Micro-Fulfillment Centers: Bringing Fulfillment Closer to the Customer​

Micro-fulfillment centers address modern consumer demands and help brands redefine the retail shopping experience. Learn more here.

Micro-fulfillment is the answer to the rapidly changing online retail landscape.

Technological advancement has completely changed consumer demand and expectations from e-commerce platforms. The COVID-19 pandemic has further transformed the consumer’s purchase journey, accelerating the shift from physical retail stores to digital shopping.

Today, consumers are heavily reliant on e-commerce for everything from medicines and groceries to computers and home decor. Southeast Asia alone has produced an estimated 70 million digital shoppers since the pandemic began.

Read on to know more about micro-fulfillment and how it is reshaping e-commerce fulfillment services.

In a micro-fulfillment strategy, small-scale fulfillment centers are set up in dense urban areas to reduce the distance between the customer and an ordered item, making last-mile delivery quicker and cheaper. With consumers expecting fast, convenient, and low-cost delivery, even more micro-fulfillment centers are popping up to ensure products are delivered on time.

What is Micro-Fulfillment?

Micro-fulfillment is a strategy of placing small-scale and often highly automated warehouse facilities in accessible and densely populated urban locations close to the end consumer.

Today’s consumers expect same-day delivery, and online retailers leave no stone unturned to deliver a top-notch online shopping experience. Catering to both, micro-fulfillment technology provides fast service to consumers and boosts profit for retailers.

As e-commerce giants like Amazon aggressively invest in shipping infrastructure to bring down online delivery timelines, smaller retailers are turning to micro-fulfillment to make fulfillment processes more efficient, cost-effective, and streamlined. The micro-fulfillment approach aims to enhance the speed of local, in-store pickups with the efficiency of large warehouses and automation technology.

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What is a Micro-Fulfillment Center?

Micro-fulfillment centers (MFCs) are small-scale storage facilities used by e-commerce businesses to store their inventory. Often equipped with automation systems, such a storage space helps to improve operational efficiency, and also acts as a local store pick-up. The primary purpose of these automated fulfillment centers is to keep the inventory closer to the end consumer to reduce shipping costs and improve delivery times.

A micro-fulfillment center has two main components:

  • Software management systems to process online orders
  • Human workers and physical infrastructure to pick, pack, and move items

A 10,000-square-foot micro-fulfillment center is standard, although smaller centers are widespread and often set up in parking lots, garages, and even basements. These centers restock regularly and typically hold inventory for 24-48 hours’ worth of operations. When located in a physical store or retail space, micro-fulfillment centers allow ship-from-store and local pickups for customers.

Micro-fulfillment centers with high-end automated systems leverage artificial intelligence (AI) and analytics to streamline fulfillment. Once packed, local carriers pick up products from the centers and deliver them to nearby customers. As the distance between the fulfillment center and the customer is reduced, e-commerce businesses can significantly reduce last-mile delivery costs.

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How Can Micro-Fulfillment Make Retail More Efficient?

Micro-fulfillment centers are an effective solution for e-commerce retailers looking to improve and scale their fulfillment services.

Here’s how micro-fulfillment improves retail efficiency:

  • Utilizing unused space allows for more product volume per-square-foot
  • Localized data gives insight into customer preferences and expected orders
  • Automation in picking and packing enables faster order fulfillment
  • Enhanced speed and agility improve customer experience
  • Shorter order-to-delivery cycles save money
  • Micro-fulfillment centers allow cost-effective expansion and scaling
  • Retailers can tap the potential for a hyper-localized product offering
  • Faster shipping speeds and lower shipping costs drive sales and increase revenue
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Micro-Fulfillment Niche Applications

Micro-fulfillment centers are most common in the FMCG (fast-moving consumer goods) sector dealing with high-turnover items such as food stores, grocery retail, pharma, etc. Plus, high-demand products such as essential perishable goods and seasonal demand goods are perfect candidates for the micro-fulfillment approach. However, micro-fulfillment is not just for online shops; physical stores can run micro-fulfillment centers simultaneously with their in-store operations, especially those located in densely populated urban and suburban areas.

With online grocery consumers prioritizing delivery and fulfillment services, “dark stores” – a retail distribution center or outlet that caters exclusively to online shopping and is closed to the public, hence “dark” – are emerging as the hub for rapid online grocery order fulfillment. Serving as MFCs for grocery stores, dark stores have aisles packed with racks and shelves for groceries. Once a customer places an order at the grocer, the dark store staff picks and packs the ordered items and delivers them directly to the customer.

Dark stores bring several benefits to grocery retailers, including instant delivery, improved SKU (stock keeping unit) management, faster order fulfillment, and better inventory control. To leverage these benefits, leading grocery chains and online retailers were quick to introduce dark stores during the pandemic to boost sales while reducing last-mile delivery costs.

