Micro-Fulfillment Centers Are Being Used to Maximize Warehousing Operations

Retailers rely on micro-fulfillment warehousing to ensure lower cost, fast delivery from to consumers

My, how the world has changed.

The traditional warehousing and distribution model has been upended by today’s need for low cost, speedy delivery. The incidence of airfreight deliveries has decreased, and ground deliveries have increased in popularity. Fulfillment and distribution networks have been somewhat decentralized to facilitate the placement of inventory closer to consumers so that transit time could be reduced.

In 2020, it was reported that 83.6% of North Americans lived in urban areas, up from 63.9% in 1950. 46% of consumers living in urban areas reported preferring online shopping as compared to 34% of those living in suburban or rural areas.

According to a recent study, the micro-fulfillment center market is expected to grow to over $10 billion by 2026. In fact, by the year 2030, experts predict that there will be one micro-fulfillment center for every 10 grocery stores located in the United States. For many e-commerce businesses, micro-fulfillment is quickly becoming a viable way for companies to satisfy customer expectations.

What is Micro-Fulfillment?

Micro-fulfillment is a strategy that aims to make the order fulfillment process more efficient. One of the main goals that companies have when they implement micro-fulfillment strategies is to move products and order fulfillment as close to consumers as possible. This helps to shorten last-mile delivery times and transportation costs, which can lead to lower prices as well as increased customer satisfaction. This has the potential to give retailers a competitive advantage.

Fast and lower cost order fulfillment is essential to the success of retailers. Developing and implementing a micro-fulfillment strategy enables retailers to scale their operations quickly by configuring flexible spaces in densely populated metropolitan markets. The strategy is useful because if takes the speed of localized delivery or in-store pick up and combines it with the efficiency of automated warehousing.

In 2019, online sales accounted for 3% of online grocery sales. This number rose to 8.1% in 2020 and 9.5% in 2021. It is predicted that online grocery sales volume will grow to 20% by 2026.

What is a Micro-Fulfillment Center?

Micro-fulfillment centers (MFCs) are small-scale storage facilities and order fulfillment centers that are usually located in retail locations or commercial warehousing space that has been repurposed to store and move products. This enables companies to expedite delivery times as well as to reduce the cost of transit.

In the past, same-day and two-day delivery was viewed as a luxury. . Thanks to companies like Walmart and Amazon investing in shipping infrastructure, fast delivery times for online shopping orders are now standard in the e-commerce industry. In response, businesses both large and small have begun to utilize MFCs as a strategy for online order fulfillment.

MFCs operate in the same way that traditional warehouses and distribution centers do, however they do so with less space. They typically occupy 10,000 square feet or less of warehouse space while some traditional warehouses and distribution centers can be up to 1 million square feet in size.

Micro-fulfillment centers can serve a wide variety of e-commerce business; however, they typically operate via two models. In the first model, a micro-fulfillment center is configured inside of an existing retail store such as Target or Walmart. Orders are picked and packed as well as prepared for shipment directly from the retailer. An MFC located inside of an existing brick and mortar store will typically have 24 to 48 hours of inventory stored. Because of this, a close eye must be kept on inventory levels as the fulfillment center has to be restocked regularly.

The other MFC model can be considered a collaborative effort. Companies that specialize in constructing warehouse facilities rent space to e-commerce businesses and third-party logistics companies. From there, businesses prepare online orders and deliver them to consumers.

MFCs enable online sellers to improve the efficiency of their supply chain and order fulfillment processes. Many micro-fulfilment centers have relationships with last-mile delivery carriers, making it easier to meet Service Level Agreements. This means that if a shipment requires a value-added service such as white-glove delivery, costs are reduced because of the proximity of the goods to the customer.

88% of online customers would opt for same-day delivery if it were an option.

Benefits of Utilizing Micro-Fulfilment Centers for Order Fulfillment

The benefits of micro-fulfillment are driving both large and small retailers to incorporate micro-fulfillment into their business operations to gain a competitive advantage over their competition.

Traditional warehouse operations are challenged by several risks that can disrupt warehousing and logistics, subsequently reducing customer satisfaction. On the other hand, micro-fulfillment centers are in highly populated areas and keep the most frequently ordered products stocked. Because a wide variety of products are in one location in a densely populated area, businesses can fulfill more orders faster and are better positioned to minimize labor, transportation and delivery costs. In fact, some micro-fulfillment centers can handle up to 15,000 orders per week.

Let’s explore some other benefits of micro-fulfillment.

Fast Fulfillment with Technology

Several MFCs automate their storage and order fulfillment processes. This not only cuts down on labor costs due to the reduced need for human workers, but also enables companies to process orders more efficiently. In addition, technology such as sortation systems and automated pickers can help improve the occupational safety and health of fulfillment center workers by helping them get products picked, packed, and shipped. Companies such as Amazon and Nordstrom are investing in automated and robotic systems that can fulfill orders and replenish stores with little to no human interference. These systems can be installed without expanding a store’s size, cutting order fulfillment costs by nearly 75%.

