- Specialists may prepare kits which is the grouping of components to make common orders
- Swift turnaround of bulk or specialist items to send to other DCs or directly to shops / customers
- Run by a specialist third-party logistics company or directly by the business
Of these two elements within the supply chain, businesses may not require both of these but may at least have access to one of these.
The real question a business needs to review is whether you operate either or both of these yourselves or subcontract. There are a number of logistics providers who would be competent to supply these services.
If you have these sorts of facilities you need to define them accordingly to your business needs. You can’t simply ‘convert’ a storage warehouse to a DC overnight. You need to analyse where these facilities are, how they’re connected with the local transport infrastructure and of course staff training. They may simply be unsuitable for any or all of these reasons.
A DC needs to be far more flexible and sharper in order to operate efficiently and cost effectively.
What are the advantages and disadvantages of subcontracting these out?
There are some distinct advantages:
- No requirement to train or become competent in inventory management or logistics
- Potential cost saving using third party warehousing or DC
- Access to a potentially larger network and efficient transport providers
- Location should be in a good place to link with logistics
There may be some disadvantages, however:
- Lower control over product management
- Potentially slower speed to manage orders
- Restriction on Information flow and communication
- It will tie you in with one provider for this, that may make exiting from an agreement harder
Many companies are famous for their excellent DC operations – for example Amazon FBA. Having a fast, efficient and cost effective distribution service is a key selling point for Amazon and those that use their services.
The differences between whether you want to run warehouses or distribution centres will depend very much on:
- How swiftly your product is moving through from your factory or via your logistics partner
- Is demand genuinely sufficient to warrant this investment
- Can you do this in a more cost efficient way?