Big-name retailers like Amazon and Walmart have set the precedent for next-day and same-day delivery services. In order to accommodate this new e-commerce standard, companies are recognizing the need for Micro-Fulfillment Centers (MFCs). MFCs enable retailers to fulfill customer online orders in a quick fashion and shorten the last mile. This allows retailers to stay competitive and provide cost-effective omnichannel offerings.
What Is Micro-Fulfillment?
Micro-fulfillment is a logistics strategy that companies use for positioning retail inventory closer to the consumer, using small warehouses and MFCs. As pointed out in our Micro-Fulfillment Market Trends research report, these distribution centers are frequently located in densely populated urban areas, which currently account for 56% of the world’s population.
Companies leverage micro-fulfillment processes to obtain the following outcomes:
- Provide faster product delivery
- Facilitate more online delivery spots
- Reduce costs of e-commerce fulfillment by consolidating stock and minimizing last-mile transit times
By using local micro-fulfillment centers, retailers can better meet growing consumer expectations for quick delivery turnaround. This is key to gaining a competitive advantage in a sea of online shopping options.
How Is Micro-Fulfillment Different from Traditional Fulfillment?
The biggest difference between MFCs and traditional fulfillment centers is the type of products that are handled in the logistics facility. In a normal fulfillment center, workers manage the distribution of pallets, cases, and units. But in an MFC, the primary function is focused on the distribution of products at the unit level.
By focusing on products at the unit level, retailers and grocers are in a much better position to pick and deliver online orders via Direct-to-Consumer (D2C), often using automation. As a result, they can offer customers shorter delivery times. Products that move fast or have quick turnover rates are best suited for MFCs.
Types of Micro-Fulfillment Centers
ABI Research recognizes three distinct types of micro-fulfillment centers: standalone, store-integrated, and dark stores.
- Standalone MFCs: These types of distribution centers are usually located between 1 and 5 Kilometers (km) within the end-consumer radius. As for size, standalone MFCs are typically in the ballpark of 3,000 to 10,000 square feet. Sometimes they can be a little larger depending on the land area and available infrastructure. Standalone MFCs can be constructed and operational as soon as a couple of months. In terms of inventory storage capacity, MFC solutions store anywhere from 8,000 Stock Keeping Units (SKUs) to 15,000 SKUs.
- Store-Integrated MFCs: Instead of finding and investing in new real estate for inventory storage, many retailers simply make the most out of existing space at their store locations. Store-integrated MFCs can be deployed within basements, backrooms, or even parking lots. Most retail stores are already located very close to the intended consumer base anyway, making these buildings an ideal match for micro-fulfillment and last-mile delivery.
- Dark Stores: These logistics facilities are similar to conventional retail/grocery stores, but customers do not shop here. Instead, only staff occupy dark stores as they aim to facilitate fast and cost-efficient e-commerce fulfillment. There has been a noticeable boost in the prevalence of city-based dark stores, with US$5.5 billion in venture capital investment in New York alone between 2020 and 2022. Picking operations in dark stores remain highly manual, with an exploration into highly automated fulfillment processes. It should be noted that in places where worker wages are high, such as in London, this type of on-demand delivery model can be difficult to make profitable.
Micro-Fulfillment Shows No Signs of Slowing Down
Micro-fulfillment is expected to gain more and more popularity in the years to come. For example, Warehouse Management System (WMS) revenue for MFCs is expected to grow at a Compound Annual Growth Rate (CAGR) of 64.4% between 2021 and 2027. To learn about some of the market drivers for MFCs—and the highly automated technologies facilitating quicker delivery turnaround times—check out our blog post, Retailers Can Bring Automation into Their Micro-Fulfillment Centers (MFCs) with These Technologies
And if you’re an MFC solution provider, check out the Research Highlight, Retailers Are Turing to Micro-Fulfillment Solutions to Keep Pace with Big Companies’ Fast Delivery Times, for market forecasts and strategic guidance.