Research firm McKinsey estimates that worldwide, companies spend an estimated $350 billion a year on warehousing, managed either in-house or through third-party logistics (3PL) providers. What’s more, the vast majority of that expenditure (85%) is for operating costs—including the labor, space, and equipment required to fulfill orders.
Whether you’re selling wholesale or directly to consumers, getting warehousing right is essential. But what exactly does that entail? After all, for brands expanding into wholesale distribution, what you need to look for in a B2B warehouse partner differs significantly from what you need in a DTC warehouse.
From infrastructure, inventory storage, and shipping processes, B2B warehouses are a vast departure from facilities that support DTC orders. It’s rare to find a warehouse that can support both wholesale and DTC order fulfillment. In this article, we'll explain how warehouse operations differ for B2B and B2C models so you can choose a warehouse partner best suited for your sales model.
Wholesale warehouse operations focus on managing large, recurring B2B orders, while DTC warehouses are more adept at fulfilling a large volume of small orders from individual consumers.
Each type of fulfillment requires different processes, infrastructure, and technology. Because of these differences, many DTC brands expanding into wholesale distribution discover their existing warehouses don’t have the capacity or expertise to process commercial orders.
When it comes to wholesale warehouse operations, this lack of expertise can obscure critical nuances in the following areas:
A warehouse is much more than just a building to store goods—it’s a complex operational environment akin to a symphony, with a million moving parts that must move together in harmony. But to orchestrate and optimize each activity within the warehouse, it’s important to recognize that DTC and B2B fulfillment require different warehouse setups and equipment.
While DTC products are stored in boxes, bins, and light shelving, pallet racks offer a practical solution for vertically storing B2B inventory to optimize warehouse space. Since you don't have to peer inside and pick the items as with DTC, it works as long as items are identifiable, categorized, and placed in their proper locations.
A warehouse fulfilling B2B orders will also need pallet jacks and forklifts to move large loads. Meanwhile, DTC warehouses typically deal in smaller containers and often rely on manual labor by warehouse employees to pick and pack orders. Some DTC warehouses have invested in conveyors and automated storage and retrieval systems, but this is not as common as you might think. The vast majority of warehouses specializing in DTC fulfillment are not so tech-forward.
In addition to having the proper equipment, a fulfillment center’s layout is an important element in optimizing warehouse operations. All warehouses are not created equal, so your warehouse must be designed to efficiently move B2B inventory from the receiving area into storage and eventually out of the warehouse.
A B2B warehouse requires a loading dock to accept freight deliveries and send bulk shipments. An enclosed staging area adjacent to the dock will make it easy to log and store B2B orders before moving them to their designated storage space—or to prepare them for immediate shipment, as in cross-docking. Forklifts should also be able to maneuver easily in the aisles.
When fulfilling individual ecommerce orders, the warehouse layout will depend on the pick-and-pack style. Batch, zone, or wave picking are often the most efficient options. In any case, storage areas must be spacious enough for pickers to perform their duties easily. Unlike a B2B warehouse, DTC warehouses should also have many pick faces—locations set up for loose picking of individual items by order pickers. Once the items have been retrieved, they can be transferred to another zone for sorting and packing.
Working with different fulfillment partners may be tempting as you expand into retail partnerships. However, this will only increase your overhead costs and make inventory and warehouse management more difficult. It is possible to have DTC and wholesale orders fulfilled from the same warehouse location—provided you find a warehouse partner with the equipment and layout needed to optimize fulfillment for both types of distribution.
In a B2B sales model, your wholesale warehouse’s process impacts your transport costs when sending bulk orders to retail partners. Since B2B orders are sent by freight, as opposed to shipping carriers, you’ll be responsible for contracting with freight delivery companies. This responsibility adds a layer of complexity to the wholesale distribution process. Staying one step ahead becomes pivotal to avoiding delays and compromising retail relationships.
B2B order fulfillment operates on the principle that "slow and steady wins the race." Large orders require more inventory, and securing sufficient stock takes time. You may also source items from various suppliers with different lead times.
