When to add a second fulfilment location

For most e-commerce businesses, one warehouse is the right answer for a long time. It keeps stock in one place, forecasting simple and costs under control.

Then the business grows into new markets, and the question comes up: should we add a second fulfilment location? Get it right and you deliver faster and cheaper to an important market. Get it wrong and you split your stock, tie up cash and double the places where things can go wrong.

Here is how we think about the decision.

Signs it may be time

A second location is worth modelling when one or more of these is true.

A large share of your orders goes far away. If a meaningful part of your sales ships to a market that is a long way from your current warehouse, every one of those orders carries extra shipping cost and extra days.

Delivery time is costing you sales. Look at conversion rates, reviews, support tickets and returns for that market. If customers mention slow delivery, the problem is already visible.

Cross-border shipping causes friction. When orders cross a customs border to reach the customer, the customer may face import charges or delays at delivery. That is a poor experience, and it often leads to refused parcels and complaints.

Retail or B2B customers need local stock. Stores and distributors often expect deliveries from within their own country or region, on their own timelines.

One warehouse is a single point of failure. If a problem at one site would stop all of your sales, a second location also gives you resilience.

If none of these applies, a better carrier setup, faster shipping options or clearer delivery promises at checkout may solve the problem at a lower cost.

What a second location really costs

The obvious cost is the warehouse or third-party logistics provider (3PL) fees. The less obvious costs often matter more.

• More stock overall. Each location needs its own safety stock. Total inventory usually rises, and so does the cash tied up in it.
• More freight legs. Goods now travel to two places. Each inbound shipment has its own freight, customs and receiving costs.
• Harder forecasting. Instead of one forecast, you need one per location. A wrong split means one site runs out while the other has too much.
• Setup work. Integrations, product data, receiving procedures, returns and reporting all need to be set up and tested.
• Tax and registration. Holding stock in another country can create tax and registration obligations, such as VAT. The rules depend on the country and your business, so take advice from a qualified tax adviser before you commit.

Put these next to the savings in shipping costs and the expected gain in sales. If the case only works with optimistic numbers, wait.

Questions to answer before you decide

Which products go there? Usually not the whole range. Start with the best sellers that make up most of the orders for that region. Slower products can stay in the main warehouse.

How will you refill it? You can ship straight from the factory to each location, or ship everything to your main warehouse and move stock on from there. Shipping direct from the factory is often cheaper per unit, but it needs better planning at the time of the production order.

How much stock will you place there? Base it on sales data for that region, lead times from the factory and how often you can refill. Plan for the long gaps too, such as the weeks around Chinese New Year.

Who will run it? Someone has to watch stock levels, plan replenishment and handle problems with the provider. If that person is the founder, factor in their time.

Choosing a fulfilment partner

When you compare providers, look beyond the price list. Ask about:

• how they integrate with your store platform and how quickly orders flow through
• how they receive stock, and how long it takes before it is available to sell
• how they handle returns
• what reporting you get on stock, orders and errors
• contract length, minimum volumes and exit terms

Where you can, start with a pilot on a limited set of products before moving larger volumes.

Running two locations day to day

Once the second site is live, a few things keep it under control.

Clear order routing. Decide which orders ship from which location, and set it up in your store. Shopify, for example, supports multiple locations and rules for which location fulfils an order. Keep the rules simple and check them after any change.

Replenishment triggers. Agree the stock level at which each location gets refilled, based on sales and lead time, and review it regularly.

Regular stock checks. Compare stock counts between your systems and each provider. Small differences grow quickly when nobody looks.

One view of inventory. You need to see total stock, stock per location and stock in transit in one place. Without that, forecasting turns into guesswork.

From experience

In my role as Operations Manager at MyBrainBooks, an Australian children’s publishing and e-commerce company, introducing new fulfilment locations is part of the practical work of running a business that ships to customers around the world. The decision always comes back to the same basics: where the orders go, what it costs to reach them and whether the stock plan can support more than one site.

How we help

We help e-commerce businesses decide whether a second location makes sense, build the case with real order and cost data, choose and set up a provider, and plan the flow of stock from the factory in China to each location.

If you are weighing up a second warehouse, book a consultation and we can look at your numbers together.