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What is Micro-Warehousing?

A concept similar to micro-fulfillment, micro-warehousing is a system of using the space outside traditional warehouse walls to stock inventory. Like micro-fulfillment, the primary purpose of micro-warehousing is to move inventory closer to the end-consumer for faster, more efficient, and low-cost fulfillment.

A micro-warehouse can be a very small storage space in a strip mall or shopping center to facilitate rapid delivery and enable customers to pick up their packages locally.

Micro-warehousing is not a one-size-fits-all approach to stocking inventory, and its success depends on the kind of products the retailer is stocking. For instance, food, beverage, pharma, and other perishable products that require special climate-controlled storage environments are not meant for micro-warehousing. Likewise, expensive or high-value products will increase the inventory carrying costs instead of serving the purpose.

In contrast, well-packaged consumer goods that require minimum handling, such as apparel, are ideal for micro-warehouse storage. Micro-warehousing is well-suited for densely populated urban areas where real estate costs, labor expenses, and traffic delays are barriers to seamless delivery.

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Benefits of Micro-Fulfillment Centers Vs. Traditional Fulfillment Centers

Traditional fulfillment centers do not have the speed and agility to keep up with quick and efficient fulfillment of online orders. That’s where micro-fulfillment centers do their part.

A micro-fulfillment center can be as small as a basement or the size of a garage or parking lot. They can either be a stand-alone facility or built into stores catering to many locations. Regardless of their size and architecture, micro-fulfillment centers sport compact designs that allow them to be set up at any convenient location, even in bustling urban areas.

On the contrary, traditional fulfillment centers typically occupy thousands of square feet and tend to be located on the city outskirts. While the large area translates to high operational costs, the remote location increases the retailer’s delivery times and shipping costs. Thus, fulfillment centers are more efficient at ensuring quicker service to a broader population segment.

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Key Considerations in Micro-Fulfillment

Micro-fulfillment centers address the limitations of traditional warehouse and distribution centers to drive productivity and better customer service.

However, there are several things retailers must keep in mind before implementing micro-fulfillment solutions.

Site Selection

Although micro-fulfillment centers do not have elaborate space requirements as traditional fulfillment centers, not every property is ideal for setting one up. Even though retailers can repurpose idle spaces for fulfillment operations, additional considerations include:

  • Access to highways.
  • The sufficiency of loading docks.
  • Site preparation for automation systems.

Inventory Implications

Inventory is a significant concern for retailers moving to micro-fulfillment. It is not enough to stock up MFCs with inventory; retailers must ensure that the micro-fulfillment center is strategically placed within the network and can be quickly restocked to avoid out-of-stock situations.

Systems Integration

A crucial yet frequently neglected component of micro-fulfillment solution deployment is software/systems integration. To ensure the success of the micro-fulfillment strategy, retailers must integrate it with an Enterprise Resource Planning (ERP) or Warehouse Management System (WMS) and Point-of-Sale (POS) Systems or Order Management System (OMS).

Transportation and Labor

When moving to micro-fulfillment, retailers need to consider the labor and transportation costs, especially if they use their own last-mile transportation network. Alternatively, retailers can outsource picking and delivery to a third party, but still need to factor in issues such as disruption to store operations and in-store inventory availability.

Special Consumer Goods

Not all products are meant for the micro-fulfillment approach. Handling consumer goods that require temperature control, such as groceries, food, and pharma, can be problematic if retailers are not equipped to maintain appropriate storage and picking environments. Hybrid automation solutions can help, but such operations have additional space requirements.

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Micro-Fulfillment Strategy and Retail Growth

Strategically placing micro-fulfillment centers in urban cities can significantly increase the efficiency of e-commerce retail. Whether built as a stand-alone facility or operating out of a backroom space, MFCs contribute to retail growth by increasing fulfillment capacity.

Here’s a list of benefits companies can reap by investing in micro-fulfillment centers:

Inventory Optimization

Micro-fulfillment centers allow retailers to optimize inventory according to local demand and requirements while efficiently utilizing the available space and resources. As a result, retailers can use their MFCs to offer a wide selection of products and expand into new markets by adding unique product lines.

Automated Processes

Micro-fulfillment centers help decrease delivery times and reduce delivery costs by bringing fulfillment services close to customers. Automated micro-fulfillment centers go a step ahead to streamline and accelerate last-mile delivery operations: picking, packing, and transportation.

Lower Operation Costs

Apart from being faster and more efficient than regular warehouses, micro-fulfillment centers are less expensive to run. Although MFCs may have a steep upfront investment, the returns are quick and visible once they are up and running. Since warehouse automation technologies lower operation costs, online retailers can fulfill orders faster with reduced costs per order.

Speed and Responsiveness

Another tangible benefit of micro-fulfillment centers for small and medium businesses is the enhanced speed and responsiveness of logistics. Due to their proximity to end-consumers, micro-fulfillment centers can fulfill orders faster, while accelerating manufacturing and inventory cycles.

