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What You Need to Know about Micro-Fulfillment for E-Commerce

By Read Time: 11 min.

Retailing is moving online, and there's no going back. During the coronavirus pandemic, consumers relied on e-commerce for everything from toilet paper to coloring books, computers to bread makers.

Today's consumers expect as little time as possible between the time they click the "Buy Now" button and when the package lands on their doorstep. According to the National Retail Federation, 75 percent of consumers expect delivery to be free even on orders under $50.

Experts say the pandemic accelerated the shift to digital shipping by roughly five years. Consumers who were reluctant to buy online found themselves forced to change their habits. And customers become comfortable buying different categories of goods, such as home improvement materials and health and beauty items.

While it's uncertain how much of that consumer behavior will continue in the future, it's clear that e-commerce is supplanting brick-and-mortar retailing. Walmart saw its e-commerce sales boom in the third quarter of 2020, up 79% compared to store growth of 6.4%.

Companies that didn't prepare for the growth in e-commerce paid dearly for it. Target attributed a drop in gross margin due to unexpected costs of fulfilling digital orders and receiving and processing holiday inventory. Even Walmart has tapped into the trend. The retailing giant plans to open pop-up e-commerce centers within 42 of its regional distribution centers, which normally replenish stores with pallets of goods.

In response to the pandemic, retailers rapidly adopted micro-fulfillment tactics, even if they weren't aware of it at the time. Strategies such as curbside delivery and buy-online-pick up in-store and two-day or less home delivery are forms of micro-fulfillment.

Adapting existing systems to ramp up has been disruptive and expensive. The traditional distribution center network isn't agile enough to keep pace with fast-paced consumer demands.

Retailers must find a way to stand out from the crowd, and shipping times have become a competitive advantage. Micro-fulfillment is the answer for retailers struggling to adapt to the new e-commerce dominant landscape.

What is Micro-Fulfillment?

Micro-fulfillment is a strategy that places small-scale warehouse facilities in densely populated urban locations closer to the consumer to improve delivery times.

Two-day or less shipping has become the norm in the past few years. If you're a retailer other than Amazon or Walmart, it's tough to keep up the pace. In some cities, the bar has been raised to same-day delivery.

Last-mile costs represent 41% of the total supply chain costs for a product. The goal of micro-fulfillment is to move inventory and fulfillment as close to the consumer as possible and allow smaller retailers to be competitive in shipping times. It's less costly to meet two-day or fewer delivery times from large regional DCs in terms of infrastructure and shipping costs. Micro-fulfillment makes the last mile shorter and less expensive.

What is a Micro-Fulfillment Center?

A micro-fulfillment center (or MFC) is a small, sometimes highly automated fulfillment center that serves e-commerce as well as local store pick-ups.

They may be located in an existing store or warehouse or a dedicated small distribution/warehouse space, usually 10,000 square feet or less. Traditional warehouses are in the 300,000-square-foot range. If it's located in a store, the MFC should be set up to allow fulfillment workers to pick and pack orders without disrupting the store's operations. An MFC may have inventory for 24-48 hours worth of operations and must be restocked regularly. The store serves as a base for ship-from-store orders and local pickups within a zip code or designated region.

An micro-fulfillment center may be a purpose-built space with an existing facility, such as a retail store or a warehouse, within the location's existing footprint. Automated and robotic systems can be installed without expanding the facility, which can cut the cost of filling an order by about 75%. Giants like Amazon, Walmart, Nordstrom and others are investing in automated MFCs to fulfill online orders and replenish stores.

They can be sited inside an existing warehouse or fulfillment operation. You may find MFCs in existing stores, garages or parking lots, and basements for small companies. The "dark store" concept is based on converting idle retail space into an MFC.

Another model is the independent FMC operation. Warehouse providers create an MFC and lease space and/or provide services to multiple retailers. Warehouse Anywhere operates under this model, offering more than 900 storage facility locations in major metro markets. It's a unique offering in the REIT storage industry, and traditional fulfillment 3PLs are turning to Warehouse Anywhere to support their e-commerce customers with an MFC concept.

