6.1 – Procurement and Fulfillment Facilities

Author: Dr. Jean-Paul Rodrigue

Urban logistics require an array of facilities occupying a footprint. Procurement and fulfillment facilities are the first stage in the city logistics supply chain sequence.

a. Hierarchy of Urban Facilities

City logistics relies on an array of facilities to provide for the handling of material goods. These facilities have locational requirements, technical characteristics, a footprint, and operational characteristics. They are organized as a hierarchy that collects, consolidates, distributes, and delivers to specific urban locations. Three stages can be considered, with each having distinct facilities:

  • Procurement and fulfillment. The first stage involves procurement with the primary purpose of stocking distribution centers with the required inventory. Sourcing strategies vary according to the retail function. The extensive range of goods sold underlines multiple suppliers, origins, and transportation modes used for deliveries. The positioning of the inventory for fulfillment indicates that the primary concerns are regional demand patterns and minimizing delivery time through the advantage of proximity.
  • Distribution. The matter is to establish a distribution structure that offers capacity, flexibility, and time performance through the selection of the most suitable distribution channels and the locations to service them. The focus is on where the order is going to be fulfilled and the routing of the delivery.
  • Last-mile. WIthin the full realm of city logistics bringing consignments (parcels, truckloads, vanloads) to their final destination, mainly through delivery routes from specialized facilities. The purpose is developing city logistics strategies that cope with the constraints of urban freight distribution such as congestion, the lack of parking space, and the atomization of deliveries where a small amount of cargo such as a unique parcel needs to be delivered to a single address.

These hierarchies can be integrated or unintegrated depending on the size and logistics strategies of the involved actors (retailers, distributors, carriers). Unintegrated hierarchies are composed of different logistical service providers having assets such as distribution centers and vehicles offering their services on an open market (for hire). An emerging trend has been integrated hierarchies of facilities (own account) improving market access and the integration between different transportation modes, from large scale containerized or full truckload transportation to vans for last-mile deliveries. This initially involved third party logistics service providers offering transportation, distribution, and warehousing services to their customers. Large “Big-Box” retailers also got involved as many became large corporations commanding substantial amounts of freight flows over a complex network of distribution centers servicing their stores. The latest trend concerns large e-commerce firms such as Amazon, Alibaba, and Jindong that have developed their logistical capabilities and facilities to reflect the unique characteristics of e-commerce where purchases are virtual.

Procurement and fulfillment represent the first stage of urban logistics facilities. They involve all the activities required so that a city logistics platform has the capability and capacity to make goods available under an array of constraints.

b. Inbound Facilities

The growth of international trade related to the outsourcing of several aspects of manufacturing has transformed retail and the distribution of its goods. Imports were conventionally a specialized market serviced by wholesalers importing goods and selling them to national distributors and retailers. For that purpose, they maintained import warehouses in major metropolitan areas (particularly port cities) where goods were brought in after clearing customs. This inventory was then made available and in some cases repackaged for domestic distribution. Since the 1990s, large big-box retailers have built import distribution centers due to global sourcing from low-cost manufacturers and to accommodate the growing quantities of foreign goods supplying retail networks. The share of retail goods distributed by wholesalers has increased, particularly for imported goods.

Inbound cross docks (IDX) are facilities designed for the purpose of de-stuffing international containers containing imported goods and can also handle deliveries from domestic suppliers. They are usually located near major intermodal terminals such as ports and rail yards. It is through these terminals that inbound containerized trade flows are moved at gateways and inland distribution hubs. The inventory is sorted and stored until needed and sent to fulfillment facilities in full truck loads. The facilities are usually configured with bay doors on both sides and are functionally similar to transloading facilities but service exclusively fulfillment centers.

In the 2000s, e-commerce firms started to build their own IDX once they reached a critical mass. For instance, Amazon built its first IDX in 2007 and by 2020 it was operating a network of 10 IDX in the United States. Such facilities were also built in Germany, Poland, and the United Kingdom to service the European market.

