How to Optimize the Operations With an eCommerce Distribution Center?

Imagine this: Your online store is booming. Orders are pouring in faster than you can handle.  Your living room is overflowing with boxes and shipping labels. Sounds familiar? Well, that’s where an eCommerce distribution center comes in and saves the day.

A distribution center acts as the central hub for your inventory. That streamlines the entire eCommerce fulfillment process from storage and order processing to packing and shipping.

So, looking to understand how the eCommerce experts go about setting up a distribution center? Follow along and find out how to leverage the benefits the best way. Let’s begin.

What is a Distribution Center?

A distribution center is a specialized warehouse designed to optimize the storage and movement of goods within the supply chain. Unlike traditional warehouses that focus primarily on long-term storage, distribution centers prioritize rapid order fulfillment. They act as dynamic hubs where products are received, processed, and shipped out as efficiently as possible.

The distribution centers facilitate timely delivery of goods to businesses and consumers with the help of sophisticated logistics, inventory management, and order fulfillment processes. That ensures a smooth and cost-effective flow of products from manufacturers to the end users.

These centers are often strategically located near major transportation hubs to minimize shipping times and costs.

How to Set Up an eCommerce Distribution Center?

Setting up an eCommerce distribution center is a multi-faceted process that requires careful planning and execution. Here’s how it goes.

Determine & Define Your Requirements

The first step of distribution setup is understanding the current state of your operational capacity and working out the key requirements with respect to the future demands.

That involves working on:

• Order Volume: How many orders do you currently process daily/weekly/monthly? How is this expected to change in the coming years? Accurate forecasting is crucial for determining the size and capacity of your distribution center.
• Product Types: What kind of products do you sell? Are they fragile, perishable, oversized, or require special handling? This will influence your storage needs, equipment choices, and even the layout of your facility.
• Storage Needs: How much space do you need to store your inventory? Consider factors like current inventory levels, anticipated growth, and seasonality. Do you need specialized storage for certain product types (e.g., temperature-controlled environments)?
• Growth Expectations: What are your business growth goals? Are you planning to expand your product lines, target new markets, or increase your sales volume? Your distribution center should be able to accommodate your future needs.

Based on these, you can work out an approximate budget (including the initial costs and ongoing costs) and choose the right location. The aim with this initial step is to establish a solid foundation for the distribution center.

Design & Optimize the Layout

Next, it’s time to design the layout of the eCommerce distribution center optimized for max efficiency, productivity, and overall operational success. Here are a few key considerations.

• Vertical Space: Don’t just think horizontally! Utilize vertical space with high-bay racking systems, mezzanines, and multi-tiered storage solutions to increase capacity.
• Aisle Width: Optimize aisle widths to accommodate your material handling equipment and allow for safe and efficient movement.
• Flexible Storage: Incorporate flexible storage solutions that can adapt to changing inventory levels and product sizes.
• Logical Product Placement: Store frequently ordered items closer to packing and shipping areas to minimize travel time. Consider factors like product size, weight, and fragility when determining placement.
• One-way Flow: Design a layout that promotes a one-way flow of goods from receiving to shipping, reducing congestion and improving efficiency.
• Minimize Cross-Traffic: Plan your layout to minimize the crossing of paths between different workflows (e.g., receiving and shipping) to avoid bottlenecks.
• Receiving Zone: Designate a dedicated area for receiving incoming shipments, with ample space for unloading, inspection, and processing.
• Storage Zone: Organize your storage area with clear labeling and signage for easy identification and retrieval of inventory.
• Picking and Packing Zone: Create an efficient workspace for order picking and packing, with easy access to necessary supplies and equipment.
• Shipping Zone: Allocate space for staging packed orders, sorting by carrier, and loading onto trucks.
• Returns Zone: Establish a designated area for processing returns, including inspection, restocking, and disposal.

You need to consider the safety, ergonomics, future expansion, and technology integration to ensure the eCommerce distribution center maximizes space utilization and efficient flow.

Invest in Essential Equipment

A good distribution center requires some very right, essential equipment. So the next step is to look at the key equipment categories:

Storage Equipment

• Shelving: Versatile and cost-effective for storing a variety of goods. Provides accessible storage for various items.
• Racking Systems: Ideal for bulk storage and maximizing vertical space. Offers high-density storage for palletized goods.
• Mezzanines: Create additional floor space by utilizing vertical space. Expands usable floor space for storage or operations.
• Storage Bins & Containers: Help organize small parts and optimize picking efficiency. Keeps small items organized and accessible.