MFCs have found their niche as a rapid response for the small-to-medium-sized e-commerce shipper. A traditional warehouse is too large and rigid. Legacy fulfillment operators like 3PLs don't have the agility to handle specialized merchandise such as garments on hangers or other out-of-the-box packaging.

With an MFC retailers and online sellers transform the efficiency of their fulfillment process. An MFC makes it easier to meet Service Level Agreements for shipping cutoff times with delivery carriers. If a shipment requires last mile or white-glove delivery, costs are lower due to the lesser distance required. Shipping rates for parcel deliveries cost less because there are fewer zones involved.

When the pandemic shutdowns hit, retailers with separate fulfillment operations for e-commerce and store channels found they had inventory stocked in the wrong warehouse. As online shopping soared, e-commerce fulfillment struggled to find product, while the store replenishment channel was not set up for that level of e-commerce. A pop-up MFC could bridge the gap by adding e-commerce capability where the inventory was already located.

Developing a micro-fulfillment strategy gives retailers the power to scale quickly. Shippers of electronics, health and beauty products, fitness gear, supplements and accessories can ramp up to meet demand in dense metro market areas with flexible space in existing structures. For example, Warehouse Anywhere can stand up a micro-fulfillment center in as little as 30 days.

What is Micro Warehousing?

Micro-warehousing is a similar concept to micro-fulfillment in that it focuses on using space outside the traditional warehouse walls. It's about moving inventory closer to the customer for faster, more efficient fulfillment. Micro-warehouses take advantage of high-density space to reduce the footprint for greater efficiency and lower costs.

The success of micro-warehousing depends on the product mix that the retailer is stocking. Products such as food and beverage or pharmaceuticals that must be kept in a climate-controlled environment add to the complexity. High-value or customized products may not work as well either, because the inventory carrying costs may be too high to be efficient. But common consumer goods in durable packaging or those that require minimal special handling, such as apparel, are good fits.

The strategy supports rapid fulfillment from store pick-up and home deliveries. It's well suited for densely populated metro areas where traffic delays, real estate and labor costs can be factors.

Fulfillment providers like Warehouse Anywhere offer flexible micro-warehousing space in urban areas to get the product closer to the customer for a higher level of service.

Benefits Of Micro-Fulfillment Centers Vs. Traditional Fulfillment Centers

A recent survey from the National Retail Federation found that 42 percent of retailers said faster fulfillment of online orders was their top priority. That's a sign that traditional fulfillment centers can't keep up. Using MFCs provides the agility to meet that demand.

In as little as 3,000 square feet of space, an MFC can serve a cluster of stores and support e-commerce fulfillment with highly responsive customer service. It's less expensive to carve out space in an existing store rather than setting up a new location. The agility of a smaller MFC enables retailers to shift resources as the flow of e-commerce orders varies during uncertain times. The MFC can respond quickly to a shift in popular products and deploy inventory and resources accordingly. Retailers can scale up to support promotions or product launches and then scale down after the surge ends.

An MFC packs in a lot of inventory in a small space, holding more products per square foot. The MFC also moves inventory at a much faster pace. A traditional warehouse could see one or two turns per year on some items. An MFC could see eight to 10 inventory turns per year on some items. The goal is to stock fast-moving SKUs rather than carry every item the company offers.

Retailers saw demand spike for food items, paper products, and household cleaning items during the pandemic lockdowns. Demand for non-essential items like health and beauty fell. Retailers could re-allocate storage space for high-demand items. With FMCs serving a smaller area, retailers can build a database of consumer preferences to drive predictive technology to stock up on hot products. Retailers must manage the mix of products, with a limited assortment of most-purchased items available for fast fulfillment and a more extensive variety available in-store, or with slower delivery from a traditional fulfillment center.

Smaller space translates to lower leasing and operating costs, and forward-deployed inventory isn't stuck in traffic miles and miles away. These days, a sizeable centralized fulfillment center simply cannot get products to consumers fast enough. The MFC localizes the inventory from the massive DCs, reducing the distance to the customer to support both in-store pick-up and rapid home delivery.

