How does a distribution center work?

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Outside view of a large distribution center

A distribution center is a building or multiple buildings, that are primarily used as storage. For goods, that retailers sell in their shops or online platforms. They store these goods until they are ordered to be distributed, whether to business’s or directly to customers. The main purpose for a distribution center is to hold stock, until it is needed. These centers can often be shared by several small business’s to reduce overheads or are owned outright by larger companies, who rely on having large amounts of stock, but do not have a large amount of shop space. They are also heavily relied on by online companies, who use a digital shop platform.

Traditionally large retail chains such as Amazon own their own distribution centers. This minimizes their overheads, by cutting out the middle man. You will tend to find that large retail chains have more than one distribution center. They tend to place them strategically throughout the countries that they ship to. Small independent retailers however cannot afford the overhead costs of owning their own distribution centers. This means they have to go to third party centers which charge them a much smaller overhead in comparison. This is because these third party services tend to serve more than one small retailer. Meaning that the overhead costs are split between multiple business’s rather than just one.

There are three main area’s within a distribution center, which are, the shipping dock, receiving dock and storage area. These three areas can then be broken down into smaller sections. For instance the storage area might be divided into different sections depending on what is being stored. Such as food. If the distribution center is storing perishable and non-perishable food, then you will often find sections for refrigeration or air conditioned, to ensure the food stays fresh. You will also find with third party distributors that store more than one retailers stock, that there will be area’s set out of each of the people they provide storage for. This is to ensure that all stock in storage is easily located and does not get mixed up. If the stock was all kept within one place then it would be difficult to locate and could potentially mean a lot of mix ups. This is bad for business for both the distributor and the retailer. As the customers down the line ends up unhappy with the service they have been provided. If a customer is dissatisfied then the likelihood is that they will not shop there again.

Although distribution centers tend to do the same thing, there are some differences. Although you can normally tell what kind of distribution center it is, by what it calls it’s self. For instance the main three different types of distribution centers are called, package handling center, warehouse and fulfilment center. Each doing the same thing, but with slight differences. The package handling center tends to receive goods and then forwards them straight away to whom ever they are going to. However a fulfilment center normally stores and then sends goods straight to the customer. This is a common place for any purchases from catalogues or online stores, to come from. A warehouse on the other hand tends to store products, that will one day see shelves in a shop.

The distribution center finds it’s profit in efficiency. Through ensuring overheads are low, labour costs are kept to a minimum and regular turn over of stock is upheld. This ensures that their customers build confidence in their system. Ensuring that their company is seen as competent in their field. Meaning that they are more than likely going to get more custom in the future from said retailer.

over view of a distribution center

If you are wanting to find out more about distribution centers then here are a few useful links, to help you on your way!