Bill Catania, chief executive officer of OneRail, describes the need for, and benefits of, micro-fulfillment centers for ensuring efficient and reliable last-mile delivery.

As recently as five years ago, giant distribution centers were the primary source of products moving to retail stores and the consumer. Since, then, however, a combination of the COVID-19 pandemic and increasing customer expectations of rapid delivery had made that model of distribution untenable. The large facilities might be as far as 50 miles from the source of demand — “too far from the consumer,” says Catania. Now, with requirements for delivery within a day or less, inventory must be positioned that much closer to the ultimate buyer.

The answer lies in the creation of micro-fulfillment centers, small distribution facilities that can be placed within retail stores, former retail operations or as standalone locations. But to make that possible, retailers need an order management system that can accurately track inventory on a real-time basis, along with forecasting and demand-sensing capability that leads to the correct positioning of product.

Some brick-and-mortar retailers can fulfill e-commerce orders directly from store shelves, while others prefer to set up micro-fulfillment capability as a separate operation. Either way, says Catania, it calls for “a complete operational transformation that has to happen if you’re going to use the store or leverage a third-party facility.”

In addition to speeding up delivery of orders, the benefits of a micro-fulfillment center include accelerated cash flow and reduced out-of-stocks. The two are intimately connected, Catania says. Invoicing happens faster, and inventory isn’t languishing in a distant warehouse where it’s failing to generate sales. “There’s a cost to out-of-stocks,” he says, “especially if you’re a category leader.” Shoppers who fail to find a desired product in stock may choose never to visit that store again.