Surging e-commerce sales appear to be accelerating demand for logistics automation as retailers adjust their business models to adapt to changing economic conditions and consumer behavior. One of the industries that has been most impacted by recent changes is the grocery industry, which has witnessed a 43% increase in e-commerce grocery sales between March 2020 and 2021, according to Brick Meets Click data (via Grocery Dive). However, as the chief marketing officer of a company that offers micro-fulfillment technologies and services, I believe specialty retailers, department stores, warehouse clubs and big-box retailers can all benefit from the use of micro-fulfillment.
Prior to 2020, retailers would often adjust to increased demand for online groceries by hiring more people to fulfill and deliver online orders, or contracting with a third-party fulfillment company like Shipt or Instacart.
Recently, however, a small number of grocery retailers began to experiment with a new technology designed to automate grocery fulfillment.
Micro-fulfillment centers, or MFCs, contain robotic systems from companies like AutoStore, Attabotics or Alert Innovation. Retailers can install MFCs inside a grocery store, beside a grocery store in a separate building or inside a “dark store” where inventory and products are staged but customers are not allowed to enter.
I believe MFCs are quickly becoming the next big thing in retail, and Research and Markets projects that they will amount to a $10 billion opportunity by 2026.
2021 has seen an explosion in popularity for MFCs: H.E.B., Ahold Delhaize, Kroger, Walmart, Albertsons and many other grocery retailers are installing or assessing the use of MFCs within their grocery ecosystems. Third-party online fulfillment company Instacart is exploring the use of MFCs to fulfill orders for their grocery customers.
I believe the growth of MFCs will have a significant impact on the grocery industry. However, not all grocery retailers have the desire or capabilities to purchase and install their own micro-fulfillment centers. This has created the opportunity for a new business within the grocery industry to meet the needs of retailers seeking an outsourced solution for micro-fulfillment.
Service Or Solution: What’s Best?
As micro-fulfillment grows in popularity, so too could the desire on the part of grocery retailers to find a way to outsource micro-fulfillment. Several companies offer outsourced micro-fulfillment services, but I’m not convinced that outsourcing micro-fulfillment makes sense strategically or financially based on my research.
For example, robotics companies are great at manufacturing robots but may lack experience running operations for companies across different industries. I can’t stress this point enough — just because a company manufactures micro-fulfillment technology doesn’t mean that it’s an expert at outsourcing, logistics, inventory optimization, transportation, operations or last-mile delivery. Based on my experience, third-party logistics companies that leverage MFCs as part of their logistics and supply chain solutions are often the most qualified for managing outsourced micro-fulfillment requirements.
Typically, outsourced micro-fulfillment providers utilize MFCs to fulfill online orders for multiple customers at the lowest costs. I disagree with the business model for one simple reason: Micro-fulfillment centers aren’t always enough.
My experience in micro-fulfillment led me to design what I refer to as Micro-fulfillment as a Solution, or MaaS. I originally referred to MaaS as Micro-fulfillment as a Service, but upon reflection, I concluded that grocery retailers and the retail industry need a solution for their fulfillment requirements more than they need a company that only provides a service to fulfill online orders.
I do not market MaaS. I created the concept of MaaS to improve the micro-fulfillment industry. Everyone is free to leverage the information contained in this article to their benefit.
MaaS is a solution whereby multiple technologies are combined to provide an end-to-end solution for shifting from manual, in-store fulfillment of online grocery orders to utilizing automation to efficiently meet customer demand at lower costs and faster speeds. Among the technologies and strategies a company can consider utilizing are:
- Supply chain network optimization and consulting to identify the optimal number of MFCs required to cost-effectively meet customer demand while achieving the necessary service level for each customer.
- Autonomous mobile robots (AMRs) to streamline material handling and minimize the need for human intervention.
- Automated guided vehicles (AGV) to improve efficiency in manufacturing and warehousing.
- Teleoperated delivery vehicles that can deliver groceries to customers within three miles of an MFC.
- Last-mile delivery software to orchestrate, optimize, route and schedule deliveries.
- Logistics software to optimize and replenish inventory to the MFC.
- Lean Manufacturing and Six Sigma to help eliminate waste in the processes required to fulfill and stage online and curbside pickup orders.
I believe a solution-based approach to fulfilling online grocery can reduce cost and complexity; increase speed of deliveries; and accelerate the process for opening more MFCs to support regional or nationwide fulfillment requirements for grocery retailers.
Retailers can evaluate their operations by contracting a logistics consulting firm or a third-party logistics company. Make sure any company you’re considering has experience in MaaS, micro-fulfillment technology, operations and optimizing logistics. Ask about each one’s process for conducting a thorough review of your retail business and operations to determine if MaaS is right for your needs.
Introducing MaaS requires making changes across many aspects of a retailer’s business, including inventory replenishment, transportation and last-mile delivery, so you should anticipate and address those changes before adopting MaaS.
Interestingly, as an example, an analysis may determine that a retailer should leverage MaaS in specific regions of the U.S. and introduce company-owned micro-fulfillment centers or larger customer fulfillment centers capable of fulfilling thousands of orders weekly in other regions. Situations like these are why it’s important to analyze the needs of the business and identify the optimal strategy versus making decisions based on gut feelings.
I believe e-commerce will continue to grow further, which could strain retail business models and supply chains. Based on my experience, MaaS is an option worth considering.