Material Handling Equipment

• Forklifts: Essential for moving pallets and heavy loads. Efficiently transports heavy pallets and goods.
• Pallet Jacks: Manual or powered, used for moving pallets short distances. Moves pallets manually or with electric power.
• Conveyors: Automate the movement of goods throughout the facility. Transports items automatically across the warehouse.
• Hand Trucks & Dollies: Used for moving smaller items and boxes. Assists in manual transport of smaller loads.
• Automated Guided Vehicles (AGVs): Autonomous robots that transport materials. Automates material movement for increased efficiency.

Packing and Shipping Equipment

• Packing Tables: Provide a dedicated workspace for packing orders. Offers a designated area for packing operations.   
• Scales: Accurate weighing of packages for shipping cost calculation. Measures package weight for shipping accuracy.   
• Label Printers: Generate shipping labels with barcodes for efficient tracking. Creates shipping labels with barcodes for tracking.   
• Tape Dispensers: Streamline the packaging process. Dispenses tape for efficient package sealing.
• Stretch Wrap Machines: Secure pallets and protect goods during shipping. Wraps pallets securely for transport.

Technology & Systems

• Warehouse Management System (WMS): Software for managing inventory and operations. Software that manages inventory, orders, and warehouse operations.
• Barcode Scanners: Enable accurate tracking of inventory and orders. Reads barcodes for accurate item identification.
• Inventory Tracking Systems: Real-time visibility of inventory levels and location. Provides real-time information on inventory status.
• Order Picking Systems: Optimize picking routes and improve efficiency. Guides order pickers for efficient retrieval of items.

With essential categories, you can streamline your operations and support your business growth.

Establish Efficient Processes

Establishing efficient processes is the backbone of a successful eCommerce distribution center. It’s about optimizing every stage of the fulfillment process to ensure accuracy, speed, and cost-effectiveness.

• Streamline receiving and put-away: Develop procedures for efficient unloading, quality control, put-away, and storing incoming inventory.
• Optimize order picking and packing: Implement strategies like batch picking, zone picking, or wave picking to improve efficiency.
• Ensure accurate shipping: Use a robust shipping system with barcode scanners and label printers to minimize errors.
• Optimize the returns processing: Establish a clear, customer-friendly eCommerce return policy with updates on return and refund statuses.

With a good return policy, you can improve the order accuracy, reduce fulfillment time, minimize the costs, and ultimately enhance customer satisfaction.

Staff & Train Your Team

You will need a skilled and well-trained team at your eCommerce distribution center. Some of the common roles include warehouse associates, forklift operators, shipping clerks, inventory specialists, and supervisors.

Here’s what you need to do:

Recruitment & Hiring

• Job Descriptions: Create detailed job descriptions outlining responsibilities, required skills, and experience.
• Recruitment Channels: Utilize various recruitment channels like online job boards, staffing agencies, and local partnerships to reach potential candidates.

Onboarding & Training

• Welcome and Orientation: Provide a comprehensive onboarding program to welcome new hires and introduce them to the company culture, policies, and safety procedures.
• Job-Specific Training: Offer tailored training programs for each role, covering specific tasks, equipment operation, and safety protocols.
• Skill Enhancement: Offer ongoing training programs to enhance employees’ skills in areas like inventory management, order fulfillment, safety, and technology utilization.
• Cross-Training: Encourage cross-training to enable employees to perform multiple tasks and provide flexibility in workforce allocation.

Make sure you foster a culture of open communication and encourage feedback from employees to identify areas for improvement and address concerns.

Implement a Warehouse Management System (WMS)

eCommerce warehouse management is crucial for efficient and organized operations in your distribution center. Here’s how you go about it. Here’s how this part of the process goes:

Step 1: Choose the right WMS: Select a system that aligns with your specific needs, budget, and scalability requirements. Consider factors like inventory management features, order fulfillment capabilities, and integration with existing systems.

Step 2: Data Migration and System Setup: Transfer existing inventory data to the new system. Configure the WMS to match your warehouse layout, storage locations, and operational workflows.

Step 3: Integration with other systems: Seamlessly integrate the WMS with your online store platform, ERP system, and shipping carriers’ systems for real-time data exchange and automation.

Step 4: Employee Training: Thoroughly train your team on how to use the WMS effectively.  Focus on key features like receiving, put-away, picking, packing, shipping, and inventory management.

Step 5: Go-Live and Ongoing Support: Launch the WMS and closely monitor its performance.  Ensure ongoing support from the WMS vendor to address any issues and optimize system utilization.

A WMS ensures better, more accurate inventory, optimized order fulfillment, and a much better efficiency.

