How Do Micro-Fulfillment Centers Benefit E-commerce Brands?
Jul 27, 2021
12 mins read
Since the start of this COVID-19 pandemic, the online shopping demand has skyrocketed. Consumers who hesitated to buy online are now flocking in huge numbers to make e-commerce purchases. Businesses that did not build their e-commerce capabilities paid dearly for it. It is clear that e-commerce brands are taking over brick-and-mortar stores.
Traditional distribution centers are not agile enough to fulfill this fast-paced customer demand. There is a need for sustainable fulfillment alternatives, and micro-fulfillment centers have been able to do exactly that. Buy Online Pick-up In Store (BOPIS), curbside delivery, or dark stores are forms of micro-fulfillment e-commerce strategy that have grown as trends recently.
What is a Micro-Fulfillment Center (MFC)?
A Micro-fulfillment center is a highly automated fulfillment center with a small storage facility located in densely populated urban areas. It offers flexible, faster, and sustainable delivery for both e-commerce and local store pickups. It is usually set up in repurposed car parking spaces or at the back of existing retail outlets.
The total area of a micro-fulfillment center set as dedicated warehouse space or within the existing store is usually 10,000 square feet or less. For many small companies, MFCs may be found in parking lots, garages, or even basements. The concept of dark stores emerged from the idea of turning the idle space into a fulfillment center that is MFC.
Micro-fulfillment centers hold inventory for 24-48 hours worth of operations and must restock parcels regularly. If MFCs are set up in stores, the fulfillment staff should ensure that order processing should not disrupt the stores’ operations. MFCs in stores lay the foundation for ship-from-store options and local pickups for customers from designated regions.
What makes up an MFC?
The components involved in forming an MFC may look very simple. But implementing and integrating them into a cohesive, well-oiled, easy-to-maintain system is quite tricky. Here are the elements that make up an MFC:
- Space for inventory
- Automation equipment
- Augmenting equipment like handheld computers, voice pickers
- Shipping solution
- Human workers
- Sophisticated delivery logistics software
- Seamless integration of fulfillment center operations
How do micro-fulfillment centers work?
Micro-fulfillment centers are strategically placed small distribution warehouses located in dense urban areas. They contain fast-moving goods with high demand for facilitating quick fulfillment. Unlike a consolidated inventory with a massive facility like traditional warehouses in the outskirts of town, they handle 10,000 SKUs.
Rather than the gigantic warehouses some traditional retailers use, MFCs occupy a compact area of 2,000-5,000 square feet. With a smaller footprint compared to large warehouses, they save acres of space required for logistics and delivery operations.
Where can micro-fulfillment centers be used in supply chains? And where can’t it be used?
The COVID-19 pandemic necessitated e-commerce businesses to reach out to their customers quickly and efficiently. A hybrid model like micro-fulfillment helps them move closer to consumers easily. The primary feature of MFC is that they bring together automation and traditional inventory to make speedy delivery to customers.
Where can MFCs be used?
Back of a retail store
Micro-fulfillment centers can be run at the back of a retail store simultaneously with their in-store operations.
In the age where customers order more online and demand free and fast shipping, dark stores have become the new solution. It helps retail stores to fulfill customer orders without any in-store traffic. MFCs have increasingly found their relevance in this fulfillment method.
Micro-fulfillment centers are used in sectors that have high-turnover items. These sectors include grocery retail, food stores, bakery stores, some pharma products, etc.
Goods that have volatile demand
The long lead time of a traditional supply chain cannot be responsive to the goods with volatile demand. Seasonal demand goods, essential perishable goods, long-shelf life food products used during emergencies are all good candidates for micro-fulfillment centers. Items like candles, blankets, bread, toilet papers, beauty products, etc. all fall under this category.
Highly populated urban and suburban areas
Micro-fulfillment centers can significantly benefit retailers who are placed in densely populated urban and suburban areas.
Decentralized inventory approach
Micro-fulfillment centers suit companies that have proper delivery logistics systems and robust inventory management. A logistics partner who can implement a decentralized inventory approach is required. Using multiple inventory nodes also multiplies complexity in logistics operations.
Where cannot MFCs be implemented?
MFCs cannot be implemented for items like computers, TVs, mobile phones, furniture, cars, etc. This is because new versions don’t come out every month, and products don’t respond to shifts in trends quickly. Also, businesses never prefer to spread out expensive inventory across small spaces.
