What is a distribution warehouse? Explanation of distribution warehouse types, and the advantages and points of caution when using one

A distribution warehouse is a facility that not only handles product storage and inventory management, but can also perform a wide range of distribution processing and shipping operations. Outsourcing this work to a specialized business offers many advantages, including eliminating resource shortages, reducing costs, and improving operational efficiency. However, there are also issues in terms of the cost, the accumulation of expert know-how, and the communication of information.

This article provides an easy-to-understand explanation of the main types of distribution warehouse, the benefits of using one, and also some points of caution to keep in mind. Please be sure to read it if you are interested in establishing the optimal logistics system for your company.

Distribution warehouses

A distribution warehouse is a facility that performs processes such as product storage, management, and shipping in the stages between the product producer and the product delivery to consumers. In the past, the main role of the warehouses was simply as a place for storage. However, today they are characterized by the diverse functions they perform, including product sorting, processing for distribution, and inventory management.

Roles of distribution warehouses

The main roles of a distribution warehouse can be classified into the following five categories.

• Storage: To store the products safely in an appropriate environment and to manage them so that they can be supplied on demand
• Cargo handling: Using equipment such as forklifts and conveyors to load, unload, and move the products
• Processing for distribution: To perform tasks such as product labeling, price tag attachment, set combination, and packaging changes
• Packaging and packing: To perform the packaging of products to protect them and ensure safe transportation
• Information management: To perform the real-time management of incoming and outgoing shipment and inventory information

In this way, while the base work of distribution warehouses is the storage and management of products, they also play a wide range of roles from processing for distribution and information management to the optimization of transportation and delivery. Their existence supports the entire supply chain of a company.

Differences between distribution warehouses and distribution centers

Although the concepts of distribution warehouses and distribution centers are very similar, they are strictly different facilities.

• Distribution warehouses: Facilities that focus primarily on "storage" - storing products for a certain period of time and then performing the function of shipping when needed
• Logistics centers: Facilities that focus on "sorting" and "processing for distribution," where items are often only stored temporarily and then quickly shipped, with a high rate of inventory turnover

However, the boundary between these two has been blurring recently, and distribution warehouses are increasingly offering sophisticated value-added services.

Distribution warehouse types

There are various types of distribution warehouse, and the most suitable form for a warehouse will depend on the products to be handled and the purpose of the warehouse. Let us look at the characteristics and roles of four representative warehouse types.

Transfer Center (TC)

A transfer center (TC) is a facility that specializes in sorting incoming products as they arrive and delivering them to each shipping destination, without keeping any inventory of products.

The main work tasks performed are the inspection and sorting of the incoming products, and their transshipment. The facility does not perform the temporary storage of the products or any long-term inventory management. For example, transfer centers are often utilized as a logistics base for convenience stores and major mass retailers. The products arriving are sorted by destination store or delivery route on the day they arrive and are immediately shipped out.

The most important feature of transfer centers is that they can minimize the costs for storage space and inventory management.

Distribution Center (DC)

A distribution center (DC) is a facility that has both a product storage function and a distribution function. It performs the series of operations from the inspection and shelving of incoming products to the picking, packing, and shipping inspections for individual orders.

They are characterized by the optimization of the layout and carry-in routes in the warehouse for more efficient shipping operations, as well as by berths that allow the smooth arrival of large trucks. As a distribution center can store large quantities of products, it is able to accept items in large-lot units and to support the shipping of bulk orders. This contributes to logistics cost reduction and a stable supply.

Process Distribution Center (PDC)

A process distribution center (PDC) is a facility that has both a product storage function and a distribution function.

The greatest feature of a process distribution center is that all of the processing, customization, and quality control required for each product can be completed within the warehouse. For example, a center may perform the cutting and packaging of fresh produce, assemble furniture, or combine products into sets to meet the seasonal or regional demand. It flexibly responds to the diverse needs of customers and markets.

Having this processing function reduces the workload at the delivery destination, shortens lead times, and improves customer satisfaction. However, it also tends to increase operating costs and the burdens of the product management, because it is necessary to have processing equipment, specialized personnel, and quality and hygiene control.

Fulfillment Center (FC)

A fulfillment center (FC) is a distribution warehouse that specializes primarily in electronic commerce (EC) business. It provides a one-stop service for the series of operations related to EC logistics, from product storage and inventory management, to order processing, picking, packaging, shipping, customer support, returns processing, and settlement operations. Representative examples are the fulfillment centers operated by Amazon and other major EC companies.