Do Continuous Improvements

Finally, as with most eCommerce operations, you need to do continuous improvements. That involves constantly evaluating and optimizing your distribution center’s performance to achieve greater efficiency, accuracy, and customer satisfaction. To that end, you need to analyze a few key metrics, including:

• Order fulfillment time: Time taken from order placement to shipment.
• Inventory accuracy: Accuracy of inventory records compared to physical stock.
• Order accuracy: Percentage of orders shipped without errors.
• Shipping costs: Cost per order for shipping and handling.
• Receiving efficiency: Time taken to process incoming shipments.
• Storage density: Efficiency of space utilization in the warehouse.
• Returns processing time: Time taken to process customer returns.

For these metrics, do a regular analysis by collecting data and identifying trends, patterns, and areas where performance is lagging. Moreover, you need to do a Root Cause Analysis and Benchmarking for a more accurate evaluation of what better can be done.

Although this process may seem a little exhaustive at first, it will ensure overall better results for your eCommerce storage as well as order fulfillment process. If you need help with that, we suggest you get our eCommerce development services. We will help you with everything from the consultation to tech adoption involved in the process.

But what kind of benefits will you have with a properly set up distribution center?

What are the Benefits of an eCommerce Distribution Center?

This kind of facility can help significantly reduce shipping costs and delivery times, ultimately leading to happier customers and increased sales. Let’s discuss in detail.

Reduced Shipping Costs

By strategically locating your inventory closer to your customers, you can significantly reduce shipping distances and costs. Distribution centers often have access to bulk shipping discounts and optimized carrier routes, further lowering expenses.

Faster Delivery Times

Shorter shipping distances translate to faster delivery times, improving customer satisfaction and reducing the likelihood of cart abandonment.

Improved Inventory Management

Distribution centers utilize sophisticated inventory tracking systems and processes, ensuring accurate stock levels, minimizing stockouts, and reducing the risk of overstocking.

Increased Efficiency and Productivity

Optimized layouts, streamlined processes, and specialized equipment in a distribution center contribute to increased efficiency and productivity in order fulfillment.

Scalability and Flexibility

Distribution centers offer the scalability to handle fluctuations in order volume and accommodate business growth. They provide the flexibility to adapt to changing market demands and expand product lines.

Enhanced Customer Satisfaction

Faster delivery times, accurate order fulfillment, and efficient returns processing contribute to a positive customer experience and increased satisfaction.

Focus on Core Business Activities

By outsourcing fulfillment operations to a distribution center, you can free up valuable time and resources to focus on core business activities. These may include marketing, product development, customer service, and more.

If you want to leverage these benefits to their best, get our eCommerce consultation services. We will give you outstanding advice on what you can do to set up a distribution center.

Difference Between eCommerce Distribution Center & Warehouse

Feature	eCommerce Distribution Center	Warehouse
Primary Function	Rapid order fulfillment and distribution	Long-term storage of goods
Inventory Turnover	High – goods move quickly in and out	Low – goods are stored for longer periods
Storage Duration	Short-term (days or weeks)	Long-term (months or years)
Location	Strategically located near transportation hubs and customer markets	Can be located further from urban centers
Layout & Design	Optimized for efficient flow of goods, with dedicated zones for receiving, picking, packing, and shipping	May have less emphasis on flow and more on maximizing storage capacity
Equipment	Focus on material handling equipment like conveyors, sorters, and picking systems	May prioritize storage equipment like pallet racking and shelving
Technology	High reliance on WMS, barcode scanners, and other technologies for real-time inventory tracking and order processing	Technology adoption may vary depending on the warehouse type and purpose
Staffing	Requires a skilled workforce trained in order fulfillment processes and technology utilization	May require fewer specialized skills depending on storage needs
Processes	Highly streamlined and optimized for speed and accuracy in order fulfillment	Processes may be more focused on inventory control and storage management
Typical Goods	Finished goods ready for consumer delivery	Raw materials, components, or finished goods
Shipping	Direct-to-consumer or business-to-business shipping	Primarily bulk shipments to retailers or other businesses
Examples	Amazon fulfillment centers, regional distribution hubs for online retailers	Manufacturing warehouses, cold storage facilities, raw material storage

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FAQs on eCommerce Distribution Center

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To Summarize

As your business grows, fulfilling orders in-house can become inefficient and overwhelming. A distribution center offers benefits like reduced shipping costs, faster delivery times, improved inventory management, and increased scalability.

Consider your requirements, design the layouts, invest in the right equipment, and streamline the processes with a skilled team. Remember that continuous improvement is key. Regularly analyze your performance, identify areas for optimization, and embrace new technologies to stay ahead of the curve.

If you need help with setting up your eCommerce distribution center, connect with our experts today!