Your retail partners will expect their orders to arrive within a specific time window on a pre-planned date. That means you’ll need to track a lot of moving parts to stay on schedule: manufacturer lead times, inventory receiving timelines, and freight shipping schedules. Your 3PL will need to be prepared with dock space when your freight truck arrives to avoid delays and minimize dwell time. Failure to deliver orders to your retailer partners by their designated must arrive by dates (MABDs) can result in penalties and chargebacks. Generally, the larger the retailer, the stricter its delivery accuracy and compliance policies.
Besides shipping bulk items, wholesale distribution may require multiple modes of transportation (sea, air, and land) before shipments reach retail partners. There’s also a lot of paperwork involved in the wholesale shipping process. (We’ll discuss this in more detail in a minute.) As a result, unnecessarily frequent shipments will only drive up labor and shipping costs—so you’ll want to plan ahead to ensure you have all the inventory you need to fulfill a large purchase order in a single shipment.
While B2B order fulfillment follows a low-frequency, high-volume shipping approach, DTC brands deal with one-off orders that require daily batch shipping. But while ecommerce customers expect fast delivery—62% of shoppers expect their online orders to arrive within three business days—the consequences aren't dire if you miss the promised delivery window. You may get a handful of less-than-5-star reviews, but the fallout from disappointing a handful of customers is significantly less impactful than ruining a retailer relationship that was worth hundreds or thousands of orders on a regular basis.
Compared to DTC fulfillment, B2B logistics and order fulfillment are more rigid in their procedures. Wholesale warehouses must adhere to specific compliance and documentation requirements—and retail partners typically expect you to operate within an electronic data interchange (EDI)-enabled warehouse.
An EDI-enabled warehouse reduces human error in the delivery of shipping paperwork. For example, you need EDI to send your retail partners an advanced shipping notice (ASN) before shipment. This document details a shipment's contents, transportation details, and estimated arrival time. It gives retailers the go-ahead to prepare their warehouses or retail stores for receiving.
At its core, selling wholesale is a relationship-driven environment. To get repeat wholesale orders, you have to develop strong relationships with your retail partners. And one way to do that is to prove to your partners they can count on you for accurate, on-time, and compliant deliveries.
Retailers usually have a rulebook that outlines guidelines vendors should follow when working with them. It also includes packaging and shipping requirements. Adhering to these guidelines can be challenging—especially since every partner sets their own standards—but it’s essential to a successful partnership. Meeting these requirements without EDI is nearly impossible.
On the upside, B2B order fulfillment requires only a few add-on services. This isn’t the case for ecommerce shipments, which have to be presentable to the end user. Depending on your brand’s packaging protocol, that could mean using branded packaging, specific fill, additional inserts, or value-added services like kitting. Since fulfillment occurs frequently, DTC shipping also has a greater margin for error involving customer information handling, picking, packing, and labeling.
Sending a single B2B order via freight is obviously going to be more expensive than shipping a lone DTC order, but per-unit, wholesale shipping is significantly cheaper than DTC shipping. Large orders are palletized and sent to one destination—the retailer’s warehouse—as opposed to hundreds of orders that are individually picked, packed, and shipped to consumers all over the country (or the world).
Freight costs vary based on your inventory’s physical dimensions, the freight company’s rates, and seasonality, but many companies offer discounts for repeat bulk orders. If your 3PL offers freight coordination support, they may have special negotiated rates they can pass on to you.
A wholesale warehouse regularly dispatches bulk goods to a specific, finite list of stores or warehouses. Over time, delivering to the same locations makes mapping out an efficient delivery route even easier. The challenge is coordinating with your chosen freight companies and your retail partners' distribution network.
Your retail partners can provide a routing guide explaining how to ship to their stores and which carriers they prefer. For example, Macy’s provides vendors with their own UPS accounts. The routing guide also details the retailer's delivery schedule and technical requirements.
When shipping ecommerce orders, optimizing delivery routes is challenging due to the volume of individual orders and frequency—but that’s the responsibility of the carrier. There’s a greater risk of lost packages, weather or traffic delays due to the volume of packages in motion at any given time, but as we discussed earlier, there’s less on the line when it comes to DTC orders being late—and most of these risks are the inevitable cost of doing business as a DTC brand.
