Micro-fulfillment is undoubtedly the hottest topic in 2020 for many retailers. Most leading grocery chains have already jumped into full-blown pilots, while apparel, automotive, and specialty retailers are considering the possibilities. But micro-fulfillment isn’t a concept that makes sense for all companies and regions, and those considering it need to develop a comprehensive (and likely complex) strategy to get the right balance of cost and benefits.
Micro-fulfillment isn’t so much a specific type of warehouse or distribution center, but a new way of thinking about a forward node in the context of brand, network and real estate strategy. On the surface, it’s extremely appealing. Fulfillment capabilities close to the customer are key to enabling fast and inexpensive delivery or customer pickup. As market leaders such as Amazon and Walmart continue to raise the bar on speed and convenience by leveraging increased fulfillment capabilities from stores, the gap for those sitting on the sidelines is only widening. Micro-fulfillment concepts have been around for years, but with urbanization and associated congestion on the rise, and the cost of enabling technologies dropping, it has reached the inflection point for many companies.
Micro-fulfillment nodes can take any number of forms, but two primary models are emerging. The first is a regional fulfillment center (RFC), in which a small node dedicated to fulfillment across a metro area or small region fills trucks that deliver direct to consumer, or to stores for customer pickup. The second is a true micro-fulfillment center (MFC) that’s attached to a store, either in an expanded backroom or picking directly from store shelves. Each type can be completely manual or highly automated, and there are many hybrid network models as well. RFCs are typically larger and have more opportunity to leverage scale for efficiency and justification of automation. They are good places to stock slow-moving SKUs that aren’t practical to keep in many nodes in an MFC model. MFCs have the advantages of being closer to the customer, leveraging store inventory and supporting customer pickup.
Finding the right solution for your business starts with a brand strategy that carefully considers availability, speed, assortment, delivery mode and cost of fulfillment, all aligned with your competitive landscape and desired brand position within it. You can then develop strategies for the distribution network, real estate, investment, and inventory management that support the brand strategy.
Lastly, finalize the technology and systems that are required to support the strategy. Keep in mind that micro-fulfillment requires a micro-strategy approach — factors such as real estate cost, traffic, labor cost and availability, store density, and population density all contribute to the determination of whether micro-fulfillment makes sense in a given region. This could require several iterations in each metro area to find the right balance of cost and convenience.
Micro-fulfillment is a buzz-worthy topic that all retailers should be aware of, and consider carefully. But as with all distribution strategies, it’s a tool in the toolbox of a network design professional — not a “one-size-fits-all” solution to be implemented across the board. Savvy retailers should continually reevaluate and balance brand and distribution strategies. When strategy enablement dictates a micro-fulfillment solution, they should develop a regional strategy that applies justifiable technology for that area.
Luke Nuber is an account executive at Fortna.
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