Retail outlets with minimal space
Micro-fulfillment centers will not suit retail outlets that have minimal space to convert for logistics. Lack of minimally required space can make it difficult to manage both retail and e-commerce business operations.
Less populated areas
Micro-fulfillment will not be effective in less populated areas due to its cost. In highly populated areas, the expensiveness can be justified as the retail outlets serve a large customer base. But in less populated areas, spending big money brings few returns..
Reasons behind the rise of micro-fulfillment centers during COVID-19
Fall in last-mile delivery costs
The cost of transportation is higher when last-mile deliveries take place from traditional warehouses. As MFCs are closer to customers, time saved in the last-mile delivery reduces delivery costs.
Easy and quick deployment
With a pre-engineered approach for automation, it is relatively easier to deploy micro-fulfilment centers quickly. It is the go-to-market strategy for many e-commerce businesses to reach a broader customer base cost-effectively.
Eliminates setting up of new warehouses
As online channels keep growing, many e-commerce brands are forced to add up new warehouses. This leads to increased inventory management costs and last-mile delivery costs. Micro-fulfillment centers help them use existing supply chain assets to enhance their logistics capabilities in pace with growing online channels.
Increased delivery expectations
The expectations for same-day delivery or next-day delivery have risen considerably. The increase in Service Level Agreements (SLA) have created a necessity to upgrade fulfillment strategies used in the last-mile delivery.
Micro-fulfillment centers help e-commerce businesses and retailers to improve their fulfillment strategies. Being closer to customers it reduces the lead time and turnaround time, enabling them to match the increasing SLAs.
Product portfolio expansion
Even established e-commerce brands struggle from fulfillment complexities caused due to expansion of product varieties. Managing micro-fulfillment centers with fulfillment automation tools enables e-commerce brands to address this situation effectively.
Researchers cite that the global population living in urban areas is expected to increase exponentially in the coming years. Being within the proximity of dense urban customers, MFCs help e-commerce brands manage their supply chain effectively.
Usually, distribution and fulfillment operations face higher turnover rates. These higher turnover rates and a shortage of qualified staff have called for a new fulfillment strategy like micro-fulfillment centers.
MFCs do not require a large workforce like a full-fledged distribution center. It has become an effective option for e-commerce brands to maximize their revenues with a limited workforce.
Skyrocketing demand for essential product
Since the pandemic, the surge in demand for essential products has led e-commerce brands to open up more micro-fulfillment centers. Brands that are not equipped to meet online fulfillment demand can incur heavy automation loss and customer loss.
A cost-effective and home delivery fulfillment model like micro-fulfillment center helps e-commerce brands to meet their customer expectations. This has become the immediate sustainable business option for them to prevent losses.
Counter the replenishment challenges
Increasing customer demand has been causing out-of-stock situations resulting in a fulfillment burden to many e-commerce brands. The inadequacies in the replenishment process are leading to irritated customers.
MFCs provide ample time for e-commerce brands to solve their replenishment issues. They help them build cost-effective, efficient, and sustainable fulfillment processes for their last-mile delivery.
Effectively handle supply chain disruptions
Supply chain disruptions like COVID-19 have shed light on the weaknesses of many e-commerce brands. The changing market conditions are testing the ability of businesses to cope up with dynamic customer demand. They need micro-fulfillment centers that help them meet unpredictable fulfillment demands seamlessly.
How do MFCs benefit e-commerce brands?
Faster deliveries leading to higher conversion rates
Today’s customers are not hesitant to pay additional charges and surcharges for fast shipping. With a traditional fulfillment center, it becomes costly for e-commerce brands to implement fast deliveries.
With micro-fulfillment centers, e-commerce brands can make deliveries quick as they are located closer to customers. When faster deliveries increase conversion rates, the costs to set up MFCs are justified. Many D2C brands that have been successful during this pandemic have leveraged MFCs.
Increases customer demand for sustainable deliveries
The last-mile supply chain made possible by local fulfillment centers could lower last-mile emissions between 17 and 26% by 2025. – The Sustainable Last Mile, Accenture
With the proximity of micro-fulfillment centers, sustainable deliveries to end consumers become a possibility. They result in reduction of traffic congestion in cities and enable e-commerce brands to reach their customers in dense urban areas.
As the distance becomes lesser with MFCs, e-commerce businesses can integrate sustainable mobility solutions into their last-mile delivery strategy. They can effectively use eco-friendly alternatives like light electric vehicles or bicycles to deliver parcels. Beyond decarbonizing, MFCs create substantial gig work for couriers, thereby boosting economic activity.
