The aftermath of the COVID pandemic has us rethinking nearly everything in logistics. One of the more interesting debates going on right now is the one over centralized and decentralized fulfillment. Is one better than the other? And if so, is it always better?
Like nearly everything in business, there is no one-size-fits-all fulfillment model that always works best in every situation. One can make a very strong case for centralized fulfillment in one circumstance but not another. The same goes for the decentralized model. What companies need to figure out now is how to best serve their customers given the circumstances they face and the resources they have at their disposal.
The Centralized Model
The centralized fulfillment model is pretty straightforward. A company maintains a massive warehouse from which all its products flow. There may be a limited number of smaller distribution centers throughout the company’s delivery region, but the main warehouse is the hub for all fulfillment.
This particular model was the standard for American business for the longest time. But then something curious happened. A small online bookseller by the name of Amazon decided to go all-in on retail. It was only a few years before they realized that the centralized fulfillment model would not work for their business.
The Decentralized Model
Decentralized fulfillment is all about shorter distances and faster fulfillment times. Rather than one central warehouse from which all fulfillment flows, a company maintains dozens of smaller warehouses located strategically throughout its entire delivery region. The factory ships products to the smaller warehouses where orders are taken and fulfilled.
From a pure efficiency standpoint, decentralized fulfillment is less desirable. You have multiple warehouses duplicating one another’s efforts. On the other hand, it is often worth it to sacrifice efficiency for speed and convenience. The decentralized model allows for faster order fulfillment and delivery because distances are shorter.
Centralized Fulfillment for E-Commerce
A huge company like Walmart may find decentralized fulfillment is the best option for getting products into customer hands as quickly as possible. But what about a small e-commerce operator? Let’s say you run an e-commerce website in the Houston area.
You could handle order fulfillment from your own location. You could also work with us as your centralized fulfillment partner. But could you afford to go decentralized? Could you afford to establish fulfillment centers all over the Southwest?
Centralized fulfillment seems to work better for smaller operations because it maximizes efficiency and keeps costs to a minimum. All the retailer’s inventory is housed in a single warehouse. A single fulfillment team packages orders and ships them out. Administration is kept to a minimum and problems are easy to track down and solve.
The Right Model for the Job
It is clear that some companies favor decentralized fulfillment. They have the economics of scale on their side, so they can afford to deploy a decentralized model that allows them to maximize speed. That’s good for them. Given the state of last mile delivery, these companies must have access to decentralized fulfillment in order to compete.
On the other hand, it is equally clear that centralized fulfillment is still a necessity. It is a necessity for smaller companies that do not have the resources to spread out. E-commerce operators are the perfect example. Centralized fulfillment allows them to fill orders nationwide in an efficient and affordable way.
Centralized and decentralized fulfillment are two options for completing the same task. Neither one is necessarily better nor worse than the other. Rather, they both have something to offer based on a company’s circumstances and needs.