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Key Factors in Choosing Fulfillment Center Location That Reduce Costs & Improve Speed

Time: Sep 19,2025 Author: SFC Source: www.sendfromchina.com

In the world of third‐party logistics (3PL) and fulfillment, location is not just a matter of geography—it’s a strategic lever that can make or break costs, customer experience, and overall competitiveness. For SendFromChina, selecting optimal fulfillment center locations means balancing costs, speed, regulatory complexity, and risk. This article walks through why location matters, what to consider, trade-offs, how to decide, when multiple centers are necessary.

1. Why Fulfillment Center Location matters

Why does fulfillment center location matter so much? Because a fulfillment center is the hinge point between supply, inventory, and the end customer. Its location affects nearly every operational cost or service metric. Some of the key impacts:

Shipping times & customer satisfaction: The farther orders must travel, the longer delivery times. Slow shipments erode customer trust. Research shows customers increasingly expect delivery in 1-2 days for many goods; if your fulfillment centers are too far, you can’t meet that expectation.

Transportation costs: Both inbound (bringing goods into your warehouse) and outbound (shipping to customers) transportation contribute heavily to cost. Distance, road/rail/port access, congestion, fuel costs—all rise if the facility is poorly located.

Inventory carrying costs & stock positioning: If you have too few fulfillment centers, you might need to overstock in one place to assure service levels across wide geographies. This ties up working capital and increases risk of obsolescence. Conversely, too many small centers may lead to duplicate safety stock, inefficiencies.

Operational cost differences: Labor cost, real estate cost/rental/lease, utilities, taxes, local incentives, regulatory burdens—these vary greatly from one location to another. A location with low rent but high transportation cost may be worse than a more expensive real estate option that reduces shipping time and cost.

Risk & flexibility: Proximity to ports, airports, highways, and robustness to disruptions (weather, customs delays, natural disasters) matter. A location might be cheap but subject to frequent floods, or difficult access during winter storms, or regulatory delays.

So, getting the location right is not optional. It drives service, cost, agility and hence competitiveness.

2. What to Consider When Choosing Fulfillment Center Location

When evaluating potential locations, you should look at a multi-factor framework. Here are the major dimensions, with specific things to check under each.

considerations-choose-fulfillment-center-location

Customer geography & service promise

Where are your customers (or where will they grow)? What delivery times do they expect (standard, express)? Your fulfillment center must be close enough to major customer clusters so that you can meet promised lead times (e.g. 1-2 day, 2-3 day).

Inbound supply routes & suppliers / ports

If you are importing goods, proximity to ports, railheads, customs facilities matters to reduce inbound freight cost and delays. Also consider transportation from suppliers to the fulfillment center.

Transportation infrastructure

Good roads/highways; access to major freight routes; proximity to airports, rail, seaports. Avoid congestion where possible; assess the reliability of the transport network.

Labor force

Availability of labor in the area (skilled/unskilled), wage rates, shift flexibility, turnover, labor laws. If you need specialized skills (e.g. handling hazardous goods, cold storage, AI/automation) check for existing workforce or ease of training.

Real estate cost & availability

Land price or lease cost, cost per square meter, facility layout possibility (docks, clear height, ceiling, expansion), lease terms. If land is available but infrastructure weak, that adds cost.

Utilities, taxes & regulatory environment

Electricity, water, waste disposal, environmental regulation. Local zoning laws, customs regulation if cross-border, import/export duties, tax incentives or subsidies. Also permits and how long they take.

Risk & resilience

Natural disaster risk (earthquake, flood, typhoon etc.), political/regulatory risk, customs delays, trade policy uncertainty. Also utility reliability.

Operating costs aside from transport & labor

Insurance, maintenance, security, equipment, staging docks, internal logistics (e.g. conveyors, automation) if needed. Also the cost of inventory holding (capital, risk).

Scalability & flexibility

Will business grow? Are there expansion options? Can the facility handle future product lines (e.g. temperature controlled goods, larger SKU set)?

Environmental & sustainability considerations

As customers, governments, and partners increasingly care about carbon footprint, being closer to customers lowers emissions; renewable power availability; local regulations on emissions; potential incentives.