In both B2B and DTC settings, inventory management is a cornerstone of warehouse operations. But in a B2B model, the inventory quantity is larger, impacting order preparation and inventory control.
To ensure your B2B orders arrive intact and complete, your warehouse partner will need wholesale packaging supplies such as carton boxes, pallets, dunnage, sealing, and container liners. But your warehouse can’t opt for any pallet size or dunnage type—they must conform to retailers’ rulebooks. For example, Nordstrom specifies 3-ply corrugated boxes and paper-reinforced security tape as part of its packaging requirements. Starbucks, meanwhile, prefers pallets that differ in dimension specifications by region.
Labeling and documentation also vary from retailer to retailer. While Nordstrom advises suppliers to place a unique shipping label on the longest side of the carton box, Starbucks requires suppliers to put the shipping label outside or between layers of stretch wrap. Your B2B warehouse partner must be able to meet retailers’ specific order preparation requirements—or else you risk fines and damaged relationships.
In a DTC fulfillment model, fewer technical considerations come into play. The emphasis is instead placed on visual appeal, creating a memorable unboxing experience that customers will appreciate. Cost optimization is the biggest challenge here, as your warehouse must use the right-sized packaging—one that can prevent product damage while also not adding unnecessarily to shipping costs through inflated dimensional weight.
Whether you’re selling B2B or DTC, transparent inventory visibility is critical to avoid stockouts and minimize overstocks—despite peaks and valleys in demand. Warehouse management software (WMS) can help monitor and gather data using barcodes.
For a wholesale warehouse, the software allows for easier placement and searching of products. In a DTC warehouse, it helps identify optimal picking routes.
Aside from warehouse movement, inventory management software also monitors products after they are dispatched. If you're running both DTC and B2B businesses, having a separate inventory system for each model may initially seem advantageous. After all, you track thousands of items simultaneously when you ship palleted cases, while DTC requires you to monitor each piece individually. You must need different systems, right?
But here’s the truth: You don’t need different inventory management systems for ecommerce orders and wholesale orders. Doing so will only make forecasting inventory more difficult. Without a centralized, real-time view of all your inventory, it’s harder to make informed stock purchases. And if you end up with more inventory in one area and fall short in the other, repurposing inventory isn’t as simple as it sounds. The cost of repurposing inventory for another type of fulfillment is prohibitively high. Disassembling wholesale stock to accommodate DTC orders also means throwing away the supplies and labor costs involved in setting it up. And if you need to use DTC stock to fulfill a wholesale order, you’ll be charged a pick fee for each individual unit—which adds up real fast.
To mitigate this problem, make sure your fulfillment partner's WMS is robust enough to handle both DTC and wholesale inventory management. A good fulfillment partner can also provide you with regular analytical reports for both sides of your business.
Choosing a warehouse is far more complex than ensuring sufficient square footage to store your physical goods. For DTC brands expanding into wholesale distribution, it’s critical that your warehouse has the equipment, capacity, personnel, and know-how needed to optimize both DTC and wholesale operations.
Just ask pest- and bark-control brand Good Life.
After two decades of managing fulfillment in-house, Good Life was preparing to ramp up its marketplace sales channels through Amazon FBA and international retailers. The company was about to outgrow its existing warehouse and evaluated nearly a dozen 3PLs. After quickly finding that most options weren’t prepared to handle both DTC and wholesale fulfillment, Good Life turned to Airhouse.
As Patrick Mahaffey, Good Life’s President explains, “Most 3PLs getting into the DTC space are trying to cherry-pick the most lucrative part of it—but they wouldn’t do wholesale because it’s not as profitable. Traditional 3PLs certainly did wholesale fulfillment, but they had old systems in place—they were logistics-first, rather than being customer- and technology-first. Airhouse could support all of our channels, had technology that made integrating our ecommerce store fast and easy, and on a going-forward basis, we’re spending less money to get that functionality."
Whether you sell goods to individual consumers, retail partners, or through a hybrid business model, Airhouse can help you seamlessly manage all your orders in a single place. Talk to a wholesale fulfillment expert to learn more about our all-in-one logistics platform and exclusive warehouse network.