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Making (business) sense of micro-fulfillment centers

Micro-fulfilment centers not only reduce retailers’ costs and boost customer satisfaction, but also give consumers access to a wider product range.
Micro-fulfilment centers not only reduce retailers’ costs and boost customer satisfaction, but also give consumers access to a wider product range.
08 May 2024 •

In the retail industry, a trend that is set to take off is micro-fulfillment, where companies prepare customer orders in facilities closer to residential areas called micro-fulfillment centers (MFCs), reducing the time taken for products to reach them.

This up-and-coming solution is due to a change in consumer habits which started during the Covid-19 pandemic, when demand for e-commerce skyrocketed. Since then, consumers have taken to ordering goods from the comfort of their homes and grown used to the convenience of same-day and doorstep deliveries.

The trend looks set to stay. Research and Markets estimate that MFC installations will grow more than 20 times by 2030, from the current base of around 250 to 5,600 in 2030.

Driven by consumer demand, the need for MFCs is growing. However, a key question for business owners is: Do MFCs really make business sense? The answer is yes, and there are myriad of reasons for this:

Beyond optimizing costs

Although the costs of setting up an MFC may seem daunting, doing so can help reduce operation costs in the long run. MFCs rely largely on digital systems and automation to analyze, sort, and pack orders, with minimal human supervision to oversee operations. Businesses can optimize labor costs while reaping the increased accuracy and efficiency of employing technology.

Optimizing costs is more than reducing labor costs. By reinvesting the savings into skills upgrading and training, the labor force will be better equipped to work with automation and improve the overall efficiency in a more streamlined process between humans and machines.

Shortening the customer journey

Another advantage of MFCs is that they are nearer to delivery destinations than traditional warehouses, usually located in rural or secluded areas. A shorter travel distance means better cost efficiency on fuel and regular vehicle maintenance, as delivery vehicles will suffer less wear and tear. Deliveries will take less time and distance to complete, thus reducing businesses' costs and carbon footprint.

Walmart is one business that has capitalized on the MFC trend. The American grocer has 4,700 MFCs across the United States, most of which are extensions of retail stores. Its commitment to providing micro-fulfilment to customers has seen its pickup and delivery capacity grow by 20 percent, and the number of orders it received jumped by 170 percent in 2021.

Walmart’s GoLocal service, which offers delivery-as-a-service fulfillment, was utilized by Home Depot in 2021. By tapping into Walmart’s expansive network of last-mile delivery drivers, Home Depot expanded its ship-from-store capability and reached its goal of next-day delivery to 90 percent of the U.S. population.

On the flip side, MFCs are also instrumental in reverse logistics. With close to 30 percent of online purchases returned globally, having the option to return the product through MFCs, which act as the connector to the main network, is the way forward.

Ready stock for greater customer satisfaction

MFCs can help boost consumer satisfaction too. Businesses better serve customers with MFCs because they can now receive their orders much more quickly and right at their doorsteps, rather than waiting for weeks for deliveries from traditional warehouses located much further away. The ability to offer quick commerce with MFCs can increase customer loyalty and boost business.

Imagine this: a customer visits a local footwear store for a new pair of shoes. When they get there, they realize that the store does not have the shoe size they need, and the only store with it is miles away from home. Ordering the shoes from the other store would mean high delivery costs and long waiting times, so the customer puts the pair of socks and set of shoelaces they had intended to buy along with the shoes from the local store back on the shelf. They walk out and head to a competitor’s shop to get everything they need.

Such a scenario is the stuff of nightmares for retail businesses that have to contend with losing customers when a particular product is unavailable at their stores. With MFCs, however, businesses do not need to worry about running out of inventory. With a much larger space dedicated to storing goods, MFCs can house many more products than retail stores, giving customers within the MFC’s locality a wider range of offerings and customizations.

Additionally, suppose retail stores within the same precinct of an MFC run out of a particular model, size, or product color. In that case, customers may still leave satisfied if they are offered same-day delivery of their desired product to their doorstep from a nearby MFC.

Having the (business) sense to adopt MFCs

Overall, MFCs offer businesses a more cost-effective and efficient way to fulfill online orders. They work particularly well in densely populated urban areas with limited space and high delivery expectations.

Micro-fulfillment has become the new normal for consumers, and companies will do well to adopt it, or they will risk losing out to their competitors.