3. Trade-offs and Fulfillment Network Design

Rarely does a location decision leave everything perfect. There are always trade-offs. A smart fulfillment network design helps you find the best balance.

Key Trade-offs

Cost vs Speed: Closer to customers or in prime regions tends to cost more (real estate, labor, rent, utilities). But being closer reduces shipping cost and time. You must decide how much customer satisfaction (and likely sales & loyalty) you get for faster delivery versus increased fixed/operational cost.

Centralization vs Distribution: One large central facility is cheaper per unit (economies of scale) potentially easier to manage; multiple smaller nodes reduce transit times, help with regional peaks, reduce shipping zones, but increase complexity, duplicate stock, possibly higher fixed costs.

Capital investment vs flexibility: A location with existing infrastructure may be cheaper to start, but may lack flexibility. Building new may cost more, but can be tailored and possibly equipped for automation. Also, long-term lease vs ownership trade-offs.

Inbound vs Outbound cost balance: Sometimes location near supplier or port helps inbound cost, but it may be far from customers, increasing outbound cost. You need to weigh both.

Risk vs redundancy: Concentrating in a single location may expose you to risk (natural disaster, regulatory change, disruption). Distributing helps mitigate risk but adds overheads.

Fulfillment Network Design Concepts

Multi-node or Distributed Fulfillment: Using several fulfillment centers (or nodes), possibly including micro centers closer to dense customer populations, so that orders can be fulfilled from the nearest node. Helps reduce last-mile cost and delivery times.

Hub & spoke / regional hubs: One or more regional hubs that receive and distribute to smaller local centers or directly to customers. Can balance scale with speed.

Inventory positioning / assortment allocation: Deciding which SKUs go to which fulfillment centers. High-velocity products may be stocked at many nodes; slow movers centralized. Also knowing safety stock levels per node. Some companies use data-driven algorithms to optimize where products are physically located in network to reduce cost + lost sales. (E.g., recent studies for big e-commerce firms in China like JD.com use regional distribution centers + front distribution centers to improve local fulfillment and reduce cost.)

Transportation modeling / zone design: Understanding shipping zones, transit times, cost per zone, and matching fulfillment node with major customer zones. Use of GIS tools or analytics to simulate costs for different configurations.

Periodic re-evaluation: Market demand shifts, new customer clusters, infrastructure changes, real estate availability changes. Good network design isn't one-and-done; it needs review periodically.

4. How to Choose the Best Fulfillment Center Location

Here is a more structured process, adapted to SendFromChina’s context, that you can follow to choose optimal fulfillment center locations.

Step 1: Define your priorities

Before scouting locations, get clarity on what matters most to your operations and customers. For example:

Delivery speed expectations (e.g. standard vs express)

Key customer markets (current and projected growth)

Cost sensitivity (transport vs labor vs facility cost)

Product types (size, weight, special requirements like cold storage, hazardous materials)

Risk tolerance (how much operational or regulatory risk you will accept)

Step 2: Collect data

You need good data. Among things to gather:

Customer data: where are orders coming from, what are growth projections per region

Supplier / inbound data: location of manufacturing or purchase sources, ports, etc.

Transportation network maps: roads, rail, port, airports, existing FCs of partners or competitors

Local costs: real estate, labor wages, utilities, taxes, regulatory costs, environmental risk etc.

Local infrastructure quality: road condition, congestion, customs delays, power reliability etc.

Step 3: Generate candidate locations

Based on data, pick a set of potential locations. These could be cities or regions, industrial zones, free trade zones, locations near ports or inland to serve customer clusters. For China, you might pick coastal provinces (e.g. Guangdong, Zhejiang), central provinces (e.g. Hubei, Henan), or western regions depending on where demand is.

Step 4: Evaluate using a scoring model

For fairness and clarity, build a scoring system that weights criteria from Step 1. For each candidate location, evaluate:

Distance to major customer zones (projected)

Inbound cost (from your supply sources or ports)

Transportation infrastructure quality & connectivity

Labor cost and availability

Real estate cost / lease availability

Regulatory / tax advantages or trade incentives

Risk factors (natural disasters, political/regulatory, customs etc.)

