Warehouses and distribution centers are often considered synonymous; however, there are differences when it comes to their function and the purpose they serve. The difference between the two storage facilities is embedded in the supply chain mechanism they follow. Warehouses are a product of traditional supply chain procedures, which used to require huge facilities for storing raw goods or finished products.. These traditional logistics frameworks lacked advanced technological applications to monitor the supply and quantities of products. The absence of information technology and planning mechanisms forced suppliers to stockpile items in warehouses for months before they were used in production or sent out to customers.
The advent of technology and data sciences caused a drastic transformation in the logistics models and supply chain networks. Access to better information enables suppliers to track their products, monitor the demand of the customers, and evaluate the supply or production of the items in demand. As a result, the concept of stockpiling was replaced by the slogan of “keeping the right thing at the right place and at the right time”. Hence, it can be said that the distribution center is a modern-day adaptation of warehouses and a product of the contemporary supply chain model that is much more efficient and effective.
Technological Difference Between a Distribution Center and a Warehouse
The major difference between the two storage facilities is in the variety of functions and features they possess. A typical warehouse is used to receive goods, produce receipts, identify and enlist the products, verify the stored items, store the products , and retrieve them in case of any issue. These basic functions are associated with the management of the products, which are mostly carried out manually.
On the other hand, the functions of a distribution center are much diverse. The distribution facility not only stores products but also performs various other functions, which a warehouse cannot. For instance, distribution centers (DC’s) can act as a bulk-break center, which means that the manufacturers can directly send their items to a DC in bulk quantities. These quantities are then sorted according to the customer demand, which is evaluated through data analysis, broken down into smaller orders and eventually sent out to the individual customers. The advanced technology used to operate these distribution centers enable them to become the nerve center of various complex supply chains.
Since distribution centers are equipped with the latest technology, warehousing is just among the many complex operations that this facility undergoes. The advanced technology enables the distribution facility to increase the flow velocity of the products, hence reducing its time inside the facility and increasing cash flow for a business. Therefore, it would be accurate to say that while distribution centers can act as a warehouse, it is not possible for a warehouse to become a distribution center.
Consumer Demand for Distribution Centers v. Warehouses
An important fact to consider is that the changing landscape of the manufacturing industry and consumer demand is reducing the shelf life of many products. The emergence of global supply chain networks and increasing expectations of consumers have compelled the manufacturer to respond quickly to user demand. Therefore, efficiency in storage and shipping has become the foremost priority of almost all the supply chain networks in the world. As a result, cross-docking has become the center of attention for various big retailers, which minimizes the material handling and facilities direct shipment to customers immediately. Cross-docking, in simple terms, is the receipt of a larger order on one side of the warehouse, repacking it into smaller orders and sending it out the other side of the DC. Distribution centers can also act as cross-docking facilities unlike warehouses, which are not connected with external customers and follow a simple operational model.
Customer Centricity Between a Distribution Center and a Warehouse
As explained earlier, distribution centers use advanced technology to track customers' needs, which means that these facilities act as a solid connection between suppliers and users. Unlike warehouses, which ship the goods to retailers or other warehouses "as-is", the distribution facilities can provide the facility of product mixing to ship them according to customer demand. Product mixing facilities respond to customer orders by mixing and combining products from different manufacturers and suppliers to ship them directly to the consumers. Distribution centers also offer services like a small-scale assembly of products, testing, processing, repackaging, etc. before the orders are shipped to the user. This receive-sort-ship model is not present in the traditional model of warehousing. Furthermore, most of the warehouses do not accept shipment services to external customers.
An important characteristic of the distribution center, which makes it customer-centric, is its demand forecast feature. Distribution centers utilize various supply chain management tools and software that have built-in capabilities to forecast product demand, which enables them to lower storage time and subsequent costs through supply chain scalability. On the other hand, warehousing is sometimes extremely expensive due to its relatively long-term management and storage costs.
The Difference in Storage Goods in Distributions Centers and Warehouses
Since warehousing is used for comparatively long-term storage, perishable items like groceries and foods are mostly stored in distribution centers. Although several warehouses provide temperature-controlled facilities, manufacturers and suppliers prefer to use distribution centers for such goods due to their extensive features.
Location Criteria for Distribution Centers and Warehouses
Deciding an optimal location for warehousing and distribution facilities is important as it ensures operational competence and reduces inefficiencies. For both facilities, the goal is to enhance the experience of their clients and reduce auxiliary costs as much as possible. The similarities and differences in the location criteria of warehouses and distribution centers are given below.
For both the warehouses and distribution centers, the decision to choose the location depends on the distance of the facility from airports/sea-ports and the quality of infrastructure in the surrounding areas. Both facilities are preferably built adjacent to ports to reduce costs and the time it takes to transport. Another common factor to consider while choosing a facility for a warehouse or distribution center is the cost or rental rates. In addition, local government or state regulations and tax rates must also be included in the decision-making process for an efficient and informed final decision.
Since distribution centers are customer-centric, it is important to factor in the local market demand before choosing a location for the facility. The size and demand of the local market can help in identifying the capacity needed for storage. On the other hand, warehouse location criteria include factors like the location of suppliers and major manufacturers instead of end-users and local markets.
While choosing both the warehouse and distribution center location, the availability of labor and workforce is factored in. However, the difference lies in the type and skills of the workforce needed in both facilities. While warehouses typically require trained workers for manual tasks, distribution centers require skilled and qualified personnel with IT and software background to run technological operations and handle data analysis. In both cases, it is important to analyze the demographics, cost of labor, availability of technicians and engineers, and average salaries of workers according to their responsibilities.
The differences in warehouses and distribution centers provide a clear picture of how technological development has triggered an evolution in the logistics and supply chain industry. Nevertheless, it does not make warehouses less important or trivial. Many manufacturers and suppliers still use warehouses to stockpile seasonal products according to the outcomes of their predictive analysis and demand forecasts. This pre-built inventory is then sent to the distribution centers for further process. However, the importance of warehouses and the frequency of their use has gone much down since the arrival of distribution centers.