Micro-Fulfillment Centers: Transforming the eCommerce Fulfillment Process

  • By Navya Deepika Battu

Micro-Fulfillment Centers: Transforming the eCommerce Fulfillment Process

The pandemic led to a mass digitalization of various industries across the globe, and eCommerce was one of them. During this time, buying online has become the norm. People became more comfortable ordering everything right to their doorsteps, from food to medicines to groceries.

To cater to the changing needs of consumers, companies had to come up with various strategies. Micro-fulfillment is one such strategy that entrepreneurs have pulled out of their business arsenal. This blog post will take a deeper look into micro-fulfillment centers.

We think our job is to take responsibility for the complete user experience. And if it’s not up to par, it’s our fault, plain and simple.

- Steve Jobs

What Are Micro-Fulfillment Centers & How Do They Work?

Micro-fulfillment, in a nutshell, is the concept of setting up a network of highly-automated fulfillment centers in densely populated areas. These micro-fulfillment centers (MFCs) are mini-warehouses where the company keeps small amounts of the inventory for shorter durations.

The core motives here are to shorten the delivery times—which is now the expectation of every e-shopper—and reduce transportation costs. Ideally, MFCs are fully automated and use various software, including WMS and point of sales (POS) systems. These increase efficiency and streamline the fulfillment process.

On top of delivering products to customers' doorstep, MFCs function as pick-up locations for retail stores as well. If your company offers buy-online-pickup-in-store (BOPIS), your customer can collect the product at the MFC. In every possible way, MFCs reduce costs and improve customer experience.

Why Have Micro-Fulfillment Centers Become Popular?

Initially, purchasing online was limited to goods like clothes, electronics, and other non-perishables. However, post-pandemic this has changed. People got accustomed to ordering everything online, even perishable goods. This automatically led to shorter delivery times.

This shift in customer expectations and buying behavior led eCommerce giants like Amazon and eBay to offer 2-day delivery and same-day delivery. Companies are taking it a step further by striving to deliver within hours of order placement. All of these circumstances led to a surge in micro-fulfillment centers.

Micro-fulfillment has become an indispensable tool for businesses to serve the changing demands of their customers.

Benefits of Micro-Fulfillment Centers

The obvious benefits of setting up micro-fulfillment centers are reduced delivery times and operational costs, but there are several other nuanced ones. We discuss some of them below:

1. Stock Optimization

Micro-fulfillment centers allow you to tailor your inventory as per the location. You can analyze the customer buying patterns, local demand, and several other factors to get the most out of your MFCs resources. By optimizing your MFC, you can aptly cater to the needs of the local customers.

2. Shortened Last Mile

As MFCs are AI-driven and highly automated, order processing is almost instantaneous. In a fully automated MFC, order picking and packing are done by robots without any intervention from humans. This allows you to send out the products briefly after the order placement.

The headstart from automated order processing will help speed up the order fulfillment and significantly cut down customer wait times. This is how same-day deliveries are possible.

3. Improved customer experience

When consumers can get their hands on the products hours after their order placement, it’s not a stretch to say they’re happy. As micro-fulfillment centers are now close to your customers, you can process returns, refunds, and exchanges quickly.

Apart from doorstep delivery, you can also offer curbside delivery and store pickup. This will allow customers to save on shipping costs and enhance their entire buying experience, helping you gain repeat customers.

4. Prospect to Level Up With Competitors

The eCommerce industry is highly competitive, and most of the market share is occupied by big companies like Amazon, eBay, Alibaba, etc. These companies have more resources at their disposal to entice the customer and provide better services. MFCs make it possible for SMEs to compete with these giants.

By setting up MFCs you can capture the local markets and attune your products and delivery methods as per their preference. One of the things an increasing number of buyers are opting for is sustainable packaging, and MFCs allow you to meet this demand.

MFCs allow you to replace excessive packaging materials with reusable totes and crates, reducing waste. As the customers are closer to MFCs, you would also considerably lower emissions during delivery. These changes can help you to get more traction.

5. Better Return On Investment

Micro-fulfillment centers are not, in any way, cheaper to set up, but that upfront investment justifies the benefits they reap. With a traditional warehouse fulfillment, faster deliveries are expensive, but with MFCs, you can drastically reduce the shipping and delivery costs.

Moreover, when you are offering faster deliveries such as same-day delivery and next-day delivery, customers are more likely to pay a convenience fee. On top of that, maintaining a huge warehouse is more expensive than small fulfillment centers.

To summarize, MFCs help you reduce operational and delivery costs, gain repeat customers, and give you a chance to stand against eCommerce giants.

Factors to Consider Before Setting Up MFCs

If you plan to set up a network of micro-fulfillment centers for your business, you need to consider the below factors to optimize the benefits:

  • Selection: You can set up MFCs anywhere as they don't need to be huge but picking the right location is key. Ideally, your MFC should be closer to highways and loading docks and suitable for inventory and autonomous systems.
  • Inventory needs: As the space in an MFC is limited, you will need to strategically plan to avoid overstocking and understocking of the inventory.
  • Labor costs: Even though you plan on fully automating your warehouse there will be places where human effort is necessary. So you must go over the labor costs and policies of the location you chose.
  • Storage of special goods: Perishables like dairy, groceries, and medicines need to be stored at specific temperatures. If you don't own the right equipment, you will end up with damaged products and lost sales. It’s crucial to assess the storage requirement of these products and install equipment as per needed.
  • Software Integration: Software systems are an essential part of MFCs to automate several processes. Automation drastically reduces the fulfillment time and eliminates human error. It’s important to research which software would better suit your requirements. Some commonly used software systems are WMS, POS, OMS, EPS, etc.

Micro-Fulfillment Centers Shortening the Last Mile

Micro-fulfilment, a very recent yet promising business strategy, has transformed how people shop online. The time between consumer’s order placement and delivery is constantly shrinking, making e-buying more and more convenient. Seeing the shift MFCs have created in the past couple of years, it’s not a bad idea to hop on this trend to expedite your profitability.