PUBLISHED SEPTEMBER 15, 2022
The Future of Supply Chain is Micro-Fulfillment
Could Micro-fulfillment be the answer to solving for the last mile delivery issue plaguing delivery transit time for ecommerce businesses? All signs seem to point to yes. Micro-fulfillment strategies are bringing products closer to consumers while cutting down on delivery transit times, inventory storage costs and environmental impact. The endless search for a solution to changing consumer behaviors that require same- or next-day delivery may lie in micro-fulfillment centers, but what are they and how do they fit into your business needs?
Micro-fulfillment: What Is It?
A micro-fulfillment center (or MFC) is a small-scale storage facility that is used by ecommerce businesses to store their inventory closer to the end consumer so they can reduce cost and transit times. Due to their small footprint, and ease of scalability, micro-fulfillment centers allow almost any type of business to put their inventory almost anywhere. From dark stores, to dilapidated shopping malls, to grocery stores, micro-fulfillment centers can be any scale and any size.
The benefit? Solving the last-mile delivery fault. Creating dense storage space closer to the end consumer allows shorter transit times to a larger number of the population. With automated solutions in micro-fulfillment centers, full orders can be picked in under 90 seconds. This allows for quick turnaround in online order fulfillment, resulting in even quicker delivery-to-customer transit times, in many cases resulting in same-day deliveries.
Why Micro-fulfillment Will Overtake Legacy Warehousing
Legacy fulfillment operations work in 2 dimensions, creating large amounts of wasted space. While many warehouses can build out, they can only build up so high. Due to this constraint, millions of square feet of warehouses are required to house a relatively small numbers of SKUs. They are also designed to house pallets of inventory, not each-pick items, making them a less-than-optimal solution for ecommerce.
Aside from the layout of the inside of warehouses, the location is usually in rural parts of the city, outside of where the majority of the population lives. With the ongoing rising costs of real estate, using smaller, established spaces closer to the consumer provides a cost-savings measure for a fulfillment operation. Brands can also utilize their brick-and-mortar stores with micro-fulfillment solutions onsite, reducing the need for additional fulfillment centers elsewhere. Think of a grocery store setting up an automated picking MFC in the back of their stockroom, items are picked and delivered to customers living miles away from the store within hours.
Size isn’t the only differentiator, as micro-fulfillment centers also rely on being more efficient by utilizing vertical space as well. MFCs use vertical storage to gain density, allowing more SKUs to reside in the structure for available picking. With the addition of automated storage and retrieval systems (ASRS, or as we like to call them – robots), MFCs can pick orders and present them for last-mile fulfillment within 90 seconds. MFCs can also reduce space by up to 85%, allowing brands to store up to 6x as much inventory as a legacy manual pick warehouse facility while offering same-day delivery at the same cost as 3-5 day delivery.
Why Do Brands Need Micro-Fulfillment?
eCommerce and direct-to-consumer brands have irreversibly shifted the consumer expectation for delivery timelines, leaving the rest of the retail supply chain to catch up. According to a 2021 report by McKinsey and the Retail Industry Leaders Association, "More than 75% of specialty retail supply chain leaders have made two-day delivery a priority, while 42% of respondents hoped to offer same-day delivery by 2022.” While supply chains work to catch up, last-mile delivery has historically been the most expensive and climate-negative part of the supply chain. The rising popularity of micro-fulfillment has been a natural response to offset these adverse effects.
A micro-fulfillment strategy offers advantages to modern retailers looking for faster, more flexible shipping and storage solutions at a lower cost with less impact to the environment. Micro-fulfillment can help retailers compete with big-name brands on cost, in-stock inventory availability, and delivery speed.
Is Now the Time to Invest in a Micro-Fulfillment Center?
Each order picking and last-mile delivery are some of the biggest expenses retailers are facing within the supply chain. "Economies inside the warehouse and efficiencies inside the warehouse matter, " Julien Seret, Attabotics' VP of Network Supply Chain, shared in a recent Logistics of Logistics interview with Joe Lynch,"...When you look at it, 80% of your cost is on the delivery part. So if you want to move the needle, and if you want to offer a same or next-day delivery capacity to brands and retailers that stays affordable… you need to act on the delivery."
While cost savings should provide a substantial argument for investing in MFCs now, the added benefit of lower emission deliveries is an environmental advantage worth noting. Reducing the last mile length allows retailers to scale while minimizing their environmental impact. The alignment between cost reduction, high service levels and lower carbon footprint positions MFCs as a “now” initiative worth investing in.