What is a Distribution Center? A Complete Guide 2026
- mark599704
- Dec 2
- 13 min read
Buying things online is very easy today. Anyone who shops online knows this. Distribution centers help make online shopping fast and simple. They are a big reason why shipping is now quicker than ever. These centers store products before they are sent to customers. The customers may be individuals, wholesalers, or stores. Distribution centers use the best locations and smart processes. This helps deliver orders faster and helps companies make more profit.
What Are Distribution Centers?
Distribution centers are buildings used for logistics. They store finished goods before workers pick and pack them for customer orders. They are like special warehouses in useful locations. Distribution centers are important in the supply chain because they help companies send orders faster and more accurately. They also help reduce costs. These centers can be managed in different ways, depending on what a business needs. Some retail companies build and run their own centers. Others work with third-party logistics (3PL) companies. Some businesses focus only on being distribution centers, like wholesale food distributors that sell to restaurants and hotels.
Key Takeaways
Distribution centers form the basis of the modern supply chain network.
They're used to store, pick, pack and ship products to fulfill customer orders.
Facility organization and careful planning are keys to running a streamlined distribution operation.
The right technology, from warehouse automation technology to enterprise resource planning (ERP) solutions, can also help distribution centers run efficiently.
Why Do Companies Use Distribution Centers?
As a business grows, it may start selling overstock products and serving more customers. When this happens, the business may not have enough storage space. The bigger the business becomes, the harder it is to meet customer demand. To grow in a steady way and manage operations well, the business may open a distribution center or work with a 3PL. A distribution center is a central hub that helps organize orders, improve operations, and give customers a better experience.
Distribution centers can be placed in smart locations to reduce shipping time and cost. They can store large amounts of goods for a long time. This helps companies buy excess inventory in bulk and save money. Having plenty of goods ready also makes sure that the right products are always available when orders need to be picked.
Related Blog:
How Distribution Centers Work?
Distribution centers do not all work the same way. Their operations depend on the type of business they support. Some centers ship items only to stores. Others ship directly to customers. Some do both. A distribution center’s daily work depends on customer demand. This is different from a traditional warehouse, which mainly stores as many products as possible.
In most cases, suppliers or manufacturers send their products directly to the right distribution centers. The products are received and placed in their proper storage spots. When an order needs to be delivered, workers complete the fulfillment steps. They pick the right items from storage, pack them, and ship them to the customer. Some distribution centers use cross-docking. This means fast-moving products skip storage. They are moved from the inbound dock straight to the outbound dock to speed up delivery.
Small companies may hire a logistics company to run their distribution network. Bigger companies often own and manage their own networks. These networks move goods from manufacturers or wholesalers to stores or customers. Large companies may have many distribution centers in different regions. Each center serves a set group of stores or a certain area if it ships directly to customers.
Related Blog:
In September 2021, California passed AB 701. It started on January 1, 2022. The law controls how quotas are used in distribution centers and warehouses.
Employers cannot make workers meet quotas that stop them from taking breaks or following health and safety rules.
Employers must give a written description of any quota and explain what happens if it is not met.
Employers cannot punish workers for not meeting quotas that were not shared in advance.
The law applies to employers who:
Have 100 or more employees at a single distribution center, or
Have 1,000 or more employees across multiple centers in California.
Employee counts include workers from staffing agencies if the employer controls their pay, hours, or working conditions.
A “warehouse distribution center” means any place that mainly stores goods or sells merchandise without a store, like an e-commerce or mail-order business. AB 701 uses these NAICS codes to define such centers:
493110: General Warehousing and Storage
423: Merchant Wholesalers, Durable Goods
424: Merchant Wholesalers, Nondurable Goods
454110: Electronic Shopping and Mail-Order Houses
Even if your business has a different NAICS code, it still counts if it does the same type of work.
Benefits and Drawbacks of Using a Distribution Center
Benefits
When managed well, distribution centers help the supply chain run smoothly and support business growth. They can lower costs because they usually store goods for only short periods, which reduces inventory carrying costs. They also make shipping faster. A company with several distribution centers in a large market can deliver items more quickly, save on shipping, and keep customers happy. By handling all order fulfillment in one place, distribution centers can process big orders with many different products faster. This is better than sending many small orders to different suppliers to complete one customer order.
