Just a few years ago, two-day delivery was considered a premium service when shopping online. However, with the rapid growth of e-commerce in recent years, many customers now expect same-day or within-an-hour delivery. Retailers that do not prioritize e-commerce are limiting their revenue and are also at risk of going out of business.
Micro-fulfillment centers or MFCs are still an emerging technology in the retail sector. However, they may soon become necessary to stay in business, as well as having an Internet connection. Retailers can fulfill online orders with manual labor as a temporary measure, but doing so is not sustainable when their online sales volume increases. Microfulfillment technology provides economies of scale, while the cost of manual labor increases sharply with sales volume.
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In this article, we will discuss 3 reasons why urban fulfillment centers may eventually become necessary in the retail sector.
1) Tracking customer demand
If many retailers sell online and their products are priced similarly, customers will likely prefer the supplier with faster delivery. Two-day delivery was a luxury just a few years ago, and some online retailers even charged more for the service. However, same-day delivery and one-hour delivery are becoming the industry standard for many product categories, and retailers that can't keep up will likely go out of business.
- To offer same-day delivery and one-hour delivery with manual pickup, retailers need a large staff and lots of storage space.
- Keeping track of stocks is also more difficult and slower with manual picking, and there may be cases where a customer orders a product that runs out minutes ago.
- This is a negative experience that hurts customer service.
Manual order picking also affects the shopping experience for customers who visit a store in person. They have to share aisles with employees rushing to pick up online orders, which can cause discomfort. In-store customers may also search for the same products as online customers, and this can cause conflict when there are only a few left. For example, an employee may need to choose the last available unit, just when a store customer wants to purchase it.
2) Converting order picking profits into losses
Some retailers that have recently entered the e-commerce space rely on manual labor to pick orders. This may work while online sales are low, but manual picking is not viable for retailers looking to expand their e-commerce business .
Several studies have found that retailers lose money on many online sales when they rely on manual labor, and there's a simple explanation for this. Collecting and delivering orders requires labor, which means there is an associated cost.
- When customers visit a store to buy products, they bear the costs of pickup and delivery. However, these expenses are passed on to the supplier when products are purchased online.
- Retailers can charge the cost of pickup and delivery, but they could lose the sale if they try to charge too much.
Retailers that invest in microfulfillment technology can process orders 10 times faster while reducing picking costs by around 60%. This provides a huge advantage and the only option for competitors is to implement their own MFCs – manual labor simply cannot compete.
3) Retailers can increase product assortment with microfulfillment centers
Because a microfulfillment center uses space more efficiently, it can manage large inventories and a greater variety of products. Furthermore, the fast picking speed allows large inventory to be handled without affecting delivery time. For example, Ahold Delhaize is deploying an MFC that will complete 15,000 orders per week in Philadelphia.
Retailers who rely on manual labor need a lot of space and a larger staff if they want to expand their product selection. This is not feasible in urban locations, especially when land is expensive and local wages are high. A much better strategy is to equip existing stores with MFCs – the same space can hold more products and the same staff can fulfill more orders with the help of automation.
Conclusion
Microfulfillment centers are still relatively new, but they could follow the same path as other technologies that eventually became popular. For example, a fast Internet connection may have been a luxury two decades ago, but now it has become a requirement for doing business. Online retailers without MFC Technology will not be able to match the speed and cost of those using them, leaving them with two options – deploy their own MFCs or go out of business. Your blog post content here…