Quality control and data management improve with a smaller warehouse. It's easier to ensure customers receive the right shipments to the correct addresses. Opening the box to find the wrong items can dampen consumers' enthusiasm for e-commerce.

For every $1 billion in sales, retailers use about 1.25 million square feet of warehouse space, according to real estate firm CBRE. MFCs require a significantly lower investment and commitment. Several MFCs can replace a huge automated distribution center at a much lower cost.

However, an MFC may not be the best answer in every situation. Depending on the store category, product mix, and population and customer density, an MFC in a particular region may not support an MFC due to lower order frequency and demand for fast fulfillment.

What is the Difference Between Fulfillment and Distribution?

Fulfillment and distribution are two distinct but related segments in the supply chain.

Distribution is positioned higher on the chain and deals with the movement of goods at the pallet, unit, or case level. For imports, distribution covers the move from the port to a distribution center, and perhaps to a smaller regional warehouse. Distribution positions products to be fulfilled. Appliances are an example of a multi-step network as they move from importer/manufacturer to distributor to dealer.

Fulfillment deals with moving eaches or individual items to the end-user. Product moves through distribution to the point of fulfillment, whether it's via e-commerce or an in-store purchase. For appliances, the local dealer fulfills delivery to the customer. For consumer goods, fulfillment happens at the store shelf, curbside pick-up, or home delivery via a parcel carrier.

Warehouse Anywhere Solutions

Warehouse Anywhere has bolstered its e-commerce solutions through a partnership with Deliverr, a leading technology-enabled fulfillment organization. Warehouse Anywhere provides fulfillment services to sellers who use Deliverr to manage their marketplace on Walmart.com and other marketplaces. Deliverr helps customers offer free two-day delivery and other competitive shipping options. Using a location even just a few hours close to major markets can save time and expenses, speeding up the delivery time.

Warehouse Anywhere has opened a micro-fulfillment center in Las Vegas, and additional sites are under development for Chicago and Atlanta. These centers specialize in picking operations for rapid-turn merchandise. At the 7,000-square-foot facility in Las Vegas, pallets are delivered for unit picking to support fulfillment orders. The Las Vegas region is within one day's drive to more than 40 million consumers and five major U.S. ports serving the Pacific Rim, including the largest US seaport in Los Angeles. It's within a two-day delivery for nearly every state west of the Mississippi River. The Chicago and Atlanta locations offer similar services in densely populated metro areas.

The Warehouse Anywhere technology platform used in these MFCs offers seamless integration with major online shopping platforms, including:

  • Shopify
  • BigCommerce
  • WooCommerce

Warehouse Anywhere offers dedicated space in co-located facilities, so retailers have the most efficient option to scale based on their growth. E-commerce companies can be nimble and competitive with a faster speed of delivery to their customer. Technology and consumer goods companies partner with Warehouse Anywhere for micro-fulfillment, enabling same-day and next-day delivery in key markets.

In a sense, Warehouse Anywhere offers micro-fulfillment on a subscription model, where sellers access the space and services they need without capital expenses. The seller can scale their fulfillment in response to variable consumer demands.

Merchandise returns are part of the e-commerce equation, and Warehouse Anywhere supports reverse logistics operations. Depending on the merchandise, it can be reshelved or refurbished to return it to a sellable condition. For example, Warehouse Anywhere houses a fulfillment center for Warby Parker, an online optic wear retailer. Customers order eyeglasses frames to try on and return those they don't want. The MFC serves outbound fulfillment as well as returning products.

With more than 900 locations, Warehouse Anywhere addresses the last-mile delivery challenge through a forward-deployed, decentralized model combining self-storage asset management with proprietary inventory tracking technology.

For retailers and e-commerce sellers, an MFC strategy serves growth in key strategic markets to support one-day or next-day delivery cost-effectively. Find out more about Warehouse Anywhere's solutions for e-commerce fulfillment for retail.

About the Author

Steve Syverson | Warehouse Anywhere

Steve Syverson

Steve Syverson is a critical inventory logistics expert who works with omni-channel retailers to optimize e-commerce fulfillment strategies across multiple platforms and marketplaces.

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