A microfulfillment center or MFC improves the last two steps of an online sale: product selection and last-mile delivery. Due to the rapid growth of e-commerce in recent years, especially in 2020, there is now greater demand for warehousing and delivery services. However, these services also face pressure to become faster. With a suitable location and professional engineering services, an MFC can now achieve a payback period of 2 to 3 years .
According to Honeywell Inteligrado , a leading provider of automated material handling solutions, there are 6 trends that will continue to create demand for MFC services in the near future. In general, urban populations are growing while access to land becomes more limited, and retailers must now deliver a wide selection of products as quickly as possible – often within an hour. In this article, we will discuss these key trends.
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New York Engineers is currently offering MEP Design Services for the first urban fulfillment center on Long Island , which will fulfill orders from New York to the Hamptons in less than two hours. The facility was previously a department store and will be repurposed for e-commerce.
1) Customers want faster delivery
According to research by Invesp , a consultancy specializing in conversion rate optimization, 56% of online customers between the ages of 18 and 34 expect their orders to be delivered on the same day. This is not viable with conventional distribution that serves large regions, and bringing products closer to the customer has become a promising strategy.
In the same survey, 49% of shoppers said they are more likely to buy online when same-day delivery is offered. In other words, the service offers a marketing advantage to the companies that offer it. For example, if the same product is sold by two retailers for the same price, the customer is likely to choose the one that offers faster delivery.
The survey also found that 80% of shoppers want same-day delivery and 61% expect their packages to be delivered in less than three hours. 25% of shoppers will abandon their shopping cart if same-day delivery is not available and 61% are willing to pay more for the service.
2) Increased urbanization
According to the World Economic Forum , 56.2% of the world's population now lives in cities. The United Nations predicts that 68% of human beings will live in urban areas by 2050, representing a population growth of more than 2.5 billion.
55% of the world's population lives in urban areas, according to the United Nations , and this number could reach 68% by 2050, according to its projections. The urban population is expected to increase by 2.5 billion and 90% of the growth will occur in Africa and Asia.
Regional distribution centers in urban locations simply cannot fulfill orders quickly enough, especially as cities become more populated. This creates an excellent opportunity for MFCs, which can be deployed in less than 10,000 sf.
3) Lack of warehouse space in urban areas
Finding a suitable location for a 200,000 m² distribution center is unlikely in a large city like New York. The owner would probably have to buy a property with existing buildings and demolish them to free up space, which is impractical and financially unfeasible. On the other hand, an MFC can operate on a city corner and there are even small store systems that need less than 2,000 sf.
According to the IMF, commercial properties had historic vacancy rates in 2020 , and retail was one of the most affected sectors. Instead of demolishing old buildings and starting new construction, developers can simply repurpose vacant properties in their portfolio.
4) Product variety is increasing
An MFC allows for faster pickup and delivery, but those aren't the only benefits. With so many companies implementing virtual stores, the variety of products that can be purchased online has increased significantly. In the case of supermarkets, this includes refrigerated products that must be delivered as quickly as possible.
This concept is called SKU proliferation in the 3PL industry, and manual order picking becomes less viable as production variety increases. A retailer may have no problem manually managing a selection of 100 products, but technology becomes necessary if there are thousands of SKUs involved.
5) Workforce Management Challenges
The order fulfillment speed required by e-commerce is beginning to exceed human capacity, especially when a customer demands same-day or even 1-hour service. An order that requires several minutes to select manually can be ready in seconds when warehouse automation is used.
A study by DC Velocity found that distribution centers have a typical turnover of 25-100%. According to Curt Barry founder of supply chain consulting firm F. Curtis Barry & Company, the cost of invoicing can range from $3,000 to $10,000 per employee. Micro-fulfillment technology can make retailers much less dependent on manual labor, reducing the impact of turnover on their operations.
6) In-store service is expensive and inefficient
Many retailers have turned to in-store fulfillment, where employees simply pick products from shelves in a conventional store. This approach works for small order volumes, but becomes impractical as online sales grow.
- For example, there may be a product that only has one unit left and can be purchased by a customer in-store precisely when someone else has purchased it online.
- Additionally, having too many order pickers in the aisles can be frustrating for store customers.
According to Fabric , a leading provider of MFC technology, grocery chains lose between $5 and $15 for each manually selected order. Grocery stores have a typical after-tax profit of just 1%, and these losses can have a big impact on their operations.
E-commerce can reduce profit margins as retailers assume the cost of two steps that were previously performed by the customer – collection and last-mile delivery. These are exactly the two steps optimized with an MFC.
Conclusion
The retail sector is going digital, customers expect faster deliveries and the variety of products sold online has increased. Manual collection cannot keep up with this pace and conventional distribution centers serving large regions cannot offer same-day delivery to everyone. Unfortunately, the installation of conventional distribution centers within cities is not viable, due to the need for space and the high price of land.
Microfulfillment centers can bring products closer to the customer while picking orders about 10 times faster using automation. Because robots are small and fast, products can be stacked closer together and on higher shelves.