Micro-fulfillment centers service specific zip codes, making the Internet of Things (IoT) crucial to efficient operations. Powered by IoT, artificial intelligence (AI) and cloud computing are used to gather and store data such as past customer orders and product preferences. This data enables companies to predict what products should be stored at specific fulfillment centers, limiting losses. In addition, AI is also used to direct orders placed on online sites to the fulfillment center that is best equipped to handle orders in a particular zip code.

Leading-edge workflow-driven warehouse management systems are also critical tools, helping micro-fulfillment centers and warehouses keep costs down while helping to ensure top order fulfillment rates.

Efficient Use of Storage Space

Micro-fulfillment centers are capable of servicing one e-commerce business or several, depending on the model that a company chooses to implement. In either case, MFCs store more inventory per square foot of space than traditional fulfillment warehouses and distribution centers.

A recent study shows that for every $1 billion in sales, retailers utilize close to 1.25 million square feet of warehouse space. Because MFCs have lower operating costs, several MFC facilitiescan replace large distribution centers. By reducing the amount of space used for storage and fulfillment, business expenses such as leasing and operating costs can be decreased . The reduced space also enables MFC operations to move products faster.

Food and Beverage is the fastest-growing U.S. e-commerce sector and is expected to reach $40.04 billion in sales by the end of 2022.

Reduced Last-Mile Delivery Cost

The last mile of an e-commerce order makes up 41% of total supply chain costs. The longer an item is in transit to its destination, the more expensive last-mile delivery can be. In addition, the likelihood of delays in delivery from disruptions such as traffic jams increases.

By operating in locations that are nearer to consumers, businesses can mitigate delays. With traditional warehouses, products being delivered are charged by weight. However, micro-fulfillment-based providers typically utilize flat-rate pricing regardless of weight. The result is reduced transportation costs and transit time.

Enhanced Customer Experience and Customer Satisfaction

The ramp up of online shopping since the COVID-19 pandemic began has led customers to expect fast and efficient shipments. Because of this, delayed or misplaced deliveries can negatively impact the reputation of an e-commerce business. This change in consumer behavior has made it imperative that businesses enhance customer experience to improve customer satisfaction. The localized delivery that MFCs offer makes it easier for e-commerce businesses to get products to customers on-time.

By The Numbers: Micro-Fulfillment

It is estimated that the MFC market will be worth $36 billion by 2030.
Online grocery sales are expected to grow from 10% in 2020 to 21.5% by 2025.
Over 50% of online shoppers abandon their purchase if their order cannot be fulfilled within a week’s time.
Over 25% of online shoppers abandon their online purchases if same-day shipping is not available.
75% of consumers expect delivery to be free on orders under $50.
42% of retailers state that faster order fulfillment for e-commerce purchases is their top priority.

Walgreens

Since the beginning of COVID-19, Walgreens has faced a shortage of pharmacists. This has forced the company to reduce pharmacy operating hours. In response, Walgreens is expected to open 22 fully automated micro-fulfillment centers by 2025. These facilities will be focused on rapidly fulfilling pharmacy orders.

Walgreens recently launched an MFC supply chain automation pilot program in Dallas, Texas that uses technology to automate tasks such as picking and packing prescription medications. This MFC can fill 35,000 prescriptions for 500 stores each day, reducing pharmacist workloads by 25%. It also reportedly saves Walgreens nearly $1 billion per year.

Walmart

In 2021, the world’s largest retailer announced the deployment of over 100 MFCs, investing $14 billion in that year alone. While some will be configured in existing stores, others will be stationed in new warehouse space exclusively for e-commerce order fulfillment.

Instacart

Instacart has partnered with automated technology company Fabric to bring micro-fulfillment warehousing solutions to grocery retailers in the U.S. and Canada. Software and robotic technology developed by Fabric will be paired with Instacart’s e-commerce technology to enable faster, more efficient grocery fulfillment. Instacart MFCs will be configured in both dedicated warehouse space with their existing retailers. Instacart currently partners with over 600 retailers in more than 5,500 cities across North America, reaching 85% of U.S. households and 70% of Canadian households.

The MFCs will be utilized to fill retailers’ online grocery orders placed via the Instacart Online Marketplace or through a grocer’s Instacart e-commerce site. These MFCs will enable retailers to handle a higher volume of online orders as well as accommodate customers entire grocery lists, ranging from:

Packaged groceries
Household staples
Fresh produce
Deli products
Frozen foods
Alcohol

Conclusion

The pandemic was the catalyst that sparked the rise in e-commerce. As online sales increased, large retailers such as Amazon and Walmart conditioned consumers to desire fast and free shipping. Due to changing consumer expectations, other retailers large and small began to invest in ways to get closer to customers to deliver orders as soon as possible. This has led to the implementation of micro-fulfillment centers that are now improving warehouse logistics and order fulfillment.

Although there are numerous types of warehouses, micro-fulfillment centers are proving to be viable warehousing options for retailers. Their proximity to customers speeds transit times and enables businesses to offer faster delivery.

Material handling is one of the most important functions of warehousing and due to their automated systems like conveyors and mobile robots, micro-fulfillment centers can guarantee rapid order picking with reduced error rates. Their technology also makes them effective at preparing a large number of orders to meet the increased demand of customers. This subsequently enhances the customer experience and improves customer satisfaction.