Helps optimize supply chain
The disruption by retail giants like Walmart and pandemic-driven delays have caused supply chain burdens for many e-commerce brands. The most painful areas that affect their brand reputation are fulfillment and warehouse management.
Micro-fulfillment centers enable e-commerce brands to build a positive brand image with their customers. They open up opportunities to deliver goods to people rather than places. They also improve the on-time delivery performance of field service professionals and drivers.
Help gain a competitive edge
With disruption from retail giants like Amazon, it is becoming difficult for e-commerce brands to stay in the game. Keeping up with the competition for selling similar products has turned cut-throat for them.
Competing with retail giants can be quite challenging for many smaller e-commerce brands. MFCs provide them with the luxury of competing with big brands, thereby helping them gain some traction and build customer relationships.
Build trust with improved customer relationships
The biggest asset for any e-commerce brand is the customer trust it has earned over time. When they meet their customers’ delivery expectations, the value of their brand increases. Today, same-day deliveries and next-day deliveries are majorly determining the customer experience.
The reduced distance due to micro-fulfillment centers assures the customer that their ordered product will reach them undamaged.
The future of micro-fulfillment centers
Micro Fulfillment Market is expected to have a cumulative opportunity worth ~$10B in next 6 years by 2026 with an installed base of ~2000 MFCs if the technology and concept remains permanent. – Micro-fulfillment market Forecast to 2026, Research and Markets, Jan 2021
Micro-fulfillment centers will attract considerable investments in the next ten years post this pandemic. It has become the best e-commerce strategy for businesses to meet the rising demand for same-day delivery.
A majority of micro-fulfillment centers planned will be retail-based
Most installations of micro-fulfillment centers (MFC) planned by 2025 will be retail-based. Up to 962 facilities are expected to be built in retail stores worldwide. – Statista, Micro-fulfillment centers (MFC) projects planned worldwide 2020-2025, Feb 2021
Retail-based MFC is the most viable business option for many businesses. More than running a standalone, distribution or service-based MFC, this type of MFC gives them an additional opportunity to strengthen their omnichannel capabilities. Integrating micro-fulfillment technologies in grocery stores reduces the need for standalone MFCs.
2022: Cornerstone year for the future of micro-fulfillment centers
Year 2022 is going to be the cornerstone for the Micro Fulfillment market touching a billion-dollar mark and setting the base for the future. It is expected that there will be one micro fulfillment center for every 10th of the US total 40000 grocery stores by 2030.- Micro-fulfillment Market Forecast to 2026, Research and Markets, Jan 2021
2022 will be crucial for the growth of micro-fulfillment centers across the US. The pandemic has set the stage for many e-commerce brands to invest in this fulfillment strategy.
Combining autonomous delivery with micro-fulfillment centers will reduce the cost for many e-commerce brands. The powerful combination of tech-enabled fleet, automated local hubs, and delivery logistics software will help them improve their customer experience.
Delivery logistics software: Essential component of last-mile success for micro-fulfillment centers
In order to justify their investments, e-commerce brands should reach out to their prospective customers on time. The most crucial element for the success of micro-fulfillment centers is the proper usage of a right delivery logistics software.
Delivery logistics software helps e-commerce businesses plan and schedule their deliveries without burdening their resources. Its optimal route recommendations help riders maximize completed deliveries by covering a minimal distance. Its insights powered from real-time tracking helps them identify and rectify their last-mile logistics weaknesses.
The increase in demand for same-day deliveries has led many e-commerce brands to turn to micro-fulfillment centers. When micro-fulfillment centers start growing efficiently, they will be adopted by fast-growing e-commerce sectors like fashion, healthcare, etc.
Locus delivery logistics software helps e-commerce brands to maximize their last-mile logistics capabilities in dense urban areas. Its dynamic route planning enables them to balance their ad-hoc and regular deliveries without disturbing their preferred delivery time slots. Its data insights help them compare the planned and actual routes followed by drivers, thereby improving their on-time delivery scores.
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ABOUT THE AUTHOR
Lakshmi Narashimman is one of the senior writers at Locus. He is a voracious reader and a passionate writer who loves making complex aspects sound simple.Read other blogs by this author
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How Do Micro-Fulfillment Centers Benefit E-commerce Brands?