By utilizing a fulfillment center, an EC business can significantly reduce the burden of its distribution operations and focus on its core business and marketing. Furthermore, the use of a fulfillment center leads to greater customer satisfaction and an increased rate of repeat business, so it can be described as an indispensable piece of infrastructure for the growth of an EC business.

Distribution warehouse workflows

In a distribution warehouse, the series of operations from the time of the products’ arrival to the time they are shipped are all performed with high efficiency. Here let's take a step-by-step look at the flow of the five basic work tasks.

1. Receiving and inspection

When products arrive at the distribution warehouse, the first steps performed are the receiving and inspection processes.

In the receiving process, each of the items, quantities, and visual appearances of the items received are checked against the delivery note and purchase order. In the inspection process, in addition to checking the product item numbers and quantities, the products are also checked for damage and any defect.

The receiving and inspection work are the starting point of the distribution warehouse operations, so any errors at this stage can have a major impact on later processes. For this reason, it is common for a warehouse to introduce measures to improve the accuracy of this work, such as to have a system of double checks, or automatic collation by a system.

2. Warehousing and storage

When the receiving and inspection of the products have been completed, the products are transported to the designated location in the warehouse and the warehousing process is performed.

The characteristic feature of this process is that the optimal storage location is determined based on factors such as the characteristics of the products, the frequency of their shipment, and their size. In order to realize efficient warehouse entry and retrieval, measures such as ABC ranking management are also performed, which places frequently shipped items in easy-to-pick locations.

3. Picking and sorting

When a shipping instruction is received, the next steps performed are the picking and sorting processes.

Picking is the process performed to retrieve the products to be shipped from the location where they have been stored. There are two types of picking: single picking, in which picking is performed for each individual order, and total picking, in which multiple orders are picked together and then the items are sorted. The most appropriate method will be selected based on the type of product, the shipping volume, and the efficiency of the work.

After picking, the products are sorted by delivery destination or by delivery route, and there is also an inspection performed at this time to prevent incorrect shipments.

4. Processing for distribution

Processing for distribution is a process performed within the distribution warehouse to add value to the products. Typical examples of this include labeling the products, attaching price tags and other tags, gift wrapping, set combination, inspection, assembly, and food cutting and packaging.

A lot of the processing for distribution is work performed manually, so work manuals are prepared and process control is performed to reduce variations in the quality and speed of the work. For a company, the outsourcing of this processing for distribution has the benefit of making it easier for the company to concentrate on its core business.

5. Packing and shipping

After the picking, sorting, and processing for distribution, the products are appropriately packed according to the delivery method and destination and then they are shipped. The priority for the packing operations is the protection of the products and the prevention of damage during transportation. Generally, cushioning materials are used and waterproofing measures are taken in accordance with the characteristics of the products.

The shipping process includes the issuing and attaching of delivery slips, the attaching of packing tags, and the handing over of the products to carriers.

Advantages of using a distribution warehouse

A company can receive various benefits from the use of a distribution warehouse. Here let's look at the four main benefits of utilizing a distribution warehouse.

It is possible to improve operational efficiency and reduce costs

The greatest benefits of utilizing a distribution warehouse are improved operational efficiency and reduced costs.

In a distribution warehouse that is equipped with the latest warehouse management systems (WMS) and automated equipment, the processes such as receiving and shipping operations, inventory control, picking, and packing are all systematized, so it is possible to greatly reduce human error and wasteful work. A distribution warehouse can also deal flexibly with the variations in the volume of work to be performed for a company during peak and off-peak periods, so another major attraction is that it is possible to reduce the risk of having excess personnel and capital investment.

Furthermore, the outsourcing of logistics operations enables a company to optimize its operating and administrative costs, so it can be expected to increase the management efficiency of the company overall.

It is possible to reduce the time to delivery

Another benefit of using a distribution warehouse is that it can significantly shorten the lead time from the receipt of products to their shipping and delivery.

Efficient picking, packing operations, and the formulation of the optimal delivery schedules will improve the speed of delivery to customers, so the result is likely to be greater customer satisfaction and increased repeat business. In addition, more accurate inventory management will reduce the risk of excess inventory and shortages, so it can contribute to lower storage costs and improved cash flow.

It is possible to focus on core business

Utilizing a distribution warehouse will free a company from cumbersome logistics operations, so the company will be able to concentrate its resources on its core operations, which should be its primary focus.

