Although the terms warehouse and distribution center are often used interchangeably, they do not refer to the same facility. Both can look physically similar in terms of building design, shape, and number of docking areas, but they serve different functions. The core difference is that a warehouse is focused on the function of storage while a distribution center is focused on throughput. This means that the inventory stored in a warehouse for weeks or months (if not longer), while the inventory processed by a distribution center stays for days or weeks (at times mere hours). Completely different operations within the facilities are involved:
- Warehouse. Holds goods in inventory for an extended period and release them on demand. Cargo ownership is usually by the supplier/producer as warehouses are commonly associated with manufacturing. Warehouses offer a buffer related function (inventory holding and consolidation) providing limited added value outside storage. The goal is to cope with unforeseen demand (food and parts and medical supplies for emergencies), stock overflow (surplus manufacturing), off-season products (fashion), or even the entire stock after manufacturing. Warehousing is a common strategy when the goods are not perishable and can be stored at a low cost (e.g. minerals, coal, petroleum, grain).
- Distribution center. Usually performs a throughput related function as demand is realized in real-time. This involves consolidating, deconsolidating, sorting a cargo load, or changing the load unit for cargo usually owned by the distributor or the customer. Several added value functions can be performed such as fulfilling orders (processing and fulfillment), assembly, packaging, and light manufacturing. Distribution centers are facilities designed for coping with stable and predictable demand, allowing for a tight synchronization of the inventory.