What is a Distribution Center? A Complete Guide (2025)

The retail e-commerce global sales generation reached around $5.2 trillion in 2021. Online shopping industry is booming as more consumers are turning towards doorstep delivery. But with that, there has been an elevating customer demand for faster order fulfillment. Purchasing online and getting quicker delivery options only happened with the onset of distribution centers. 

Hence, in order to get a competitive edge, it is important to improve the flow velocity in the distribution centers. Many people think that a warehouse, distribution center, and fulfillment center are similar to each other. While they do sound similar because of the supply chain operations they conduct. 

However, there are some key differences between warehouse, fulfillment, and distribution centers. What is a distribution center and how does it work? Read on to understand in detail.

Understanding Distribution Centers

Distribution centers are used to store finished goods before shipping them to the end user, whether it is a wholesaler, retailer, or an individual customer.

However, there are various processes involved in managing all the in-house and logistics operations. Businesses can run and manage a distribution center based on their structure and requirements.

For instance, some retailers develop their own distribution centers, while some tie up with a third-party logistics (3PL) provider. Others have specialized distribution centers that cater to the purchase demands of other companies. Wholesale food distributors, for example, supply items to restaurant owners and hospitality companies. 

Distribution centers are a key component of the order fulfillment process. Managing them is a complex task as they store a lot of products. For efficient order processing, many distribution centers use the latest technology, such as:

• Warehouse management system (WMS) 
• Transportation management system (TMS)

Core functions and operations

Distribution center or cross-dock facility handles various processes from receiving packages from the manufacturers to transporting them for last mile delivery. These operations need careful monitoring of inventory levels for a smooth and effective flow.

With the help of cloud computing, you can ensure proper inventory levels and visibility of the processes involved in the modern supply chain network. There are three major processes that mainly occur in distribution centers:

1. Receiving and processing

Distribution centers receive packages from manufacturers, suppliers, or other long-standing storage warehouses within the company. After arrival, the goods are unloaded from trucks at a receiving dock across different distribution center locations.

You can make this part of the distribution process faster with the help of equipment like shipping containers, forklifts, pallet jacks, a retrieval system, cartons, and boxes. You can also use mobile technologies like scanners. During this, the in-house distribution center teams have to cross check all the received products. This ensures they are of proper quality/condition and match with their order.

2. Storage management

After unloading, inspecting and scanning packages, they’re moved to secure storage locations. Storing them is handled through the stock management strategies of the distribution center:

• First in, first out (FIFO) 
• Last in, first out (LIFO)

A conveyor system can be used to move packages to the storage and placed carefully on the warehouse racking or pallet racks. Warehouse workers are meant to keep track of stock from time to time.

3. Order fulfillment

Picking, packing, and shipping process of the product begins once a customer places an order. The products may be picked for scanning via storage containers based on the scope and size of the distribution center.

Warehouse management systems are used to automatically allocate an order to the nearest distribution center. It basically facilitates in finalizing an order-picking strategy. Its main focus is to ensure an efficient workflow and accuracy in batch picking, zone picking or wave picking. Then the products are ready to be packed and shipped.

4. Return management

A proper returns management process is known to significantly increase eCommerce business revenue by improving customer satisfaction and reducing logistics shipping costs. Some distribution centers may manage returns as per the nature of their operations.

Facilities that process returns themselves must keep open communication with the customer. Once the package is received back, they must restock or refurbish it as per requirement.  

Distribution Center vs. Other Facilities

Distribution Center vs. Warehouse

The fact that warehouses and distribution centers work on the line of storing goods, they are often used interchangeably. But there are major differences between the two, as each facility is created to handle distinct supply chain operations.

1. Storage period

Warehouses are vast buildings that keep bulk storage of items, often for a longer period. These goods are typically sent to the wholesalers instead of end consumers. Warehouses do not manage order processing and fulfillment operations actively in their routines.

Unlike warehouses, distribution centers have short-term storage of goods and focus more on how they are handled. This involves best practices, strategies and systems that can lower down the cost and increase the pace of order fulfillment. So, the distribution centers are mostly used by e-commerce companies and online retail stores.

2. Services and customers

Warehouses are solely there to store products. Whereas, distribution centers offer value-added services like product mixing, cross-docking, and packaging on top of storage.

Distribution centers generally cater to B2B customers. Although warehouses handle B2B customers, they can also serve a few B2C customers.

3. Operational procedures

Distribution centers store products for a shorter period as compared to a warehouse. As a result, the flow of receiving and shipping goods is higher at the distribution centers than the flow at the warehouses.

The operational procedures of distribution centers are complicated compared to a warehouse. Hence, distribution centers need advanced technologies to manage things like processing orders, transportation, and the facility.

4. Assistance and returns

A warehouse’s purpose is to have ample storage of goods, while the purpose of distribution centers is to maintain storage and customer satisfaction. Moreover, retail and warehouse orders are not shipped from a warehouse, but from a distribution center.

