2022 has been a challenging year for many retailers. Issues such as supply chain disruptions that have delayed shipments of inventory are preventing retailers from setting their stores up with the products customers want most. Many retailers are facing a situation of having too much of the wrong inventory (paywall). Even large retailers like Walmart and Target are reportedly struggling with too much of the wrong inventory. Target reported that its inventory increased 43% in the last quarter.
Arguably, one of the retailers that has been impacted the most in 2022 is Amazon. According to the Wall Street Journal (paywall), Amazon acquired a lot of space at warehouses and distribution centers but is now subleasing some of that space after reporting slow growth in April. Now, there are signs that the “Next Big Thing” at Amazon may be automated micro-fulfillment centers. For example, Amazon Robotics has begun advertising for specialists to lead the development of Amazon’s next-generation micro-fulfillment solutions. By serving customers “at the point of need,” as some job descriptions explain, Amazon will likely be able to fulfill orders quickly and with precision.
Micro-fulfillment is a strategy that places small-scale warehouse facilities in densely populated urban locations closer to the consumer to improve delivery times.
In my opinion, micro-fulfillment is the best way for brands to bypass the use of retail stores or expensive fulfillment services by shipping their inventory direct to micro-fulfillment centers located in cities across the U.S. Then they can pick, pack and ship orders within minutes or hours depending on the service-level commitment they made to the customer.
But I believe micro-fulfillment isn’t just the next big thing for Amazon; it’s also the next big thing for retail.
The Micro-Fulfillment Renaissance
I am considered a leading expert on the topics of supply chain management, logistics, e-commerce and micro-fulfillment. In 2013, I designed one of the first automated micro-fulfillment centers (MFC) for use inside a retail store. A micro-fulfillment center (or MFC) is a small, sometimes highly automated fulfillment center that can fulfill e-commerce orders as well as local store pickups.
MFCs may be located in an existing store or warehouse or a dedicated small distribution or warehouse space. MFCs can also be opened inside retail stores. Walmart is opening automated MFCs from the company Alert Innovation inside select Walmart stores.
One well-known micro-fulfillment company is Davinci Micro Fulfillment. Davinci already has active automated micro-fulfillment projects underway, including two Addverb micro-fulfillment systems that will be in Davinci warehouses in Erlanger, Kentucky, and Fresno, California. Two Brightpick micro-fulfillment systems are also being installed at Davinci warehouses in Bound Brook, New Jersey, and Jacksonville, Florida.
Interact Analysis estimates that 7,300 or more automated MFCs will be installed by 2030. Automated MFCs could be one of the fastest-growing segments of logistics.
What Should Brands And Retailers Do?
In my experience, the biggest challenge brands and retailers face is that the use of MFCs is still relatively limited in the U.S. It can also take several years for companies to introduce automated MFCs.
I’ve stated many times in the past that micro-fulfillment isn’t just equipment and software that is installed inside warehouses; micro-fulfillment is a strategy that brands can leverage to create a competitive advantage. The challenge brands face is knowing what to do first. For example, are all logistics companies the same? No, they’re not.
Brands need to thoroughly analyze their business and customers and identify the optimal fulfillment strategy. Brands can also contract consultants to help them with the analysis if necessary.
Among the questions they should answer are:
- Where is the best place to forward and deploy inventory across the United States?
- Should we offer customers same-day delivery?
- What products should we fulfill from micro-fulfillment centers?
- What is our long-term strategy?
- Should we fulfill some of the products we sell ourselves, or should we outsource all fulfillment?
- Should we only sell direct to customers, or should we also partner with retailers?
Once a brand has established its strategy, it must carefully and thoroughly evaluate the capabilities of logistics companies that offer micro-fulfillment. A word of caution to brands: Many logistics companies claim to offer micro-fulfillment but operate their facilities manually. Manually-operated MFCs may have higher operating costs, be operationally complex and need large numbers of warehouse workers to pick and fulfill orders.
I recommend that brands do business with logistics companies that operate automated MFCs due to their low operating costs, reduced need for labor, fast picking speeds and speed of deliveries to customers.
Brands should also insist on only doing business with logistics companies that utilize best-in-class software that can provide front-end merchandising to present products on e-commerce platforms and allocate inventory across MFCs nationwide. Properly allocated inventory helps ensure that brands can meet customer demand for their products on a daily basis.
In addition to brands, micro-fulfillment is a valuable strategy for retailers to leverage. Instead of contracting third parties to pick and fulfill orders manually, retailers can install micro-fulfillment centers inside their stores to automate online order fulfillment. Operating MFCs inside retail stores is a concept I support.
My advice to retailers interested in learning more about micro-fulfillment is to contact retailers that are currently operating or installing MFCs inside their stores, in buildings attached to their stores, or in stand-alone locations and ask them to provide an overview of the costs, savings and performance they’ve achieved by installing MFCs.