Related Blog:
Drawbacks
Distribution centers also have drawbacks. They must be run very carefully to stay efficient. Even small mistakes can cause delays and other problems. Miscommunication during picking and packing can create order errors. Messy inventory or poor warehouse layouts can slow down workers. Small quality control problems can lead to product recalls, which cost money and hurt a company’s reputation. Distribution centers can also be affected by natural events like storms, human events like strikes or riots, and transportation problems like accidents or repairs. Changes in customer demand, such as during a recession, can also hurt operations.
Distribution management is an important part of the process. It controls how products move from suppliers to wholesalers, retailers, or customers.
Related Blog:
Examples of Distribution Centers
There are several main types of distribution centers. Some deliver only to retail stores. Some deliver only to individual customers. Some do both. Orgill is an example of a distributor that works with vendors and manufacturers. It supplies hardware and home improvement products to thousands of retail stores around the world. Orgill has seven distribution centers in North America.
Sysco is another example. It distributes food and kitchen equipment to restaurants, food service companies, hospitals, schools, and hotels. Sysco has more than 320 distribution centers worldwide. A smaller company, Baldor Specialty Foods, has a few locations that let it serve restaurants, hotels, and similar businesses in the Northeast and mid-Atlantic regions of the U.S.
Related Blog:
Some companies, especially e-commerce businesses, deliver only to individual customers. Amazon is a well-known example. It has more than 100 active fulfillment centers in the U.S. Sellers send their items to these centers. Workers store, pick, pack, and ship the items when customers place orders. Many Amazon centers are between 600,000 and 1 million square feet.
Nike is another example. It has over 50 distribution centers worldwide. These centers help Nike sell to consumers, wholesalers, and retailers. Nike has six main distribution centers in the U.S. The largest is a 2.8 million-square-foot facility in Tennessee. It has 33 miles of conveyor belts, 73 outbound doors, and 96 receiving spurs.
Types of Storage Used at Distribution Centers
Products in distribution centers are stored based on their type and quantity. Different storage containers need different equipment to handle them. Here are five common types of storage containers used in distribution centers.
Bulk Boxes: Bulk boxes, also called bulk bins, are large boxes about the size of a pallet. They are used to store and ship large amounts of an item. Bulk boxes can be made of cardboard, wood, aluminum, steel, or plastic. Some have plastic liners to protect what is inside. They usually hold loose items, like screws, bolts, or apples, or granular materials, like powders.
Totes: Totes are reusable containers similar to bulk boxes. They are often stored on pallets. Totes are used to hold and transport goods, such as liquids, semi-solids, or solids. A common type is the intermediate bulk container (IBC). IBCs are cube-shaped and reusable. They are often used for pharmaceuticals, grains, chemicals, liquids, food ingredients, and sand.
Pallets: Pallets are flat structures that hold heavy loads of goods. They can be moved easily with pallet jacks or forklifts. Pallets are usually made of wood or plastic. They can carry up to one ton of weight. Pallets can be stored on the floor, stacked, or placed on pallet racks.
Intermodal Containers: Intermodal containers are also called shipping containers. They are used to move large amounts of goods. They are called "intermodal" because they can travel by ship, train, or truck.
Cases: Cases, also called cartons, are boxes that hold many items. For example, a case of wine has 12 bottles. Cases are often stored and moved on pallets. They can also be stored on warehouse racks.
Differences Between Warehouses and Distribution Centers
What Is a Warehouse?
A warehouse is a large commercial building where large amounts of goods are stored. It is mainly made for storage. Manufacturers, wholesalers, importers, exporters, and transport companies often use warehouses. Most warehouses have docks where cranes and forklifts load and unload goods from trucks, trains, planes, or ships. Because of this, warehouses are usually near major transportation areas like airports, docks, highways, or railways. Warehouse storage is generally for long-term needs. Distribution from a warehouse often means moving large amounts of products or materials, not shipping single items.
Related Blogs:
What Is a Distribution Center?
A distribution center is different from a warehouse. It is made for retailers and wholesalers to store, pick, pack, and ship products directly to customers. It is an all-in-one place for storage and shipping. It is very important for online stores and e-commerce companies. Goods arrive at the center, are unloaded, and are stored until someone buys them. When an order is placed, the item is picked, packed, and shipped straight to the customer. Distribution centers are usually near main roads and highways so trucks can easily load and unload products. A company might use only one warehouse, but it often uses many distribution centers. This helps the company deliver orders faster, even to customers in different parts of the country.