Warehouses may not provide you with the required assistance. You will need to have your own returns system and keep staff for restocking items. By using a distribution center, you have the option to lean on a distribution partner or 3PL partner to handle returns for you.

Distribution Center vs. Fulfillment Center

Distribution centers are transit hubs for orders as they change the mode of shipment. Fulfillment centers store goods for a shorter duration before dispatching them to customers. They make sure customers receive their orders on time. 

Fulfillment centers work with various business entities, retailers, e-commerce companies, and corporations to fulfill B2B and B2C orders. However, distribution centers play a major role in the entire supply chain management process, especially in fulfilling customer orders with accuracy.

Key operational differences

Pros and cons of a distribution center

Pros and cons of a fulfillment center

Cost comparisons

Warehouses generally offer lower storage costs because they are designed for long-term storage and less complex operations. 

Distribution centers, while more affordable than fulfillment centers, incur higher costs than warehouses due to their advanced technology, higher flow of inventory, and value-added services.

Fulfillment centers tend to be the most expensive option because of their prime locations near target markets, shorter storage periods, and specialized services like packing, labeling, and returns management. However, their proximity to customers often justifies these higher costs by ensuring faster deliveries and better customer satisfaction.

Distribution Center Processes

A distribution center runs on well-planned processes that keep everything moving smoothly. Let’s walk through the key activities that happen inside these facilities.

1. Inventory management

Think of inventory management as keeping track of every item in the distribution center. We need to know what products we have, where they are stored, and when we need to restock.

Modern distribution centers use computer systems and scanners to track items. This helps prevent running out of popular products and keeps the warehouse organized.

Key activities include:

• Receiving new shipments from suppliers
• Putting items in the right storage locations
• Tracking stock levels and reordering when needed
• Conducting regular inventory counts

2. Order processing

When a customer places an order, the distribution center springs into action. Workers receive order details on their devices and collect the right items from storage. They then pack everything carefully and prepare it for shipping.

The basic steps are:

• Getting order information from the system
• Picking items from their storage spots
• Packing orders securely
• Preparing shipping labels and documentation

3. Quality control

Quality control ensures customers get exactly what they ordered in perfect condition. Workers check items for damage when they arrive and before they ship out. They also make sure orders are accurate and packed properly.

4. Safety protocols

Safety comes first in distribution centers. Workers need proper training on equipment use and safe lifting techniques. The facility should have clear safety rules, emergency procedures, and regular safety meetings. Everyone needs to wear appropriate safety gear like steel-toed boots when working in the warehouse.

5. Efficiency metrics

We need to track various measurements to keep the distribution center running well. These include:

• How fast orders are processed
• How accurate order fulfillment is
• How many items we can handle per hour
• How well we use our storage space

By monitoring these numbers, we can spot problems early and keep improving our operations.

All These processes work together to ensure products move efficiently from suppliers to customers. While each distribution center might handle things slightly differently, these core processes form the foundation of successful operations.

Use Upper’s Automated Delivery Process to Streamline Your Delivery Operations 

The main purpose of distribution centers is to provide the best online shopping experience to your customers. So, you can focus more on your eCommerce business and leave the hassle of planning routes with an intelligent route optimization software.

With Upper’s route scheduling software, you can schedule unlimited deliveries and find optimized routes with less time and effort. No matter how many deliveries you have, it never asks you to extend your working hours.

Here’s how Upper increases delivery efficiency and boosts customer experience:

Quick route optimization

Switch to the effortless process of finding the best routes, as you can automate it for your warehouse or distribution center. Upper helps optimize routes by considering driving preferences, priority levels, and delivery constraints.

You can also re-assign a route to another driver in case of a driver’s unavailability. Within a few seconds, you will have the most cost-efficient routes planned for your drivers.

Accurate ETAs and notifications for buyers

You no longer need to keep your customers in a dilemma about their orders. With real-time notifications, your customers will be alerted about the estimated arrival time of their products. This will keep them informed and stay present at their locations to collect their orders. 

Electronic proof of delivery

When you use Upper as your route planning software, your delivery drivers are sure to increase their accountability. This is because of features like proof of delivery so drivers can collect e-signatures, click photos and add notes. As a result, it increases happy customers and negates the chances of any false claims about your business. 

Get your hands on the Upper route planner and start optimizing routes by signing up for a 7 days free trial today!

Conclusion

A warehouse or distribution center mostly falls under larger distribution networks that enable the availability of inventory across various locations. Companies handling fulfillment services have a lot of tasks to meet delivery deadlines. Effective supply chain management is vital to ensure timely delivery of products while minimizing costs. While it is easier for customers to place orders, a distribution center has much more work to accomplish the delivery. So, you may need to cover an extra mile to win customer’s satisfaction and build your center’s reputation.

Upper Route Planner is an excellent companion that helps lower your load and perform tasks on your behalf. With advanced features like route planning, route optimization, one-click dispatch, API integration, and proof of delivery, you don’t need to waste another minute. 

It doesn’t just save hours of route planning but also helps you bring down overall shipping costs. Take a 7 days free trial and experience it yourself.