Why Investing in Micro-Fulfilment Makes Sense

News Warehousing

This article is is by Banu Y. Ekren, Hendrik Reefke, School of Management, Cranfield University. Erken and Reefke will join us on the 8th March at our Micro-fulfilment event.

The COVID-19 pandemic has affected the global retail market significantly. Millions of people adjusted to work from home as offices closed. Remote work and the closure of physical retail outlets fuelled the boom of e-commerce and other virtual transactions. For instance, according to the United Nations Conference on Trade and Development (UNCTAD), the e-commerce sector witnessed a substantial rise in its share of all retail sales in 2020 (UNCTAD, 2021). The McKinsey Consumer Pulse survey, which is conducted around the world, showed that roughly three-quarters of people using digital platforms for shopping during the pandemic say, they would continue online shopping, even when things return to “normal” (McKinsey, 2021a).

This increase in e-commerce has also altered customer order expectations, asking for shorter delivery times and decreased delivery costs (PwC, 2021). To remain competitive in this evolving retail environment, retailers explore new avenues to overcome those challenges.

Micro-fulfilment on the rise

Consumers tend to have less patience with retailers, expecting fast, accurate, and reliable order delivery every time. The PwC (2021) Customer Survey covered 9,370 respondents in 26 territories/countries and found that efficient delivery or collection service is ‘always’ or ‘very often’ important. Unsurprisingly, Statista (2021b) estimates that there is going to be an exponential increase in the same-day delivery market size between 2021 and 2027. 

This change in expectations, coupled with a competitive market that allows customers to switch to competitors who provide more rapid order fulfilment, has paved the way for micro-fulfilment warehouses – MFWs. Micro-fulfilment allows businesses to move fulfilment centres closer to the customer, respond to changing demand in a more agile manner, boost resilience in the market, and to maintain more control across the overall shopping experience.

Micro-fulfilment vs. traditional warehouses: What’s the difference?

MFWs are also known as urban fulfilment centres. They are typically small and highly automated storage facilities located close to the end consumer in order to reduce the cost and delivery times of goods (Swisslog, 2021). The primary focus is to speed up the delivery of online orders to customers. An MFW consists of three main components (Sajip, 2021; Srivastava, 2021):

  • Warehouse management software 
  • Automation equipment
  • Packing staff

MFWs can be established either in an existing store or also constructed as a dedicated facility. They generally hold a limited product portfolio and serve for online order fulfilment within a designated local region or postcode. Hence, in terms of size, they tend to be around 10,000 square feet or less which is significantly smaller than most traditional warehouses which are often in the 300,000-square-foot range (Syverson, 2021). In an MFW, average inventory turns may only be around 24-48 hours, resulting in less stockholding and space requirements. On the flipside, inventory levels need to be carefully monitored and replenished regularly (Syverson, 2021). Further, digitised and automated technologies are installed in order to significantly reduce reliance on manual labour and the associated costs. Given that MFWs are often situated in urban settings, it is important to note that automation and robotic technologies employed in MFWs are relatively quiet, unlike forklifts and other traditional warehouse equipment, providing a more pleasant environment with less noise and disruptions for neighbours.

Which companies can use MFWs?

The industries that have been quick to adopt micro-fulfilment strategies are those in the grocery and fast-moving consumer goods sectors such as packaged foods, cosmetics, dry goods, and other consumables. Many large retailers such as Amazon, Walmart, Target in the USA and Tesco in the UK have invested considerably in micro-fulfilment facilities and technologies (Ladd, 2020; Nott, 2020). Further, Albertsons, ShopRite, Meijer, and Stop & Shop, are also using micro-fulfilment centres to reduce reliance on in-store fulfilment.

One of the largest retailers in the USA, Walmart, has set up in-house MFWs in several of its stores. Walmart’s MFWs are stocked with the most popular products ordered online including packaged and frozen foods (Stallbaumer, 2020). Walmart’s Alphabot automated system is designed to pick ten times more inventory stock than staff in a traditional warehouse setting (Alert Innovation, 2022). 

Advantages of MFWs

The main advantages of MFWs can be summarised as follows (Sajip, 2021; Srivastava, 2021):

  • Accelerated order picking
  • Rapid order delivery
  • Decreased operating costs
  • High product availability
  • Safe working environment
  • Improved energy efficiency

MFWs can further minimise negative environmental impacts caused through order fulfilment, by lowering transport emissions for final delivery due to their proximity to end consumer locations.

Overall, it is evident that retailers embrace automation in order to realise future-proof order fulfilment solutions. Micro-fulfilment is one of the most important strategies in this regard and predicted to grow in importance. 

References

Alert Innovation (2022). Innovation Solutions, https://www.alertinnovation.com/egrocery-mfc-overview/novastore-robotic-supermarket/

Ladd, B. (2020). A Look At The Micro-Fulfillment Model And The Future Of Grocery Retail, Forbes communications council, https://www.forbes.com/sites/forbescommunicationscouncil/2020/10/05/a-look-at-the-micro-fulfillment-model-and-the-future-of-grocery-retail/?sh=2a5b17fe62bf

McKinsey (2021). The future of work after COVID-19. https://www.mckinsey.com/featured-insights/future-of-work/the-future-of-work-after-covid-19

Nott, G. (2020). What does ‘micro-fulfilment’ mean for the future of rapid delivery?, www.thegrocer.co.uk

PwC (2021). A time for hope: Consumers’ outlook brightens despite headwinds: December 2021 Global Consumer Insights Pulse Survey  https://www.pwc.com/gx/en/industries/consumer-markets/consumer-insights-survey.html

Sajip, J. (2021). How‌ ‌Micro-Fulfillment‌ ‌Centers‌ ‌Are‌ ‌Changing‌ E-Commerce‌. https://www.ny-engineers.com/blog/how-micro-fulfillment-centers-are-changing-e-commerce

Srivastava, A. (2021). 5 Competitive Advantages of Micro-Fulfillment Centers, https://www.ny-engineers.com/blog/5-competitive-advantages-of-micro-fulfillment-centers

Stallbaumer, T.J. (2020). How Walmart’s Alphabot is Helping to Revolutionize Online Grocery Pickup and Delivery, https://corporate.walmart.com/newsroom/2020/01/08/how-walmarts-alphabot-is-helping-to-revolutionize-online-grocery-pickup-and-delivery

Swisslog (2021). Micro-Fulfillment Centers Bring the Supply Chain to the Consumer, https://www.supplychain247.com/article/micro_fulfillment_centers_bring_the_supply_chain_to_the_consumer

Syverson, S. (2021). What You Need to Know about Micro-Fulfillment for E-Commerce, Warehouse Anywhere Solution, https://www.warehouseanywhere.com/resources/micro-fulfillment-centers-for-ecommerce/

UNCTAD (2021a). How COVID-19 triggered the digital and e-commerce turning point, https://unctad.org/news/how-covid-19-triggered-digital-and-e-commerce-turning-point

UNCTAD (2021b). Global same-day delivery market size forecast 2021-2027. https://www.statista.com/statistics/1255427/same-day-delivery-market-size-worldwide/

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