What Is a Logistics Center and How To Choose One

Many businesses start out storing their products in offices and garages, creating ad hoc arrangements to handle logistics. But there may come a time when increasing orders require a more advanced inventory management system, additional storage, or further assistance from external sources. 

This is the role logistics centers play. Merchants can partner with these centers, or a network of them, to help fulfill their clients’ orders. This alleviates pressure from internal teams and can increase customer satisfaction as the fulfillment process becomes more streamlined.

If you’re considering using a logistics center, let’s take a deeper look at the vital role they play in the order fulfillment process, from receiving the goods you sell to making sure your products consistently land at their final destination.

What is a logistics center?

A logistics center is a waystation where a team facilitates the smooth flow of goods to end customers. Ecommerce businesses may need these types of centers to carry out logistics operations like warehousing, storage, order processing, and distribution. All of these processes help ensure products make it to their final destinations in a more timely manner, whether that’s at a brick-and-mortar store, business address, or to a customer’s home.

Functions of a logistics center

Logistics centers serve several key functions for businesses, transporting goods along the supply chain. Here’s a quick breakdown of the logistical operations that occur at these types of facilities:

• Receiving. Businesses receive incoming shipments at logistics centers, checking paperwork such as purchase orders, confirming that shipments are correct and in good condition, and unloading items into the facility.

• Storing. Depending on the type of logistics center, some portion of the location may focus on short-term or long-term inventory storage, organizing items to optimize the flow of goods in the facility, and assigning stock keeping units (SKUs) to inventory so it’s easier to keep track of stock levels.

• Processing orders. Some logistics centers have the ability to receive incoming orders from customers or clients, process payments, and generate invoices. Businesses use order management systems (OMS) to capture order information, validate it for accuracy, and automatically route this data to the appropriate logistics center for the next step in the fulfillment process. 

• Picking and packing. After receiving orders, warehouse workers in a logistics center pick out the correct items from storage. From there, workers prepare orders by packaging them and adding any necessary shipping labels.

• Outbound shipping. Logistics centers schedule pickups for outgoing shipments and manage the transfer of goods to shipping carriers or courier services for delivery.

• Reverse logistics. Reverse logistics involves moving goods from end customers or clients back to a logistics center. Once there, the team can handle returns, exchanges, repairs, or disposals—putting undamaged items back into storage, repairing or recycling damaged items, and shipping out replacements.

Types of logistics centers

• Distribution centers
• Fulfillment centers
• Transfer centers
• On-demand warehousing
• Dark stores

There are different types of logistics centers that businesses can choose from, depending on their specific supply chain management needs. You can use one comprehensive facility or a combination of different types for distinct aspects of the supply chain.

Fulfillment centers

A fulfillment center is a type of logistics warehouse designed specifically to fulfill orders to end customers by storing inventory, receiving customer orders, and packing and shipping individual orders. Fulfillment centers can benefit a wide range of direct-to-consumer (DTC) companies, from ecommerce merchants that fulfill a few hundred orders per month to large ecommerce businesses that distribute thousands of orders or more every month.

Distribution centers

Distribution centers facilitate the transfer of goods between a manufacturer or production facility and their next destination—whether that’s a retail store, wholesale warehouse, or fulfillment center. Distribution centers are large warehouses with enough space for storing bulk shipments on pallets and transporting those items onto trucks or cargo vans in loading docks.

Unlike fulfillment centers, which send orders directly to customers, distribution centers act as important stopping points during the supply chain process—especially for wholesale orders. Distribution centers are also well-suited for business-to-business (B2B) companies selling products to other businesses, since they’re designed to move large amounts of inventory to another company’s warehouse—meaning B2B companies can use a distribution center as their single logistics warehouse in some cases.

Transfer centers

A transfer center is a logistics center arranged to facilitate internal transfers of goods between different locations. Unlike distribution centers and fulfillment centers, transfer centers rarely have much storage space. They focus on quickly sorting and moving shipments between incoming and outgoing vehicles.

This type of logistics center focuses on cross-docking operations—unloading incoming goods and transferring them directly onto vehicles like trucks or trains. Large retailers and manufacturers may operate transfer centers to expedite the flow of goods between other logistics centers without the overhead costs associated with storage or fulfillment capabilities. 

On-demand warehousing

On-demand warehousing involves one business with warehouse space renting out room for storage to other companies. It allows companies without their own distribution centers to store inventory in a centralized location without a long-term commitment. Businesses pay for inventory storage space only as long as they need it, and pay extra for specialty requirements like cold storage for perishable goods. 

