How Micro-Fulfillment Trends Are Impacting Supply Chain Logistics
By David Welsh, Vice President of Fulfillment Service Delivery, Radial
Today’s consumers expect to receive their eCommerce orders in as little time as possible between checkout and delivery. For many, this is due to Amazon-inspired two-day shipping and, in some urban areas, same-day or even one-hour delivery. In tandem, many retailers offer store fulfillment options, such as buy online, pickup in-store (BOPIS); buy online, pickup curbside (BOPAC); ship-to-store; and buy online, return in-store (BORIS). As the need to get products into customers’ hands as fast and as conveniently as possible has increased, the rise of micro-fulfillment centers has emerged to optimize supply chain logistics.
What is a Micro-Fulfillment Center?
A micro-fulfillment center is a small fulfillment facility that is typically between 10,000 and 50,000 square feet located within a retail store, next to one, or in a vacant retail space that is optimally situated—such as an empty department store—for the purpose of keeping inventory closer to customers to enable faster order fulfillment. It can be either manual (employees pick and pack) or automated with robotics to drive efficiency and speed. To be effective, micro-fulfillment centers need to be coupled with advanced order management technology connected to eCommerce platforms and provide real-time inventory visibility.
When you walk into the stores of many major retailers, you see a section on the retail floor designated for store fulfillment where products are gathered, packed, and delivered curbside. This is an example of a manual micro-fulfillment center. As store fulfillment has become mainstream, many retailers are aiming to take their micro-fulfillment centers off the store floor and are instead creating dedicated space so employees fulfilling online orders aren’t competing with customers for products on the shelf and to restore floor space for in-store inventory.
Many retailers have separate fulfillment centers for in-store and eCommerce sales. When the pandemic created massive spikes in eCommerce and lower demand for in-store sales, many retailers found they had the wrong inventory in each and that it was difficult and expensive to transport inventory as consumer demand changed. This—coupled with manufacturer delays or out-of-stocks and disruptions in supply chain logistics—led to the need for more nimble ways of fulfilling both in-store and online orders. Micro-fulfillment centers solve this by enabling retailers to stock high-turnover, in-demand items very close to their customer base, which has a major impact on customer experience and delivery times.
Advantages of Micro-Fulfillment Centers
Micro-fulfillment centers offer numerous benefits, including:
- Enabling faster fulfillment and delivery times. Fulfillment options like BOPIS and BOPAC are even faster and easier when inventory is located closer to customers. Ship-from-store items require less last mile delivery costs and can get to customers quicker since they are located nearby.
- Localizing inventory. When micro-fulfillment centers are paired with powerful modern technology, retailers can track customer preferences and trends and stock in-demand items for their local area. This creates a better customer experience and reduces the risk of having too much of the wrong inventory on hand.
- Reducing fulfillment costs. The last mile is said to be accountable for upwards of 50% of shipping costs. When inventory doesn’t need to be shipped across distances, these costs go down. Micro-fulfillment centers also help drive self-service fulfillment where customers come to the store to obtain their online orders, eliminating the need for last mile delivery entirely.
- Automating operations to enable speed and scale. Automated micro-fulfillment centers use robotics to do the heavy lifting when it comes to picking and packing, empowering retailers to significantly scale order fulfillment volume and speed. However, unless they’re outsourcing fulfillment to a third-party provider like Radial that has already integrated automated fulfillment strategies into its operations, many retailers have been hesitant to invest in automation.
Micro-Fulfillment Center Challenges
While the advantages are significant, micro-fulfillment centers are not for every retailer. Those with solid order fulfillment processes and supply chain logistics in place may find it more cost-effective to continue to rely on their current fulfillment operations. Some challenges include:
- Being inappropriate for high-ticket items that are not in high-volume demand. They’re typically designed for high volumes of packaged goods, online grocery items, or apparel that turn over quickly. With limited space, only those items in high demand can be stocked.
- Requiring a significant investment in time, real estate, and budget. Manual micro-fulfillment centers use available store personnel to operate, but manual operations limit the ability to scale without hiring more employees. Automated micro-fulfillment centers reduce the need for human labor but require time and money to set up.
- Requiring modern order management systems to manage decentralized inventory in multiple locations for omnichannel fulfillment. Inventory tracking and order orchestration can be complex and cumbersome, so retailers need advanced order management technology to streamline the entire process.
When Retailers Should Partner with a Third-Party Logistics Company
The pandemic helped normalize omnichannel shopping for consumers and make anytime, anywhere, anyway shopping commonplace. Consumers will only continue to expect increasing convenience, speed, and product availability as automation and other technologies raise the standard.
Like many other aspects of the industry, retailers have the option of building and operating their own operations or partnering with third-party logistics companies that have invested in the infrastructure, technology, and transportation networks for efficient fulfillment and delivery.
Retailers should consider working with a fulfillment partner if they:
- Lack the technology needed to integrate micro-fulfillment centers into supply chain logistics and the order fulfillment process for the enterprise, or their IT team is too small or doesn’t have the capability to implement or upgrade new technology to support it.
- Need better relationships with shippers and want to ensure they are negotiating the best rates. Fulfillment partners often have long-standing relationships with shippers and can get the best rates to reduce last mile delivery costs.
- Want to automate operations but don’t know where to start or have the time, money, personnel, or expertise to do so.
- Want to embed micro-fulfillment centers into their long-term strategy and need expert guidance on how to achieve it at scale and with automation.
Ultimately, micro-fulfillment centers enable retailers to compete more effectively and better meet customers’ expectations. When they leverage the right order management technology, automate fulfillment, and locate facilities strategically, retailers can reduce costs, optimize operations, and deliver products to customers faster according to their preferred fulfillment method.
Learn how Radial can scale and support your fulfillment operations, help optimize supply chain logistics, and improve the customer experience for your retail business.
