Ongoing shifts in the retail landscape driven by ecommerce, along with changing customer demands and expectations, are creating increased need for fast, efficient hyper local fulfillment.
Micro-fulfillment centers (MFCs) allow companies with or without a brick-and-mortar footprint within a particular area to move fulfillment closer to customers in order to reduce transportation costs and enable shorter delivery times. Although small, as the name implies, these warehouses are well equipped to autonomously fulfill online orders fast and efficiently.
Companies can build a micro-fulfillment center as a standalone facility, or adjacent to an existing location.
How do Micro-fulfillment Centers Work?
MFCs often employ automation and robotics to address a key fundamental cost challenge associated with online order fulfillment: order picking. Automation of the process of retrieving products from the storage area significantly improves efficiency and accuracy, while also minimizing associated labor costs.
The goal is to have these micro-fulfillment centers located close enough to where shoppers live that it dramatically reduces the last mile delivery cost. MFCs are a flexible, data-driven and robotic solution that won’t become obsolete as the market changes and allows you to leverage new technologies as they emerge.
The Pros and Cons of Micro-Fulfillment Centers
Last-mile obstacles, logistics and labor costs, inventory management constraints and rising customer expectations require new solutions from ecommerce retailers. A micro-fulfillment center strategy can help overcome all of those challenges and more. Here are some of the pros of taking a micro-fulfillment center approach:
- Accelerated last mile fulfillment: The close proximity to customers drives faster pickups and deliveries, enabling delivery in just an hour or two after the order is placed.
- Lower logistical costs: Automation and proximity reduce many expenses associated with delivery, including fuel costs, while streamlining logistics processes.
- Reduced labor costs: With digitized and automated processes, micro-fulfillment centers typically require less human intervention, which cuts labor costs.
- Increased customer satisfaction: Accurate, speedy deliveries enhance the customer experience and build brand loyalty.
These are all points in favor of a micro-fulfillment strategy as a way for ecommerce companies to get a leg up on competitors. But before committing to such an approach, it’s critical to be aware of implementation obstacles, such as:
- Deployment investment: Micro-fulfillment centers require an initial investment in quality machinery and automation technology, which can be daunting for some retailers.
- Storage capacity limits: The micro-fulfillment approach optimizes space utilization, but the distribution hubs are definitely smaller, which limits the assortment of goods available.
- Inventory management challenges: Decentralizing inventory through a network of micro-fulfillment centers makes inventory management more complex.
While none of these obstacles prevent retailers from successfully deploying a micro-fulfillment center network, each is a factor that should be considered. It’s critical to weigh the pros and cons thoroughly and reach a fully informed decision.
How to Optimize Operations for Micro-Fulfillment
Although there are only a few micro-fulfillment centers in operation today, the technology has high implementation potential, especially in the grocery and health & beauty space where demand for and the benefits of fast fulfillment are high. It is anticipated that more retailers follow suit, employing the solution as part of their ecommerce strategy. Suppliers should start evaluating the factors of wider solution implementation and can prepare by:
- Optimize packaging: As micro-fulfillment centers will increasingly deploy automation to pick, pack and transport merchandise, brands will have to adjust product packaging in way that it can be easily identified and mechanically handled, including in small-vehicle deliveries;
- Support assortment curation: MFCs carry a limited assortment, propelling retailers to stock the most popular items in that store. Brands must support localization with curated ranges.
- Accelerate manufacturing and inventory cycle: As MFCs accelerate fulfillment, brands will be required to reassess their inventory planning and distribution capabilities in anticipation of tighter time frames.
- Ensure listing: Assortment and shelf space will be challenged as retailers target range reduction. Brands should consider investing in experiential initiatives.
Another micro-fulfillment strategy uses dark stores. These are small fulfillment centers located in retail spaces that operate without customer interaction. One location option is often using a strip mall anchor store converted to a mini-warehouse dedicated to short-turnaround fulfillment. There are a few different ways that dark stores could fulfill online orders. They could deliver to customers directly, deliver to local stores for customers to pick up, or have customers pick up orders curbside.
Micro-fulfillment centers are quickly becoming an essential part of the supply chain. They hold much promise for helping reduce delivery costs and shorten the last mile and the time to the consumer. They are also an ideal solution for fulfilling online orders for curbside pickup. With the right approach and automation technology, they can help you meet changing expectations and enhance the customer experience.
There are many benefits to working with a third party logistics company (3PL), if you are seeking ecommerce fulfillment support we’d love to hear from you. You can read DCL’s list of services to learn more, or check out the many companies we work with to ensure great logistics support. Send us a note to connect about how we can help your company grow.