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Customer satisfaction improves with Micro-Fulfillment Growth

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Man inside a warehouse - Micro-Fulfillment Growth in Retail
Steve Thompson
Steve Thompson
April 9, 2021

At one time not so long ago online shoppers felt lucky if they ordered a product via the internet and received it within a few days. Now two-day deliveries are considered standard, partly due to huge investments by Amazon and Walmart in shipping infrastructure that includes the proliferation of micro-fulfillment centers (MFCs).

These small centers serve as scaled-down distribution hubs where pallets are used to store and transport products. Another innovative feature of these centers is they are often equipped with automation technology that makes operations more efficient than using manual labor. Order fulfillment is more accurate and executes at a faster pace.

Micro-Fulfillment Growth Improves Customer Satisfaction

In a short time, micro-fulfillment growth has created faster delivery solutions, which ultimately raises consumer satisfaction and expectations. Many independent delivery services are now able to guarantee next-day or same-day deliveries while local couriers can even complete deliveries within a few hours. Small food delivery services, for example, often limit service to customers within their neighborhoods.

Recent Rise of MFCs

The rapid evolution of micro-fulfillment growth has been driven by Walmart, Amazon, and other large retailers. After spending billions on shipping infrastructure, Amazon currently operates over 175 fulfillment centers around the world. Its air hub in Kentucky alone cost $1.5 billion to build. Meanwhile, Walmart uses its existing 5,000+ stores in the United States to house smaller micro-fulfillment centers.

The two defining components of an MFC are e-commerce-based order processing systems and physical machinery that transports items, such as a mobile robot or a stationary robot that sorts and places packages in autonomous shuttles. An MFC typically occupies 3,000 to 10,000 square feet of space either as a unit within a store or a standalone center.

Clearly, this streamlined approach is much more efficient than the traditional fulfillment centers covering 300,000 feet. Reducing square footage creates significant savings on purchasing, leasing, or renting complex space, as well as energy bills. Eventually, the use of delivery drones is expected to streamline MFCs even further.

How MFCs Help Stores and Consumers

Retail stores benefit from automated hyper-locally-placed MFCs in three main ways: lower costs for storage, last-mile delivery, and real estate. Additionally, MFCs add the potential for increasing retail chain revenue.

MFCs benefit consumers enormously when numerous micro centers of a widely-known brand are spread across a city. Each branch location is able to serve a neighborhood, saving consumers from driving far. Compact versions of MFCs allow for mobility, as they can be temporarily placed in strategic locations for special events as "pop-up shops." Since a recent UN report forecasts that two-thirds of the 2050 global population will reside in cities, it's important for supply chains to prepare for more densely populated urbanization.

3PL Logistics Specialists

This disruptive development of MFCs has influenced smaller retailers to follow suit and develop their own micro-fulfillment centers to remain competitive. The concept of smaller distribution hubs spread during the pandemic as a solution that has helped supply chains become more resilient. Online shopping surged, even more, putting pressure on manufacturers of all kinds to rethink their logistics and embrace e-commerce.

An effective distribution solution for some manufacturers to outsource logistics to a third-party logistics specialist called a 3PL provider. This relationship allows the manufacturer to concentrate on production while logistics specialists handle shipping.

How AI Revolutionizes Shipping

Ai concept in logistic

Artificial intelligence is playing a major role in the digital transformation of modern logistics. The three major benefits AI brings to shipping are lower overhead costs, easy setup and faster last-mile delivery. Due to strategic placement in urban areas, MFCs are more reliable at serving customers than traditional warehouses.

The typical cost of building an MFC in the 2020s is a few million dollars. This investment covers AI-based software and machines to handle redundant operations with greater precision and agility than humans. The return on investment can be exponential considering it allows a manufacturer to gain competitive edges in geographic locations where MFCs are deployed.

Machine learning software can do the work of thousands of people when it comes to researching solutions to improving system weaknesses. With IoT devices feeding big data into the company's central database on inventory, fleet vehicle locations, and much more, AI software can analyze vast volumes of data sets in seconds to arrive at solutions for the most efficient delivery methods and routing, based on weather and road conditions.

Centralized vs. Decentralized Inventory

Boxes inside a Micro Warehouse

One of the key issues facing supply chains for the future will be decided on a centralized or decentralized business model for inventory management. In a traditional centralized model, all the inventory is stored at a warehouse as the data is gathered, analyzed, and managed at a central headquarters. In a more modern decentralized model inventory is distributed to multiple fulfillment centers based on data that measures local demand.

The micro center concept will likely only be efficient for certain types of products and perhaps not suitable for stores that sell large items like furniture or cars. On the other hand, virtual reality (VR) technology has opened up opportunities for fulfillment centers to allow customers to test products through virtual experiences that don't require using much physical space.

Why Grocers are Adopting MFCs

Many grocery outlets ran into supply chain issues during the pandemic in which they weren't prepared, leading to shortages. The pandemic created wider awareness among all businesses about digital solutions and the need for building a cloud-based e-commerce eco-system and remote work opportunities. The use of modern IT and smart technology opens the door for grocers and other businesses to utilize digital technology for transactions while providing customer deliveries or outsourcing to a courier service.

Grocery chains that currently earn only thin margins or suffer consistent net losses can become more profitable from accepting home delivery orders. Another huge benefit from developing more sustainable supply chain solutions with digital transformation is it develops closer relationships between brands and consumers. National grocery chain Kroger has been an early pioneer in adopting the combination of e-commerce and local deliveries.

Future of Fulfilling Online Orders

Home Delivery

A recent LogisticsIQ study suggests MFCs will be worth $10 billion by 2026 from the output of about 2,000 locations if the current focus on new technology persists. The sector is expected to surpass billion-dollar value in 2022. Furthermore, a tenth of grocery sales are expected to be based on internet orders by 2025.

This data indicates there will be a need for flexible order fulfillment options that include home delivery, locker access, and in-store pickup. Urban centers equipped with modern automation will be poised to meet the increased demands of the future driven by rising population and challenging economic conditions. The most prepared companies will equip their Customer Fulfillment Centers (CFCs) with robots to track and transport inventory items.

Not all retailers will be able to afford MFCs and CFCs in the future. Smaller outlets may decide to set up limited CFCs within their stores. Larger retailers may use the "dark store" model in which stores are converted into centers devoted to fulfillment. Macy's began experimenting with the model in a few places when the pandemic broke out in 2020. Small gift shops and niche stores that see high-volume sales during the holidays are among the types of businesses that are suitable for becoming compact mobile pop-up shops at specific times of the year. They can serve neighborhoods based on where analytics reveal their customers live.

Conclusion

Manufacturers and retailers are planning on expansive micro-fulfillment growth over the next few decades. It will help meet the challenges already evident of a steadily expanding society that requires advancements toward more sustainable supply chains. Regardless of where your operation is located, most organizations who need pallets in California trust the people at Pallet Market to fulfill all of their custom, new, used, and recycled pallet needs.