How Distribution Centers Operate

A distribution center can be used for specialized products or multiple different types of goods and products.  It could have refrigeration, cold storage, or air conditioned spaces, dependent upon the types of products it services.  Distribution centers, also commonly referred to as order “Fullfillment Centers” can be utilized to redistribute goods and products to retailers, wholesalers, or directly to the consumer.  Products can be stored for short periods of time and distributed when orders are placed, or could be a cross-dock facility that does not store goods and merely redistributes goods to other destinations. 

Distribution centers allow a single location to stock many different products.  Some organizations operate both retail distribution and direct-to-consumer out of a single facility, sharing space, equipment, labor resources, and inventory as applicable.  Large distribution centers for companies such as Wal-Mart serve 50–125 stores. Suppliers ship truckloads of products to the distribution center, which stores the product until needed by the retail location and ships the proper quantity.  Since a large retailer might sell tens of thousands of products from thousands of vendors, it would be impossible to efficiently ship each product directly from each vendor to each store.

A large distribution center might receive and ship more than ten thousand truckloads each year, with an individual store receiving from only a couple trucks per week up to 20, 30, or more per week. Distribution centers range in size from less than 50,000 square feet to the largest approaching 3 million square feet.   All distribution centers have three main areas and may have additional specialized areas. The three main areas are the receiving dock, the storage area, and the shipping dock. In small organizations it is possible for the receiving and shipping functions to occur side by side, but in large centers, separating these areas simplifies the process. Many distribution centers have dedicated dock doors for each store in their shipping area. The receiving area can also be specialized based on the handling characteristics of the freight being received, or whether the product is going into storage or directly to a store, or by the type of vehicle delivering the product.  The distribution center finds it’s profit through efficiency. Through insuring overheads are low, labor costs are kept to a minimum and regular turn- over of stock is upheld. This insures that their customers build confidence in their system. Insuring that their company is seen as competent in their field, and gain future repeat business.

Warehousing operations perform the important role of rearranging the quantities and assortment of products as they move through the supply chain. Briefly, there are four major functions of warehousing operations:
1) Accumulating: collecting to gather a quantity of stock, also referred to as bulk making,
2) Break bulking: breaking large quantities into smaller ones, possibly to meet individual customer needs,
3) Assorting: building up a variety of different products to satisfy demand, and
4) Sorting: separating products into grades and quantities desired by different target market.

Recently, a new warehouse function is that of value-adding. This refers to activities such as labeling, (re)packaging, and other functions that might otherwise be done by a manufacturer. These value-added activities give flexibility for the distributor to satisfy particular customers.

Intense research and development in supply chain management over the past decades has made warehousing operations very efficient and increasingly sophisticated. In contrast to the early warehousing, contemporary warehousing operations make use of automation.

Information technologies and computer networks enable manufacturers, distributors and retailers to share information.  The traditional pattern of the wholesaler, the retailer, and the consumer is being challenged. Extensive use of the internet for online business and new marketing channels and the growth of business-to-business relationships have been the drivers for new distribution practices. Large distribution centers have been established for direct sales (largely through express courier services), such as those for Amazon.com.