Logistics operations involve many processes, including receiving, storage, picking, packing, shipping, and delivery. It requires a great deal of human resources and time for a company to manage all these processes in-house. If a company outsources its logistics operations to warehouses and specialized vendors, this enables the company to reallocate its human and financial resources to activities that are directly related to business growth, such as product development, marketing, and customer service.

In particular, for a company that is facing labor shortages and rising labor costs, the outsourcing of logistics operations can be an effective means of stabilizing the company management and strengthening competitiveness.

It is possible to optimize the entire supply chain

Another major benefit of utilizing a distribution warehouse is that it is possible to optimize the entire supply chain.

Utilizing the warehouse as a base to centrally manage inventory and information makes it easier to supply the necessary products at the necessary time, and to reduce the occurrence of trouble such as having excess inventory or items not available. It will no doubt also lead to more advanced demand forecasting and delivery route optimization, resulting in shorter lead times for deliveries and reduced costs.

The increased sharing of information throughout the supply chain can also be expected to strengthen the cooperation between each department and the trading partners, leading to improved productivity and profitability overall.

Points of caution when using a distribution warehouse

While there are many benefits to be gained by utilizing a distribution warehouse, there are also some points of caution that should be kept in mind. This section describes the three main points of caution to consider when utilizing a distribution warehouse.

It becomes difficult to accumulate logistics know-how within the company

If logistics operations are outsourced, it becomes difficult to accumulate logistics know-how in-house.

If logistics is outsourced for a long period of time, it is easy to fall into a situation where there are no logistics human resources developed in-house and there is no accumulation of knowledge or experience related to logistics operations. As a result, there may be a reduced ability to judge the appropriateness of the operations and fees of the contracted warehouse, so there is a risk of paying excessive costs. In addition, it is difficult for the outsourcing company to retain knowledge and expertise regarding the situation in the logistics workplace and the response to customers, so it may become difficult to respond immediately to any sudden problems or customer inquiries.

An effective measure against this is to only outsource the actual work part of the process, not the entire process. It is also necessary to devise ways to acquire and accumulate know-how, such as by conducting regular information sharing and site visits, and by preparing operational manuals.

There can be delays in the communication of information

Compared to when performing logistics in-house, outsourcing the work increases the number of information transmission channels, and there is a risk that this may cause delays in communication. Customer satisfaction may be reduced if there are any delays in the communication of information in situations such as when a request is received from a customer regarding a sudden shipment change or for an inventory status check, or in the response when trouble occurs.

To prevent such problems, it is essential to have regular meetings and progress reports, and to prepare an information sharing system using IT systems. It is important to build a relationship of trust with the warehouse company and to prepare an environment in which both parties can exchange information quickly.

The costs may be higher than expected

Various costs are incurred when utilizing a distribution warehouse, such as usage fees, storage fees, picking fees, and packing fees. When agreeing a contract, it is important to gain an understanding of the total costs in advance. This includes not only the basic fee, but also fees for any additional services, for support during busy seasons, and for any special work that may occur.

Depending on the type of product and the storage conditions, it could be that the costs become very expensive. Costs can also vary widely depending on the location and the details of the contract. In addition, there are many cases where additional costs are incurred if the amount of work increases, or some unexpected work occurs.

To avoid cost-related problems, it is important to check the detailed cost items at the estimate stage and to always consult with the contractor if anything is unclear. Even after agreeing the contract, it is safer to have the habit of regularly reviewing the costs and checking for any unnecessary expenditures.

Summary

Distribution warehouses have evolved from being mere places to store goods and have become important bases in modern supply chains. There are various benefits to be gained by utilizing a distribution warehouse, so it is important for a company to consider how to select and utilize an appropriate warehouse in accordance with its logistics needs and management strategy.

Goto Kaisoten has built up a long history of past results and trust since its establishment in 1877. If you are considering utilizing an efficient and reliable distribution warehouse, please leave it up to us. We offer a one-stop logistics service with intermodal transportation from the cargo pickup to storage, marine transportation, and trailer transportation for delivery at the destination.

• A comprehensive logistics company with over 140 years of history
• A global network that utilizes around 70 bases in Japan and overseas
• A one-stop service for everything from marine, air, rail, and truck transportation to packing, storage, and customs clearance
• Provision of a variety of warehousing services, including warehouse storage, processing for distribution, and inventory management
• One-stop support for the document preparation and complicated procedures related to importing and exporting

Please be sure to consult Goto Kaisoten if you have any concerns about utilizing a distribution warehouse. We will offer the ideal logistics solutions for your business.

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