Micro-fulfillment, as a solution for automating online grocery fulfillment and fulfillment of other retail products closer to customers, is growing in popularity among retailers. Amazon, Walmart, H-E-B, Ahold Delhaize and FreshDirect are just a few of the retailers that have embraced the use of micro-fulfillment technology.
However, for every retailer that has made the decision to enter into an agreement with a micro-fulfillment company to install its technology, there are dozens of retailers still stuck on answering the questions: How do we choose the right solution? How do we know what’s best for us?
A mistake that I continue to see made by certain retailers is that they select a micro-fulfillment solution without first having a micro-fulfillment strategy. Bad idea.
I have personally provided consulting to several retailers that selected and installed micro-fulfillment solutions only to discover that no value of any kind was derived in doing so. I was contracted to assess the current state of their operations and identify the optimal future-state strategy, and in each case, the failure on the part of the retailers to identify the optimal strategy created a situation whereby the micro-fulfillment technology provided no value. The situation could have easily been avoided by following an effective methodology and by working with a consulting company.
Precision Distribution Consulting (PDC) is one of the few consulting firms skilled in analyzing the value of micro-fulfillment solutions to a retailer and then identifying the optimal strategy for introducing micro-fulfillment solutions into the retailer’s ecosystem of stores. Kearney, Capgemini, Accenture and Deloitte also provide consulting services related to micro-fulfillment, as do McKinsey, The Boston Consulting Group and Bain & Company. (I do not have business relationships with these companies, but I am a former consultant for Capgemini and Deloitte).
The methodologies utilized by these consulting companies vary, but some critical elements include:
• Assessing each micro-fulfillment solution and selecting the best solution based on the requirements of the retailer.
• Building a current-state supply chain and logistics network model.
• Conducting scenario analysis to evaluate the impact of introducing micro-fulfillment technology into the retail network.
• Assessing changes required to manage inventory replenishment to each micro-fulfillment solution.
• Performing a “what if?” analysis to identify the total number of micro-fulfillment centers and automated dark stores a retailer should install within its retail ecosystem.
• Identifying the optimal future-state supply chain model to maximize the value of each micro-fulfillment center within the network.
• Building a business case outlining savings across labor and increased productivity to justify the investment in micro-fulfillment.
As a consultant, I’ve found determining the optimal strategy is the first step in every project that I lead. However, COVID-19, the growth of Amazon, changing consumer behavior away from stores to e-commerce and increased retail bankruptcies has resulted in many retail executives wanting to move fast into micro-fulfillment. I disagree with such an approach.
When confronted with an executive pushing to select and install a micro-fulfillment solution without first understanding the optimal strategy, I remind them of the exchange between Alice and the Cheshire Cat from Alice in Wonderland:
“Would you tell me, please, which way I ought to go from here?” asked Alice.
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where,” said Alice.
“Then it doesn’t matter which way you go,” said the Cat.
“… so long as I get somewhere,” Alice added.
“Oh, you’re sure to do that,” said the Cat. “If you only walk long enough.”
Without a strategy, retailers have movement within their supply chains and operations but nothing more. Many people are in motion installing the selected micro-fulfillment solution, but the movement gets them nowhere, and the micro-fulfillment solution adds no value.
Selecting The Optimal Micro-Fulfillment Solution
Once a retailer has identified the optimal micro-fulfillment strategy to meet its needs, the next step in the process is evaluating the different micro-fulfillment solutions available on the market.
The company I work for, PULSE Integration, has a business relationship with the micro-fulfillment company AutoStore. However, the purpose of this section isn’t to discuss AutoStore; it is to provide an overview of the leading micro-fulfillment solutions on the market and the key questions to consider during the selection process.
Whenever a retailer enters into an agreement with any micro-fulfillment company, the entire micro-fulfillment industry wins. I believe José Vicente Aguerrevere, Max Pedró and Rafael Pieretti V, founders of the company Takeoff, deserve credit for creating the modern-day micro-fulfillment industry. Other leading micro-fulfillment companies include Alert Innovation, Attabotics, Exotec, Dematic, Fabric and Tompkins Robotics.
Innovation is becoming increasingly important in the micro-fulfillment industry. For example, Takeoff is transitioning from a micro-fulfillment company to a software company capable of licensing its technology platform to retailers and micro-fulfillment companies to run all front-end and back-end operations related to online grocery ordering, fulfillment and operations.
At a high level, micro-fulfillment solutions are designed to do one thing: automate the process of fulfilling online grocery and e-commerce orders. Micro-fulfillment solutions are either shuttle-based or cube-based. There are positives and negatives of each.
A micro-fulfillment center can be installed inside every store to fulfill the curbside and online orders for a single store only. Micro-fulfillment centers can also be installed inside select store locations to fulfill curbside and online orders for many stores — a hub-and-spoke model. Again, there are pros and cons of each.
Retailers must first identify which model they prefer because that will determine the number of micro-fulfillment centers required to meet the demand for groceries from their customers. The model determines the strategy. My advice to all retailers is to assign someone from within their company who is experienced in micro-fulfillment to fairly evaluate all micro-fulfillment options or to partner with a third party that can lead the process.
There is no one-size-fits-all approach when selecting a micro-fulfillment solution.