Kaching! eCommerce is booming, thanks in part to the COVID-19 pandemic, which drove an incredible number of customers to online stores.
Even the largest retailers were affected by the change. For example, Wal-Mart has had a 79 percent increase in online orders in the past year. Though grocery stores had already been dabbling in eCommerce prior to the rise of COVID, the pandemic forced businesses to expand their eCommerce capacity or lose business.
While you’re likely familiar with eCommerce, you may not be quite as familiar with micro-fulfillment, a rising trend for online stores. In this guide, we’ll walk you through the ins and outs of micro-fulfillment so that you can determine whether it’s a strategy you want to pursue with your own company. Let’s dive in!
What is micro-fulfillment?
Focusing on the “last mile,” micro-fulfillment is a strategy that puts small-scale warehouse facilities into densely populated areas, bringing goods closer to consumers and reducing delivery times on purchased goods, all while saving costs for labor and shipping.
Micro-fulfillment also increases online order efficiency, which enables strategies like same-day delivery. This approach has transformed logistics for on-demand eCommerce, making it a profitable and scalable business model.
eCommerce is likely to continue to grow, especially with the rise in micro-fulfillment. After all, consumers have rapidly become accustomed to enjoying fast delivery times!
Micro-fulfillment can even be used in business-to-customer (B2C) and business-to-business (B2B) transactions, providing solutions for eCommerce companies of all kinds.
What is a micro-fulfillment center?
Micro-fulfillment centers are small warehouses, typically in urban centers, where businesses stage goods to meet online orders. Online eCommerce orders are processed, packaged, and either sent out for delivery or held for customer pick-up. If customers drive to pick up the goods, the last mile costs shift to customers.
In a typical store, the products are moved from a warehouse to the store’s backroom and then to the store floor and onto shelves. When customers order online, someone in the store walks around with a list, collects products from the shelves, and then takes them back to a back room, where orders are packaged for delivery or pick-up.
Micro-fulfillment centers change the product path. The micro-fulfillment center becomes the back room, and products don’t have to take the unnecessary trip to the store shelves and back again. Labor and time are both saved, especially if the center relies on automation.
Some mainstream chain stores are already beginning to incorporate “dark stores” into their supply chain logistics. Darks stores are stores that are for fulfillment only. Customers may pick up goods at a dark store location, but they don’t come in and browse products.
Benefits of micro-fulfillment centers
There are a number of advantages for eCommerce businesses that use micro-fulfillment centers.
Micro-fulfillment centers are typically located in dense, urban areas that are closer to consumers. Delivering locally instead of long-distance saves on shipping and transportation costs. These costs are further reduced if consumers pick up the goods themselves.
Lower initial investment
Several micro-fulfillment centers can be built for the cost of one automated distribution center. Traditional warehouses often require costly systems for automation and conveyors.
Micro-fulfillment centers are a flexible logistics solution, especially for eCommerce. They allow space optimization (like enhanced vertical stacking).
With smaller inventories, it’s also easier to shift focus as customer demand varies. A standard warehouse may turn over inventory once or twice a year; micro-fulfillment centers may do 8 to 10 turns on some items yearly.
These centers also work for any type of sales: groceries, household goods, apparel, books, and more.
Automation increases efficiency. Automated inventory combined with automated picking leads to faster fulfillment. In-store picking (manual picking) can lead to errors, inventory issues, and congestion, each of which can impact profitability.
Profit margins for many retail stores are slim, which means that last-mile logistics are a focus for competitive advantages. By drastically shortening the distance, micro-fulfillment centers are a game-changer.
Micro-fulfillment centers can reduce the following costs:
- Last-mile costs
- Real estate costs
- Labor costs (through automation)
In short, micro-fulfillment centers increase the efficiency and cost-effectiveness of eCommerce.
Last-mile delivery costs refer to the last leg of supply chain operations (from the warehouse or store to the customer’s doorstep). They can represent over 35% of the total supply chain costs.
Businesses can charge for delivery, but increasingly, customers want cheap or free delivery. Micro-fulfillment centers drastically cut delivery costs overall.
Real estate space
Designed to maintain long-term inventory, standard warehouses are anywhere from 10,000 to 500,000 square feet. Large space is hard to find at an affordable price in dense urban areas, which is why large, regional distribution centers are often located far from customers.
Micro-fulfillment centers are typically anywhere from 5,000 to 25,000 square feet. They cost less to lease or buy, maintain, and run, and they fit better into dense urban centers.
Challenges with micro-fulfillment
As advantageous as micro-fulfillment can be, it also comes with challenges. Some advantages (like cost and automation) can also be obstacles for smaller businesses. Plus, mico fulfillment adds more nodes to the supply chain, which increases complexity and the possibility for error.
Robot retrieval of goods that are stacking high on micro-fulfillment center shelves may save on labor in the long run; However, it can be expensive upfront. Businesses need to update equipment as well as keep up on maintenance.
In addition, it is costly upfront for a small business to create a micro-fulfillment center: a 12,000-square foot center typically costs about $5 million.
Automation can cut down on error, but there are some things automation can’t do as well as human hands, especially for things like heavy furniture.
In addition, automation relies on machines; what happens if the machine breaks? Even short downtimes can be disastrous with precisely tuned logistics and customers expecting goods to be delivered within hours.
Customers like variety, whether it’s for their shoes or taco sauces. Retailers who lack variety may not do well with micro-fulfillment. After all, variety takes space and capital.
Unpredictable customer demand
Micro-fulfillment centers need to stock what customers want; otherwise, the advantages don’t come into play. However, customers are fickle, and demand spikes can be hard to predict. Businesses that can’t meet demand lose customer trust and business.
eCommerce has given customers the option to have goods in hand within days or hours with micro-fulfillment. Micro-fulfillment centers are smaller than warehouses, and while this is advantageous, it also means timely replenishment is critical.
Should you use micro-fulfillment?
Many eCommerce businesses benefit from micro-fulfillment. But is it right for your business?
Though advantageous, this strategy does require upfront funds. For large chain stores, converting to dark stores or setting up centers might be feasible, but for smaller eCommerce stores, it may be trickier.
If you think micro-fulfillment might be right for your eCommerce business but lack the capital, there is a way to leverage this fulfillment solution without the capital: partnering with a third-party logistics (3PL) company. A 3PL company can serve as your fulfillment center by helping managing inventory and much more.
There are a number of advantages to this fulfillment strategy, including cost, flexibility, and speed. Print Bind Ship can help you to take advantage of creative solutions for your eCommerce business.
Contact us for a free estimate to see how Print Bind Ship can bring benefits to your business.