Like their name suggest, IXD are configured on the cross-docking principle, with bay doors on both sides and are functionally like transloading facilities. On one side of the facility, inbound cargo loads (mainly containers) are unloaded and stored. Within the facility, the inventory is stored until needed, implying that the IXD is a crucial buffer in large scale commercial supply chains. On the other side of the facility, full truckloads are assembled according to demand and sent to specific fulfillment facilities. IXD and import warehouses are the points of entry for the fulfillment process, both for standard retail and e-commerce, by synchronizing inbound procurement logistics with the distributional capabilities of fulfillment centers.

c. Fulfillment Centers

Fulfillment centers meet the material orders of customers through the fabrication, storage, and distribution functions they perform within their supply chains. This requires own-account or third-party logistics services providers delivering orders. The distinction between a fulfillment center, a distribution center, and a warehouse can be confusing. Both warehouses and distributions centers are fulfillment centers and the major distinction is the average duration of the storage, with goods usually stored in a warehouse for a longer time period. The distribution center is more a flow-based facility while the warehouse is more a storage-based facility.

As freight facilities, distribution centers tend to consume a large footprint, both from the site they occupy and the building facility. In an urban area, the expanding footprint of fulfillment facilities is challenging, as it pushes towards suburban and exurban locations. Further, distribution centers mainly rely on trucking, which also underlines a preference for suburban locations due to road accessibility and lower cost real estate footprint. They have become one-floor facilities designed more for throughput than for warehousing with specialized loading and unloading bays and sorting equipment. The main channels serviced by urban fulfillment facilities include:

  • Retail. Supplying networks of chain stores or independently owned retail stores. Chain retail stores usually have their own account distribution facilities while independent retailing relies on wholesalers. Because of their large footprint, these facilities are commonly located in a suburban or exurban setting.
  • Food and restoration. Supplying networks of chain restaurants as well as independently owned restaurants. It implies a reliance on cold chain facilities able to store temperature-sensitive food products (meat, dairy, produce). Chain restaurants tend to have their own account storage and preparation facilities, implying that they transform food products into items to be delivered to restaurants for final preparation. This is a common strategy in the “fast food” industry.
  • Parcel deliveries. Used to be a market focusing on the delivery of documents and specialty items. The growth of e-commerce has allowed several third-party logistics services providers, including e-commerce firms, to set up new facilities dedicated to the fulfillment of delivery deliveries.

Technological changes impacted the location, design, and operation of fulfillment centers, particularly with the emergence of e-commerce. E-fulfillment centers (EFC) are extensive facilities specifically designed to support the requirements of e-commerce, such as assembling individual online orders. They can have a footprint of half a million to one million square feet for the larger retailers. Due to the high number of items held in inventory, EFCs usually have high racks storage, with a clearance of 36 feet considered to be the standard EFC height, with newer designs exceeding 40 feet. In recent years, several EFCs have become partially or fully automated, allowing them to quickly retrieve orders from storage and place them into backs for parcels assembly.

With enough scale, an online retailer elects for the specialization of its EFCs, which falls into two categories.

  • Item type. E-fulfillment centers specialized for apparel, electronics, jewelry, groceries, and perishables. These items usually have a high value or require specific handling and packaging methods.
  • Item size. EFCs are mainly allocated to handle small sortable (items fit in a small box; < 10 kg), large sortable (items fit in a large box; <25 kg) and large non-sortable (items too large for a box; e.g., furniture, tv, printers).

The main reason behind this specialization is that different item sizes require different warehouse handling equipment. It would be counterproductive to replicate specialized equipment and procedures across. Small sortable warehouses can easily be automated with conveyor belts, while this is more complex for large non-sortable items stored on pallets to be handled manually.

Both inbound and fulfillment facilities tend to be large scale and epitomize suburban logistics. The growth of urban material consumption has incited a significant growth in the footprint of related facilities. Once the fulfillment process is completed, city logistics switch to the distribution aspect, which requires specialized facilities.


Bibliography

  • Dablanc, L., S. Ogilvie, and A. Goodchild (2014) “Logistics sprawl: differential warehousing development patterns in Los Angeles, California, and Seattle, Washington”, Transportation Research Record, Vol. 2410, pp. 105-112.
  • Lecavalier, J. (2016) The Rule of Logistics: Walmart and Architecture of Fulfillment, Minneapolis: University of Minnesota Press.
  • Rodrigue, J-P (2020) “The Distribution Network of Amazon: Analyzing the Footprint of Freight Digitalization”, Journal of Transport Geography, Vol. 88.
  • MWPVL International (2020) Amazon Global Supply Chain and Fulfillment Center Network. https://mwpvl.com/html/amazon_com.html.