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The Role of Logistics Centers in the Supply Chain

Oct 28, 2022

7 min read

What are logistics centers?

A logistics center is an area that provides various logistics services, including warehousing, transportation, and storage to businesses and shippers. These large facilities are purpose-built to help companies move closer to transportation and distribution hubs.

Third-party logistics (3PL) services are a type of logistics center that assist in order fulfillment, and it has grown to the point where currently 90% of all Fortune 500 companies choose 3PLs to handle their logistics and supply chain processes.

Many logistics companies operate in the same logistics center, providing outsourced logistics services. The right logistics center can upgrade your competitive advantage and cost savings as you work to optimize your supply chain and fulfillment operations.

In this article, we’ll discuss the different types of logistics centers and their functions to show how they increase efficiency and optimize shipping operations.

 

Types of Logistics Centers

Logistics centers come in many varieties. Some focus on on-demand warehousing services, while others serve as a transportation hub for national and international shipments.

Let’s look at the different types of logistics centers available to eCommerce shippers.

Fulfillment Centers

A fulfillment center is a hub for all logistics services needed to process and ship orders to end users. They offer a faster, more cost-effective option for eCommerce sellers to complete customer orders compared to in-house fulfillment.

A fulfillment center receives and puts away inventory, performs kitting and assembly, gets customer orders ready, ships them, and manages returns.

Fulfillment centers are an essential part of the supply chain as they relieve growing businesses from time-consuming inventory management and shipping tasks that often lead to order errors and slow turnaround times. Outsourcing to a fulfillment center also allows shippers to avoid direct costs associated with procuring warehouse spaces, labor, automation equipment, and warehouse management systems (WMS).

Distribution Centers

A distribution center is a specialized logistics hub that allows businesses to strategically store inventory closer to their customer base. This helps them achieve greater competitiveness by reducing the cost of delivering a product to the customers’ doorsteps.

Not to be confused with fulfillment centers that are owned by a 3PL servicer, distribution centers are owned by the company.

The primary purpose of a distribution center is to store inventory, pick and pack customer orders, and ship them to the customer. However, most distribution centers offer several value-added services, including intermodal transport services, cross-docking, replenishing retailers, and product mixing.

Global distribution centers offer warehouse spaces in different geographies and real-time order tracking during national and international transit. This helps shippers to achieve greater competitiveness by reducing lead times, fulfilling overseas orders from global distribution centers, and achieving price optimization.

On-demand Warehousing

The on-demand logistics market is expected to grow to $80.6 billion by 2031 from $12.4 billion in 2021.

On-demand warehousing is a logistics model that allows warehouse providers with excess capacity to fill their space by offering affordable storage to shippers. This warehouse partnership allows merchants to circumvent the long-term fixed costs associated with leasing storage space, hiring labor, and other expenses with short-term variable costs. As a result, shippers can expand their fulfillment network to streamline logistics operations and reduce shipping costs.

On-demand warehousing providers act as middlemen between the shippers and warehouse operators. To ensure synergy, they provide you with a logistics management system that integrates all your sales channels, giving you complete visibility into your stock levels at all warehouse facilities. You can monitor all your sales channels from a single place, allowing you to easily track and optimize supply chain management.

Dark Stores

Dark stores are physical stores repurposed to carry out order fulfillment. Due to the surge in online orders and decline in in-store purchasing, many businesses have opted to use their brick-and-mortar locations for logistics activities.

Also known as mini-fulfillment centers, dark stores process customer orders, pick and pack items, and deliver them directly to the customer. It is a cost-effective fulfillment model for shippers wanting to increase customer reach and improve delivery times.

 

The Function of Logistics Centers in the Supply Chain

Now that you know about the different types of logistics centers, let’s take a look at the different types of logistics services available to shippers in logistics centers:

Goods Receipt

Goods receiving is the process of checking the items received from the manufacturer or supplier delivered to the logistics facility. The warehouse staff inspects and compares the incoming goods for quality, quantity, and condition against the delivery note, and reports any issues (such as discrepancies or breakages) to the shipper.

At this point, the staff barcodes the products and enters them into their warehouse management system (WMS).

Storage

Once the incoming items are logged into the WMS, they’re assigned an appropriate space in the warehouse. The storage location of these goods depends on several factors, including size, perishability, shelf life, and special requirements.

For example, small-sized barcoded products are stored in pick bins, and bulkier items are accommodated in storage cabinets. Similarly, perishable foods are kept in freezers or refrigerators to protect them from deterioration.

Most logistics centers charge storage pricing by pallets, SKUs, cubic footage, or a combination of the three. Note that some warehouses also factor in how quickly your stock moves when calculating the storage costs.

Internal Transportation

Internal transportation is an essential element of any logistics center. Warehouse machines help move goods internally from loading bays to the storage location, from pallets to the packing stations, and so on. They help ensure maximum logistics efficiency and increase productivity.

There are two kinds of warehouse transportation machines, namely manual (e.g. forklifts and conveyors) and automated machines (e.g. sortation equipment and automated storage and retrieval systems).

Logistics centers spend a lot of time and resources designing and building facilities where manual and automated internal transportation machines can coexist.

Picking

Picking is a warehousing process where individual items are picked from a warehouse facility to fulfill customers’ orders. It is a vital part of order fulfillment and is considered the most costly and labor-intensive warehouse activity.

However, high-tech equipment like hand-held scanners allows warehouse staff to quickly trace the ordered items and scan the product barcode to cross-check and ensure the item picked is the correct one. Once all items have been picked and double-checked for accuracy, they are taken to the packing stations for labeling and packaging.

Stock Management

In addition to using WMS to manage inventory, logistics companies perform random physical checks to ensure the number of units on paper matches the number of units in your inventory.

Real-time inventory tracking is also crucial in understanding and meeting customer demands. It tells you which products are performing well and which ones need a marketing boost.

Most eCommerce shippers assume that expanding their product line can help them increase sales. In reality, the storage costs of slow-moving products eat into the profits generated by fast-selling items. Tracking the status of all SKUs in your catalog can help you make informed business decisions and cut down your storage costs.

Dispatch

Logistics companies use transportation management systems to handle dispatches, communicate with carriers, and track shipments. Data about each shipment is automatically collected and shared with shippers, enabling them to monitor delivery status, review driver activity, and view pickup and delivery times.

In addition, shippers can use the TMS to manage load types such as small parcel, FTL, and LTL or use package consolidation to combine multiple packages into a single package.

 

Make Informed Logistics Decisions with Sifted

A logistics center is a designated area or hub where logistics companies, transportation services, manufacturing companies, and shippers share space to improve productivity and reduce costs.

Sifted Logistics Intelligence offers tools for shippers and businesses to make informed logistics decisions by tracking progress in multiple areas, including transit time, package count, and shipping charges.

Monitor logistics KPIs to spot order fulfillment issues. Get a free demo from Sifted!

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