Scalability (can you expand warehouse, storage, labor)

Allowances for special needs (cold chain, etc.)

Score each location; map cost vs service trade-offs.

Step 5: Model costs & service

Use simulation or simple modeling: for each candidate, estimate:

Total landed cost per unit: inbound + storage + outbound + variable logistics cost

Delivery time performance: average transit times to major customer clusters

Inventory carrying cost: how much stock must be held at each node to meet service targets

Operating margins impact: fixed costs, utilization, overheads

You may use historic data or benchmarking to validate assumptions.

Step 6: Do pilot / validation

Once you choose top 1-2 candidates, if feasible, do small scale trials or simulations: e.g. test deliveries, measure actual transportation times and costs, check labor availability, local hiring, permit delays etc.

Step 7: Make decision & plan for flex

Select your fulfillment center(s) and put in place contingency plans. Plan for growth; ensure that leases/buildings permit expansion or that you can add automation. Also prepare for unexpected disruptions.

5. When to Consider More than one Fulfillment Center

Having more than one fulfillment center is often more complex to manage, but in many cases the benefits outweigh the costs. Here are when it makes sense:

Wide geographic spread of customers: If your customers are concentrated in very distant regions (e.g. for SendFromChina clients selling into the US, Europe, Southeast Asia, etc.), using multiple fulfillment centers reduces shipping time and zones.

Demand in multiple countries / regulatory zones: If cross-border duties, taxes, or customs delays are significant, local fulfillment centers in target markets sometimes help.

High expectations for fast delivery / express shipping: If your promise is 1-2 day or same day, you’ll almost certainly need local or regional fulfillment nodes.

Peak or seasonal demand: When certain regions have peaks (e.g. holiday seasons, promotional periods), having localized centers helps absorb surges.

Risk mitigation: Having multiple centers helps avoid single point of failure (natural disaster, shutdown, customs issues) affecting all orders.

Product variety or special service needs: If some SKUs need special handling (cold chain, dangerous goods), you may want a center specialized for that; if others are general, they can be in less expensive locations.

But multiple centers introduce complexity: more inventory to manage, more coordination, possible duplication, more fixed costs. So only do it if the marginal benefit (in reduced shipping cost + improved customer satisfaction) exceeds the marginal cost.

6. Conclusion

Choosing the best location for a fulfillment center is a strategic decision that ripples across costs, customer experience, risk, and growth capacity. For SendFromChina, it means starting with a clear understanding of where your customers are (or will be), what delivery expectations they hold, and how costs vary across inbound, outbound, labor, and regulatory dimensions. Using data, scoring locations, modeling trade-offs between cost and service, and planning validation will help you pick locations that deliver service reliably while controlling cost. When your network includes more than one fulfillment center, you gain flexibility, speed, and resilience—but you also carry higher complexity. In the end, the best location is the one that aligns with your business priorities, customer promise, and risk tolerance.

7. FAQs

Q1: How close to customers should a fulfillment center be?

A1: Close enough that your delivery promise can be met. For 1-2 day delivery, usually within or near major customer clusters; for slower delivery promises, a more central location might suffice.

Q2: Should I choose location based solely on cost?

A2: No. Cost is one major factor, but service levels, transportation costs, risk, regulatory matters, and customer expectations also need to be balanced.

Q3: How many fulfillment centers is enough?

A3: It depends on your customer geography, sales volume, delivery promises, and cost trade-offs. Often 2-3 strategically placed centers deliver good balance before complexity grows too large.

Q4: How often should I reevaluate fulfillment center locations?

A4: Every few years, or when there’s a big change in demand patterns, customer geography, infrastructure (new highways, ports), regulatory environment, or product mix.

Q5: What are common pitfalls in choosing a location?

A5: Underestimating transportation/inbound costs; ignoring labor or regulatory difficulties; overvaluing cheap land that lacks good access; not planning for scalability; failing to consider risk (natural disasters, customs, political changes).

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