While many traditional distribution and fulfillment models focus on a centralized inventory hub, that method has become less effective for modern e-commerce logistics. Today’s consumers want the goods they order to ship fast and cheap (or free), which means inventory must be located near the largest population centers to meet demand.
The single-warehouse model may be suitable for a start-up or other growing businesses that primarily ship regionally. However, once growth surpasses a certain tipping point of order volume from around the entire country, these businesses will need to find a way to evolve their logistics practices to maintain growth, meet customer needs, and avoid overspending on fulfillment.
What Is Distributed Fulfillment?
To meet the rising expectation for delivery within two days or less, e-commerce businesses have shifted to a multi-warehouse model wherein they spread their inventory across strategically located warehouse locations. For a mid-sized enterprise, this may mean five to seven strategically located warehouses nationwide. On the other end of the spectrum, e-commerce giant Amazon has more than 1,200 warehouses around the United States.
“To put it simply, operating a single warehouse in Chicago makes it pretty hard for you to get a package to a doorstep in New York City or Los Angeles within 48 hours,” said Frank Crivello, Milwaukee-based chairman and founder of Phoenix Investors and Phoenix Logistics. “We’re seeing more brands move away from centralized models because they can’t scale effectively when demand spikes in specific regions. A purpose-built distributed network helps them to literally meet customers where they are.”
Storing inventory closer to customer markets usually happens in one of three ways:
- Buying/leasing more warehouses. The business leases or buys its own warehouses in each market, maintaining full control of fulfillment but also taking responsibility for the full operating costs and management of the facilities.
- Fulfilling orders from stores. Many omnichannel retailers choose to move extra inventory across their store footprint to fulfill e-commerce orders locally from stores. This approach is effective for getting inventory near customers, but it also comes with inflated costs, as inventory is distributed to the store and then dispatched again for individual order fulfillment.
- Using a logistics provider. By contracting fulfillment services through a third-party logistics (3PL) provider, e-commerce sellers can distribute inventory across the 3PL’s national warehouse footprint without making the investment themselves. Given the growing relationship between fulfillment and customer experience, this method requires finding a partner you can trust with your brand’s reputation.
While all these methods are viable strategies, the best plan for your organization will depend heavily on your specific resources, in-house expertise, product types, and any other unique factors about the business.
How Distributed Fulfillment Works
Spreading inventory across multiple locations may sound like a simple concept, but each location you add to your network increases the overall complexity of logistics and inventory management for your organization. Doing this successfully requires the ability to accurately forecast demand within each market, so you know how much and what types of inventory to send to each warehouse.
Otherwise, fulfillment works pretty much the same way as it did with your single warehouse, where the order gets picked, packed, and sent to its final destination through a carrier. The major difference here is that you must be able to track those activities across each inventory hub.
Doing this requires an investment in advanced inventory management, order management, and warehouse management technologies to mitigate the risk of mistakes and stockouts at any of your locations. Alternatively, you can leverage the technology capabilities of a 3PL partner to get much of this data, which will lower your upfront investment costs.
Why You Need to Consider Distributed Fulfillment
As customer expectations around order fulfillment and delivery, the ability to fulfill orders fast and affordably has moved from a competitive advantage to table stakes. Decentralizing your inventory and leveraging a national network of warehouses can help you reduce shipping costs, shorten delivery timelines, increase resilience, and improve satisfaction for your customer base.
If your single-warehouse model is starting to show cracks, it’s time to consider whether distributed fulfillment could be the upgrade you need. If you have questions about how this model could work for your business, please contact us.
About Phoenix Logistics
Strategic Real Estate. Applied Technology. Tailored Service. Creativity. Flexibility. These fundamentals reflect everything we do at Phoenix Logistics. We provide specialized support in locating and attaining the correct logistics solutions for every client we serve. Most logistic competitors work to win 3PL contracts, and then attempt to secure the real estate to support it. As an affiliate of giant industrial real estate firm Phoenix Investors, we can quickly secure real estate solutions across its portfolio or leverage its market and financial strength to quickly source and acquire real estate to meet our client’s need.
