Microfulfillment centers or MFCs can help retailers increase their online sales while keeping costs low. COVID-19 lockdowns have forced many stores to remain closed, which has caused e-commerce to surge – 44% in the US alone, according to Digital Commerce 360 . Some retailers rely on manual picking to fulfill online orders, but this is labor-intensive and expensive. For this reason, many major retailers are betting on automated MFCs .
When retailers use micro-fulfillment technology, three of their main operating costs are reduced:
- Automation is more efficient than manual work, which reduces order picking costs.
- Because MFCs are compact, they can be built closer to customers to shorten the last mile.
- Real estate costs are also reduced since MFCs can be deployed in less than 10,000 sf.
Online retailers who rely on manual labor and conventional distribution centers are at a competitive disadvantage as they cannot match the speed and cost of MFCs. A Research and Markets study found that MFCs could become a $10 billion industry by 2026, and the US could have one operating MFC for every 10 supermarkets.
Get a professional MEP design for your urban fulfillment center.
1) Micro-Fulfillment Centers Reduce Your Order Picking Costs
Automation and artificial intelligence are key elements of a microfulfillment center. Chain analysis compared the cost of fulfilling orders with and without MFC technology, finding that manual fulfillment costs $10-15 per order, while an MFC costs $3-6 per order. In other words, retailers can achieve savings of 40-80% with micro-fulfillment technology.
- E-commerce has become more challenging for retailers as customers now expect fast delivery at a low cost.
- Just a few years ago, two-day delivery was a premium service that customers were willing to pay for. However, shoppers now expect same-day or even one-hour delivery as standard service.
Many retailers have simply expanded their staff to process online orders manually, but human labor cannot compete with picking robots . Some retailers are actually losing money on online orders as they are unable to fulfill them at a competitive cost.
2) Microfulfillment Centers Reduce Your Last Mile Delivery Costs
Building a distribution center near a residential area is rarely possible as it requires a lot of space. Land availability is also low in urban environments and the cost is high – many retailers locate their distribution centers in rural areas for these reasons. Unfortunately, this means that products must travel longer distances to reach customers and your delivery costs increase.
The smallest microfulfillment centers need less than 10,000 sf, which means they can operate in existing stores, or even obscure stores dedicated exclusively to online ordering. Retailers can install MFCs in the neighborhoods where their customers live, which shortens delivery distances and associated costs.
Urx Logistics has a microfulfillment system that fits in just 1,800 – 5,400 sf, meaning it can be easily deployed in existing stores. Online retailers can use compact store automation systems to place their products in close proximity to the customer, reducing last-mile costs.
3) Micro-Fulfillment Centers Reduce Your Real Estate Costs
The small size of MFCs also means that retailers can reduce their real estate costs. According to Loja Automobilistica , automated storage systems use space four times more efficiently, meaning rental costs can be reduced by around 75%. For example, a retailer that was planning a distribution center on 160,000 m2 can reduce the space to around 40,000 m2 with MFC technology.
According to James Lang LaSalle, a global real estate services company, construction costs can be estimated with “ 3-30-300 Rule ”. Typical annual costs for businesses are $3/sf in utilities, $30/sf in rent, and $300/sf in salaries. Applying this rule to the example above, the annual real estate cost drops from $4.8 million to $1.2 million. While this is just a rough estimate, it gives an idea of how much MFCs can save on real estate.
Online retailers can further reduce their real estate costs by repurposing empty buildings . Many commercial spaces are now empty as a result of the COVID-19 pandemic, and retailers can install MFCs in locations with suitable layouts.
Conclusion
E-commerce represents a business opportunity for retailers, but it also brings challenges. Customers want fast, low-cost deliveries, and retailers that can't keep up are likely to go out of business. Manual order picking is expensive and inefficient, and conventional distribution centers must be located far from customers due to their size.
Microfulfillment centers can help online retailers meet the challenges of modern e-commerce. Automation reduces order preparation costs and the small size of MFCs allows for urban installations while reducing real estate costs.
