Warehouse vs Distribution Center – What’s the Difference?

CONTRIBUTION BY BAIDHURYA MANI – supply chain analytics trainer and author of a bestselling supply chain course

A lot of logistics professionals use the terms warehouse and distribution center interchangeably. Some of them even say that “there is effectively no difference between a warehouse and a distribution center”. So, how different is a distribution center from a warehouse? Let me tell you upfront that they are as different as a modern 21st century supply chain is from a traditional supply chain.

The simple rule in traditional supply chains was to store “maximum possible quantity of every product, everywhere, every time”

This rule had to be followed because of lack of information flow and planning mechanisms in the supply chain. This gave birth to the warehouses which were used for stockpiling inventory and inventory would be shipped out months after it arrived in the warehouse.

Supply chains have evolved and are much different from what they used to be say 2-3 decades back. Modern supply chains equipped with better information & intelligence are able to predict product demand well in advance, plan accordingly and deliver the items close to when they are needed.

The new supply chain rule is to have “the required quantity of the right product in the right place at the right time”

The traditional warehouses are not completely fit to cater to this new supply chain rule and this led to the evolution of static warehouses into distribution centers. Now that you know the context, let me tell you the exact difference between a warehouse and a distribution center:

  • A warehouse is used for storing products while a distribution center, apart from storing products offers value-added services like product mixing, order fulfillment, cross docking, packaging etc.
  • A distribution center stores products for relatively lesser periods compared to a warehouse. So, basically the flow velocity through the distribution center is much greater than the flow velocity through a warehouse.
  • A distribution center is customer-centric and is the bridge between a supplier and its customers. While the role of a warehouse is to store products efficiently, the role of distribution centers is to efficiently meet customer requirements.
  • Typically retail and warehouse orders are shipped from a distribution center and not a warehouse. Basically a warehouse generally doesn’t serve external customers while a distribution center does.
  • The operations at a distribution center is much more complex than that at a warehouse. As a result, the distribution centers are equipped with latest technology for order processing, warehouse management, transportation management etc.

You now know the stark difference between a warehouse and a distribution center and how the evolution happened over time. Does this mean that warehouses no longer exist or they don’t serve any purpose? You will be mistaken if you believe that. Warehouses still exist and serve a purpose. A good example would be how inventory is pre-built months in advance to meet the high seasonal demand and is stored in typical warehouses before being sent to a distribution center for customer service. However, the importance of warehouses in supply chain has gone down and the distribution centers have now emerged as the nerve centers of the modern supply chains.