Distribution Centers & Technology
Many modern distribution centers use technology to make work faster and easier. Technology helps with receiving, storing, picking, and packing items for shipping. It includes automated robots and management software that uses automation and cloud computing. Here are some common warehouse automation technologies used in distribution centers.
Automatic Guided Vehicles (AGVs)
AGVs are vehicles that follow a set path in a warehouse or distribution center. They move inventory from receiving areas to storage locations. Autonomous robotic forklifts are a type of AGV that can move pallets without a human driver. AGVs work best in large spaces with repetitive tasks.
Barcode and RFID Systems
Barcode and RFID systems help companies use less paper. They save storage space and reduce time in put-away and fulfillment. Instead of writing or typing product information, workers can scan barcodes with mobile devices. This makes processes faster and reduces human mistakes.
Automated Storage and Retrieval Systems (AS/RS)
AS/RS is a type of goods-to-person (GTP) technology. It automatically stores and retrieves products. AS/RS includes cranes, carousels, vertical lift modules (VLMs), and shuttles. Warehouses with high volume or limited space benefit most from AS/RS systems.
Distribution Center Processes
Distribution centers receive products from manufacturers or wholesalers. They organize the products and ship them to their final destinations quickly. This requires careful tracking of inventory to keep operations efficient. Most distribution centers perform three main processes:
Storage
After goods are unloaded, checked, and scanned, they are stored in safe locations. Storage follows the center’s stock system, like first in, first out (FIFO) or last in, first out (LIFO). Conveyors may move goods from receiving to storage, such as pallet racks. Workers keep track of stock. Some items need temperature control. Some distribution centers use cross-docking, which moves items directly to outgoing shipments without long-term storage. Cross-docking works best for centers that quickly move inventory.
Order Fulfillment
When a customer places an order, the items must be picked, packed, and shipped. In some distribution centers, the same workers do picking and packing. In others, there are separate teams for picking, packing, and shipping. Warehouse management systems (WMS) can help assign orders and improve accuracy and efficiency. Methods like batch picking, wave picking, or zone picking are often used. After items are packed, they are shipped.
Receiving Goods
Distribution centers first receive goods from suppliers, manufacturers, or other company warehouses. Trucks arrive and unload at the receiving dock. Equipment like pallet jacks and forklifts, and tools like mobile scanners, can make this faster. Employees check that all items match the order and are in good condition.
Some distribution centers also handle returns. If a center processes returns, it communicates with the customer. Once the item is received, it is restocked or repaired if needed.
Costs of Using Distribution Centers
Opening a distribution center can cost a lot at first, but the long-term benefits usually make it worth it. Distribution centers help make receiving, storing, packing, and shipping goods more efficient. This lowers inventory costs, reduces stockouts, and prevents losing customers because of slow deliveries.
There are costs to build and run a distribution center. Costs vary depending on whether a company owns it or uses a third-party service. Building costs depend on size, location, and type of building. For example, a center in California or New York will cost more than one in Alabama. Large companies may spend millions on construction. Other costs include permits, planning, materials, engineering, security, legal fees, and taxes.
Operating costs include labor and equipment for receiving, storing, picking, and shipping. They also include fuel, electricity, and equipment upkeep. Storage costs cover inventory, administration, supplies, insurance, office expenses, management, and variable costs like labor.
How to Organize Your Distribution Center?
All distribution centers have three main areas: the receiving dock, storage, and shipping. These areas are often the most crowded, which can cause delays and lower productivity. A well-organized layout helps goods and workers move smoothly from receiving to shipping. This can improve productivity, accuracy, save time, and keep workers safe. The following tips can help any distribution center stay organized, no matter the industry.
Carefully Consider Layout
Divide the distribution center into areas by function, such as receiving, shipping, packing, and storage. Keep the packing area close to the shipping docks. A staging area in receiving helps unload vehicles and check orders efficiently. Floor plans depend on the size of the center. Small centers that ship or receive goods less often can have shipping and receiving next to each other. Larger centers work better with separate receiving and shipping bays to avoid traffic jams.
Optimize for Automation Technology
Distribution centers that use automation may need a different layout than centers that rely on manual processes. Companies planning automation should work with vendors, architects, or contractors to meet special requirements. For example, if a center uses a ceiling-mounted conveyor system, check that the ceiling beams can support the weight before installation.