On-demand warehousing is a good choice for ecommerce businesses that need to store inventory, but don’t have the funds to operate their own distribution center, since they can pay for the space they need rather than investing in the infrastructure of an entire logistics center. 

Dark stores

A dark store is a physical retail location that doesn’t have in-store shopping. It’s dedicated to fulfilling online orders through local delivery and pickup options. Businesses in the retail sector that sell consumer goods, clothing products, and groceries may use dark stores to optimize their fulfillment operations to local customers through curbside pickup, in-store pickup, and home delivery within a specific area. 

Retailers build dark stores or convert existing retail spaces into dark stores by changing customer walkways and display shelves into additional inventory, allowing more product selection than traditional stores. Unlike fulfillment centers that work behind the scenes to ship orders to customers across a vast distance after they make purchases online, dark stores are customer-facing locations that only serve a local market through pick-up and delivery options. 

Dark stores benefit large retailers with enough customers in a specific area, like a city, to support consistent local sales to that store. For example, major retailers like Whole Foods Market and Walmart are investing in these types of logistics centers to increase market share in specific cities.

How does a logistics center work?

Businesses have choices when it comes to making logistics centers work for them. Let’s use the example of an ecommerce business that sells bedding essentials. It could use a single fulfillment center to facilitate their order fulfillment operations. The business maintains inventory levels at its fulfillment center to ensure orders can be fulfilled quickly. Once a customer places an order online, the business picks, packs, and ships those items directly to end customers from that fulfillment center. 

Another option for this ecommerce business would be using a combination of different types of logistics centers to expand its operations. For example, the business could send bulk bedding inventory to a distribution center to sort through items and send smaller shipments to regional fulfillment centers based on their inventory needs. 

Once inventory arrives from a distribution center, the business stores it in its regional fulfillment centers, organized based on product categories and customer demand (with high-demand inventory placed closer to loading docks).

How to choose a logistics center

• Evaluate your order fulfillment needs
• Consider reliable third-party logistics (3PL) providers
• Look into fulfillment networks

Getting the logistics process right depends on knowing your business’s needs. When deciding which type of logistics center you need, keep these tips in mind:

Evaluate your order fulfillment needs

Before choosing what type of logistics center best suits your business, assess your company’s current fulfillment process. Are you shipping orders to other businesses, like online retailers? Or are you working primarily with wholesalers? Is your customer base centered around local areas you can serve with a single fulfillment center or dark store, or do you need a network of logistics centers across a broader area with distribution or transfer centers? 

The size of your business and customer base is a critical factor to evaluate—if you’re fulfilling a few thousand orders per month, you can likely manage with one fulfillment center. However, if you run a larger online retail business with more orders and reach, you can benefit from investing in distribution centers and transfer centers to facilitate the efficient movement of bulk inventory between logistics centers. Other considerations include access to transportation routes, real estate costs, lease opportunities, labor availability, and regulatory compliance. 

Consider reliable third-party logistics (3PL) providers

If you don’t have the upfront capital to invest in buying, building, or leasing your own logistics center, you can outsource your logistical processes to a third-party logistics (3PL) provider. 3PLs have their own networks of logistics centers designed to handle storing inventory, packing and shipping orders, and monitoring shipments to ensure on-time delivery to the correct address. 

By hiring a third-party company offering fulfillment solutions, you can eliminate a major upfront cost of running your business, and scale your logistics operations as your orders increase—freeing up time for you to focus on other aspects of your business, like new product development or marketing strategies. 

To find one, research 3PL providers online that service the areas where you operate your business and offer products to customers. Review their industry experience, client reviews, pricing structure, and technological capabilities. Write and send a request for proposal (RFP) document that explains your logistics requirements and solicits a bid from potential 3PL partners with cost breakdowns, service details, and contract details.

Look into fulfillment networks

One of the best ways to find a reliable logistics services provider is by opting into a fulfillment network. Shopify merchants have access to the Shopify Fulfillment Network, which allows ecommerce merchants to compare pricing estimates from trusted 3PL partners, track shipments, and monitor supply chain analytics from one dashboard (like percentage of orders fulfilled and average fulfillment time).

Using the Shopify Fulfillment network, you can input information about your order fulfillment process, like average orders per month and average units stored per month, and choose a 3PL service with logistics centers serving the areas where your customers are based.