The dramatic growth of the e-commerce sector over the past few years has created a new standard for delivery speed. Online grocery retailers are under pressure to put their products in their customers’ hands as quickly as possible while simultaneously meeting massive increases in demand.
An effective solution to both of those challenges is micro-fulfillment, a strategy that places small-scale warehouse facilities in densely populated urban or suburban locations. By shortening the physical distance between products and consumers, micro-fulfillment enables businesses to significantly reduce last-mile delivery time and deliver orders to local addresses in a matter of hours.
However, these are far from the only benefits of micro-fulfillment. Here are four more ways micro-fulfillment can help online grocery retailers stay competitive and maximize convenience.
Localized data-driven inventory
It’s important to note that micro-fulfillment centers (MFCs) typically carry just enough inventory to fulfill a few days’ worth of orders. Why do MFCs hold so little inventory? It’s not just because of their smaller size.
Unlike traditional warehouse facilities, MFCs only carry inventory that has been specifically curated for the local market. Thanks to inventory management software and customer analytics, retailers can determine which items are purchased most often by customers within the MFCs region. In addition to ensuring availability for popular items, this capability essentially eliminates the costly outcomes of wasted storage space and stagnant inventory.
The aforementioned tools can also forecast fluctuations in demand and place orders for replenishment based on an item’s current performance. These functions play a crucial role in an MFC’s capacities to adapt to seasonal trends and consistently re-stock itself in scheduled intervals.
Minimal human labor
Another major difference between MFCs and traditional warehouse facilities is that MFCs only carry high-turnover items that can easily be prepared for shipping. In other words, these items don’t require additional operations such as assembly or production. This minimizes the need for manual labor and manually-operated equipment. Instead, many MFCs rely on advanced robotics and automated storage and retrieval systems to pick items from shelves and prepare orders for delivery.
The reduced need for human labor at MFCs carries a host of advantages, beginning with a tremendously streamlined operational system. An item that would take a human several minutes to retrieve could likely be retrieved by a picking robot within seconds. Robots also don’t need to take breaks. They can also maintain their speed even when dealing with items that are stacked very high or are situated closely together. And since MFCs don’t depend as much on human beings for dangerous tasks, there’s far less risk of injury or human error.
Reduced operational expenses
Compared to traditional facilities, MFCs are considerably cheaper to set up and maintain. Their size allows retailers to avoid the considerable expense of leasing large spaces in urban or suburban settings. Shipping costs are also much lower during the last mile of delivery, which normally accounts for 53% of the total cost of shipping.
The automation technology of MFCs also decreases fulfillment costs from $10-15 per order to approximately $3-6 per order. The opportunities for savings in this area are vast to say the least: Think of the amount of indoor lighting a human being needs to quickly retrieve items. Meanwhile, picking robots can retrieve items with little or no lighting and require much less electricity than conventional warehouse equipment.
While establishing an MFC does come with its own costs, these expenses will quickly be offset by the ability to fulfill more orders at a faster rate. Combine this boost in operational efficiency with an MFC’s rapid inventory turnover, and you’ve got a sensible solution to the notoriously thin profit margins of the grocery retail industry.
Improved energy efficiency and sustainability
Faster delivery times are not the only way MFCs can strengthen your relationship with your customers. Recent data shows that sustainability is becoming an increasingly important factor in consumer purchasing decisions. Between their small size and minimal use of gasoline and electricity, MFCs represent a huge step towards a more environmentally-friendly business model. The proximity of MFCs to their customers also decreases reliance on further distribution centers, which stands to reduce traffic congestion in dense areas.
As the online grocery space becomes more competitive, you can expect more retailers to put more effort towards building customer loyalty. Younger city dwellers tend to have a soft spot for businesses that contribute to a greener future for their local communities.
The future of supply chain
The rising popularity of MFCs is a natural outcome of the rising value of last-mile delivery time. Speed is the name of the game for online retailers, and MFCs hold the key to leveling the playing field for businesses of all sizes. The foundation of MFCs also creates a foreseeable path for growth: The faster you can fulfill an order, the more sales you can ultimately make.
In a world that demands more convenience, efficiency and sustainability, micro-fulfillment proves that customer satisfaction is still well within reach.