Utilize Vertical Space
Use racking systems to stack products as high as safely possible. Do not exceed manufacturer limits or weight restrictions. Technology can help use vertical space, like AS/RS systems that reach higher than forklifts. Keep frequently picked items at waist-to-shoulder height so workers don’t need forklifts or stepladders.
Keep It Clean
Regular cleaning helps keep a distribution center organized and easy to work in. It also creates a calm environment, which can make employees happier. Use a cleaning checklist with daily, monthly, and semi-monthly tasks. This can include sweeping, decluttering, deep cleaning, and equipment maintenance.
Don’t Be Afraid to Reorganize Inventory
Keep frequently purchased items easy for pickers to reach. Sometimes this means moving inventory around. For example, seasonal items like Christmas decorations can be moved closer to picking areas at the end of the year, while summer items go to less-used storage areas.
Don’t Ignore Safety and Security Standards
Store inventory in a way that is both efficient and safe. Make sure aisles are wide enough for workers, pallet jacks, forklifts, and any automated equipment. This keeps the warehouse safe and helps prevent traffic jams.
Distribution Center Planning
When planning a distribution center, location is very important. It should be near main highways so trucks can deliver and pick up products easily. Distribution centers are often near big cities, ports, or industrial areas. Having more than one center, like one on the East Coast and one on the West Coast, helps a company deliver goods faster and cheaper. Multiple locations also reduce risk if a natural disaster affects one area. Modern distribution centers may plan to include some or all of the following functions:
Goods: Also called goods receipt, this is when items arrive at the warehouse from suppliers. It usually happens at a receiving bay. Workers use equipment like forklifts, pallet jacks, and conveyors to unload and move materials. Goods are checked for correct quantity and quality.
Shipping: Shipping teams manage orders leaving the distribution center. They pack orders and prepare them for shipment. They also build pallets. For international shipments, export teams handle documents and prepare the right shipping containers.
Production: Some centers have production teams to repack goods when needed. For example, a supermarket might put raw items into its own packaging. Production can also be done by third parties or at other facilities.
Bulk Storage: This area handles large orders, usually full cartons or boxes. Bulk goods are stored on racks and moved using forklifts or other equipment. Workers pick and store full pallets of goods here.
Transportation: Transportation teams plan and manage shipments to and from the center. Some companies use third-party transport, while larger companies may have their own vehicles and networks.
Specialized Departments: Some items need special handling. A food distributor might have refrigerated and non-refrigerated sections. Each section may have its own shipping and receiving areas.
Quality Assurance (QA): QA teams make sure all goods meet standards. They check random samples of incoming, stored, and outgoing products.
Conclusion
Distribution facilities are an important part of today’s supply chain. Dynamic Distributors receive products from clients across the USA, Canada, Latin America, and from vendors. Dynamic Distributors organize and store the products safely before shipping them to their final destination, like a store or a customer. To make delivery faster, distribution centers are usually located near major highways in big cities.
Using the appropriate technology, such as inventory management, warehouse management, and ERP solutions, can help distribution centers run more efficiently.
FAQs
What are examples of distribution centers?
Companies with physical stores may have distribution centers to deliver products to stores and customers efficiently.
E-commerce companies use distribution centers to fulfill customer orders.
Some companies are distribution centers by nature. For example, wholesale companies receive goods from manufacturers and send them to retailers. Food distributors ship produce and kitchen items to restaurants and hotels.
What do distribution centers do?
Distribution centers are places that receive goods from suppliers. They store the goods until they are picked and packed for orders. They combine warehouse storage with fulfillment operations to help companies ship products quickly and efficiently.
What’s the difference between a distribution center and a warehouse?
Warehouses mainly store goods, often for a long time. Distribution centers store goods but also handle order fulfillment. They ship goods to stores or customers directly. Goods usually stay in distribution centers for less time than in warehouses.
How long does a package stay at a distribution center?
Packages usually stay a shorter time at distribution centers than in warehouses. Some orders may even be shipped the same day if placed before a certain time, like in the morning.
How big are distribution centers?
Sizes vary depending on the business. Micro-fulfillment centers may be under 10,000 square feet. Some of the largest centers in the world are over 1 million square feet.
What is one advantage of using a distribution center?
A main benefit is faster order processing and delivery. With multiple distribution centers, a company can fulfill more orders cost-effectively and keep customers happy.
Distribution center vs. warehouse: Which is better?
Both are important. Warehouses store inventory for a long time. Distribution centers store goods but also handle cross-docking, product mixing, and order fulfillment.