Leverage Micro-Fulfillment in Your Retail Strategy

When many order fulfillment or retail operations decide that they want to invest in technology to boost efficiency, reduce labor costs, or realize other benefits, the operations and/or supply chain group will often start with their warehouses or distribution centers.

While this makes sense for operations with a network of physical brick-and-mortar stores, there is another option worth considering: Micro-fulfillment centers located within and/or attached to those stores. These centers offer a solution to the challenge of last-mile delivery by improving customer experience and reducing the retailer’s cost of sales at the same time.

Below, we define micro-fulfillment centers and offer a business case for them while taking a look at some of the readily available automated technologies that can be leveraged to implement an MFC strategy for your business.

Are you considering implementing a micro-fulfillment center strategy for your business? We can help you think through your options.

What is a Micro-Fulfillment Center?

A micro-fulfillment center (MFC) is exactly what it sounds like: A fulfillment center that is much smaller than a typical warehouse. MFCs are designed to be local to the end customer and to integrate fully into the retailer’s ecommerce strategy.

Often, MFCs are housed within the same space as an existing retail location, either out of the back of the store, attached to the perimeter of the existing store, or another location on the existing premises. Standalone MFCs are also possible in the form of a greenfield miniature warehouse or even so-called “dark stores,” which are pick-up-only storefronts. In this way, MFCs are often leveraged as a part of a broader buy-online pick up in store (BOPIS) strategy.

The general idea behind a micro-fulfillment center is that it allows a customer to place an order and then either:

• Pick it up when they are ready to do so, typically within one to two hours of placing the order. The orders themselves can be picked up in a variety of ways, including curbside/parking lot pickup, drive-through, self-serve kiosk, or even the use of lockers.
• Receive the order by delivery, often same-day or within 2 hours of the order being placed. Delivery resources can be employees with either corporate vehicles or private vehicles, but many companies are utilizing existing delivery services like Grubhub, DoorDash, etc. or traditional parcel delivery companies such as FedEx.

Micro-fulfillment centers are ideally suited for grocery complete with climate zone storage, as well as other forms of high-value ambient retail such as electronics or sports equipment within a larger department store.

Reasons to Consider Implementing a Micro-Fulfillment Strategy

Leveraging a micro-fulfillment center strategy can bring businesses a number of benefits.

1. Customer Satisfaction

The most important benefit of the properly deployed micro-fulfillment center (MFC) is the fact it will boost customer satisfaction. Customers enjoy MFCs because they offer the convenience of not physically shopping themselves without the delay typically required for delivery. Though this practice existed before the pandemic, it increased exponentially during this time due to the need for social distancing. Over the course of the last 18 months, the shop-for-me behavior has become ingrained in many customers who want the service to continue to be offered.

2. Lowered (or Eliminated) Shipping Costs

One of the primary reasons that retailers choose to build micro-fulfillment centers is that it allows them to drastically reduce or even eliminate shipping costs while increasing the retailer’s ability to meet increasingly faster delivery speeds.

MFCs are by design built to be close to the consumer. This means that when a customer requests delivery of their order, orders can be fulfilled rapidly—same day, or even within 2 hours of the order being placed—and at a much lower supply chain cost than when the order must travel longer distances and without the economy of scale realized when supplying stock to a warehouse rather than an individual’s order.

If the customer chooses to forgo delivery and picks up the order at the MFC/store themselves, then delivery costs can be eliminated entirely. This serves to reduce the total cost of sales and helps the retailer become more cost effective with online order fulfillment, while also providing greater value to the customer.

3. More Economical Use of Space

Second, MFCs are typically more economical for the retailer due to higher storage density afforded by high-bay racking and/or multi-level storage often time accessed by AMRs (Autonomous Mobile Robots), Mini-Load AS/RS or shuttle systems. MFCs require a smaller footprint compared to an actual storefront because stores need space for the customer to navigate, browse, and reach the products from the shopping floor in addition to the storage space.

When the customer is no longer shopping for themselves, less space is required for storage as aisleways reduce and storage rack can fully utilize the height of the building. When the picking process is automated, this can be reduced storage space even further, allowing for more storage space via storage height (up to 40’ storage rack is typical) and/or a smaller footprint that lowers related costs as aisleways reduce even further to 3.25 to 4 feet width from 5 to 6 feet width.

The storage efficiency gained utilizing MFCs can be especially beneficial in markets and locations where real estate is costly or limited, such as major metropolitan areas (New York, San Francisco, etc.).

4. Competition

And finally, many of the largest companies (Think: Walmart, Target, Kroger, Amazon, etc.) have begun to embrace and aggressively build a micro-fulfillment center strategy and network. This fact is forcing smaller businesses to either evolve or be left behind by the competition. As customers increasingly expect BOPIS options, the company’s lacking BOPIS offerings and options will eventually lead to a loss of business and market share.

Building the Right MFC for Your Needs

Micro-fulfillment centers can take many different forms and can feature varying levels of automation, from manual to partially automated to fully automated. Which strategy makes the most sense for your business will depend on multiple factors including the level of investment, timeline, demand volume, product characteristics, inventory strategy and many more which then feed into the ultimate decision “maker”: The return on investment.

Some highly popular automated technologies to consider for MFCs include shuttle-based AS/RS, Autonomous Mobile Robots (AMRs), hybrid AMR & AS/RS Systems, Vertical Sequencing Modules (VSMs), cube storage systems, modular conveyors, and more. Each of these technologies have their own use case, capabilities, and ability to scale and grow, so it is important to consider your goals and understand the benefits and limitations of each option before you make a decision.

For each of these technologies, the one technology does not create a complete order fulfillment system, and other peripheral machines, conveyors, software, and components are required to build an optimal fulfillment solution.

A trusted systems integrator can guide you to the right solution to optimize bang for your buck and design the perfect mix of technologies to create the best system for your needs. Contact us today to speak with a member of the Conveyco Team.