Workplace Safety

With automated fulfillment centers, retailers can ensure the safety of workers by delegating risky and cumbersome tasks to robots and other equipment. Automation technology such as robots helps prevent typical warehouse accidents resulting from carrying heavy boxes and crates, falling from heights, or using heavy equipment and machinery.

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What Technologies Can be Used in Micro-Fulfillment?

Various automation technologies used in the supply chain industry demonstrate their utility as part of micro-fulfillment solutions.​

Here’s a list of some standard automation technologies frequently deployed in micro-fulfillment centers:

Automated Order Picking

It is an automated fulfillment technology that employs robotics to pick products from inventory. When used with automated storage and retrieval systems (AS/RS), automated order picking improves warehouse picking and packing operations.

Shuttle (AS/RS) and Goods-to-Person (GTP)

Automated storage and retrieval (AS/RS) technologies shuttle and buffer items from multi-level aisles to goods-to-robot (GTR) or GTP picking stations. These modular, flexible, and scalable technologies have exceptional handling and processing capabilities.

Autonomous Mobile Robots (AMRs)

Automated mobile robots are highly flexible bots equipped with sensors and cameras. These are designed to navigate space and perform tasks without predefined instructions. AMRs are scalable and can increase speed and efficiency by reducing point-to-point foot traveling in warehouse picking operations.

High-Density Storage Systems

These are building block-like structures with bots that pick totes from a stack and deliver them to picking stations located on the unit’s outer periphery. High-density storage systems are flexible, scalable, and fit into practically any space without interrupting operations.

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Micro-Fulfillment Centers Impacting Last Mile Strategy

With the rapid growth in technology and flourishing e-commerce, consumers expect same-day delivery services from any online platform. Thus, last-mile logistics is where retailers battle it out to improve delivery speed and ensure customer satisfaction.

E-commerce businesses today understand that micro-fulfillment centers have the potential to transform the entire online retail landscape.

Decreasing delivery times from the fulfillment center to the end consumer depends on how judiciously businesses establish their micro-fulfillment centers near their customers. Building micro-fulfillment centers in densely populated areas can help companies cut costs by reducing the warehouse-to-ship-to-door distance. Micro-fulfillment centers have made it possible to achieve customer satisfaction and be on top of last-mile operations.

The Future of Micro-Fulfillment: How Will They Change the Retail Industry

As per recent market research, the global micro-fulfillment market is anticipated to have a cumulative opportunity worth USD 10 billion by 2026, with an installed base of about 2,000 micro-fulfillment centers considering the technology and concept remain permanent. Moreover, the GMV (gross merchandise value) of the e-commerce sector in Southeast Asia is set to nearly triple from USD 62 billion in 2020 to USD 172 billion by 2025.

Micro-fulfillment has become one of the best strategies for e-commerce businesses to meet the growing demands for same-day delivery. Automation is key to the success of micro-fulfillment centers, since it reduces costs and manual labor while enhancing the overall shopping experience for consumers. E-commerce will benefit from the powerful combination of micro-fulfillment and autonomous delivery, with retail-based MFCs being the most feasible business option for strengthening omnichannel capabilities.

Micro-fulfillment technology could become integrated with existing stores, thereby eliminating the need for stand-alone micro-fulfillment centers. While this approach works well for grocery stores that deal with perishable and non-perishable items, other rapidly growing retail sectors will likely embrace micro-fulfillment for efficiency and cost-effectiveness.

Conclusion

Micro-fulfillment centers are ideal for optimizing the fulfillment processes in businesses with modest fulfillment needs and limited resources.

However, it may not be the ultimate solution for scaling e-commerce operations and large businesses that can streamline the delivery experience by outsourcing fulfillment to 3PLs. Third-party logistics or 3PLs can stock large amounts of inventory across an extensive network of fulfillment centers to shorten delivery times. That way, larger businesses can steer away from costly investments associated with traditional fulfillment hubs and the capacity limitations of micro-fulfillment centers.

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FAQs

Micro-fulfillment is a strategy of placing small-scale and often highly automated warehouse facilities in densely populated urban and suburban locations close to the end consumer. 

A micro-fulfillment center is a small-scale storage facility used by e-commerce businesses to store their inventory closer to the end consumer to reduce shipping costs and improve delivery times. 

Micro-fulfillment grocery refers to a micro-fulfillment approach in the retail grocery sector, where micro-fulfillment centers hold grocery inventory and fulfill online orders.

The cost of a micro-fulfillment center depends on various factors such as its location, facilities, equipment, transportation, labor, etc.

Micro-warehousing is a system of using the space outside traditional warehouse walls to stock inventory. Its primary purpose is to move inventory closer to the end-consumer for faster, more efficient, and low-cost fulfillment.

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