We have said it before, and we will say it again: commerce is changing. Fueled by the pandemic, ecommerce growth has skyrocketed, and so have consumer expectations. Thanks to the Amazon effect, consumers now expect orders delivered in as little as one day and with free shipping to boot.
In order to help brands and merchants meet these demands and better participate in the highly competitive ecommerce landscape, third-party logistics (3PL) warehouses must invest in new fulfillment operations strategies. One of these trending strategies is micro-fulfillment.
What Is Micro-Fulfillment?
Micro-fulfillment is a strategy using a small-scale storage facility in an urban, densely populated area to store inventory closer to the consumer to reduce shipping costs and transit times. Micro-fulfillment centers are typically no larger than 10,000 square feet (in contrast to typical fulfillment centers that are 300,000+ square feet) and focus more on the picking, packing, and shipping operations rather than long-term storage. Additionally, micro-fulfillment centers often utilize extensive levels of automation to streamline their processes.
Because of their small size, micro-fulfillment centers require almost constant inventory replenishment, which makes demand forecasting difficult for brands since stock can dwindle quickly depending on consumer behavior. As such, micro-fulfillment centers rarely solve a brand’s total logistics needs and are most useful as an additional node in the brand’s supply chain, which can complicate operations if a company or 3PL is used to operating with just one warehouse.
However, because their geography depends on consumer locations, micro-fulfillment centers offer significantly faster delivery times and heightened customer service. Plus, they are cheaper to set up than traditional fulfillment centers—especially in the current real estate market. In fact, many micro-fulfillment centers are located behind large retail locations or empty storefronts. This makes opening a micro-fulfillment center much more cost-effective than building new warehouse space, though there are purpose-built micro-fulfillment centers as well. For 3PLs looking to expand their business, investing in owning and/or operating micro-fulfillment centers could be a great opportunity to diversify their service offerings.
Micro-fulfillment was a major buzzword in 2021, largely in response to the boom in ecommerce. But like all things related to the global supply chain, the rollout of micro-fulfillment centers has been complicated. In March, Interact Analysis published a report that predicts that 7,300 automated micro-fulfillment centers will be installed globally by 2030. Although this figure sounds impressive, this new estimate is lower than previous predictions since demand for micro-fulfillment by brands has fallen.
Why the slip in demand? Many brands find it hard to calculate return on investment (ROI) for installing automated micro-fulfillment centers at their existing brick-and-mortar storefronts. But 3PLs—which already specialize in logistics and fulfillment—may not have the same hurdles justifying ROI for expanding their operations to include micro-fulfillment and automation. Given the well-documented productivity gains from automation in the warehouse—which does not have to mean robotics—adopting automation technology is a no-brainer for 3PLs.
What Is Needed for Micro-Fulfillment?
Aside from the physical requirements of micro-fulfillment centers—a small-scale, urban warehousing facility—another thing is vitally important for micro-fulfillment: automation technology. As mentioned above, micro-fulfillment centers do not need physical automation in the form of robotics. Modern Materials Handling notes that return on investment (ROI) for automation in micro-fulfillment centers is directly linked to picking productivity; in many cases, manual picking can be just as effective and efficient as robotic picking.
On the other hand, digital automation is essential for micro-fulfillment. As with traditional fulfillment operations in a large warehouse, digital automation in the form of software—especially warehouse management systems (WMS) and order management systems (OMS)—make a huge difference in productivity in picking, packing, and shipping operations. For example, choosing a WMS that can pair with mobile barcode scanning technology significantly speeds up the fulfillment process. Orders are shipped and delivered even faster, helping warehouse customers compete with (or fulfill orders from) Amazon and Walmart, which have well-known two-day shipping memberships.
Why Consider Micro-Fulfillment?
Micro-fulfillment is a trend that was white-hot a year ago, and like most trends, its popularity has waned some over time. Businesses can be skeptical about investing in a new fulfillment strategy that hasn’t existed long enough to prove its value.
Even so, micro-fulfillment centers are still being touted as the “warehouse of the future” because of just how quickly they can both fulfill orders from ecommerce as well as replenish inventory at brick-and-mortar storefronts in urban areas. In many ways, expanding warehouse operations to include micro-fulfillment mirrors another trend in logistics that has proven itself fruitful over time: the 4PL network.
Both micro-fulfillment centers and 4PLs increase the number of nodes in a brand’s supply chain to fulfill orders closer to the end consumer, thereby increasing delivery speed—it's the same concept just executed on a smaller scale (literally).
If 4PLs are the wave of the future, micro-fulfillment may be, too.
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