Overcoming the challenges of setting up a micro-fulfillment center

With the rise of online shopping, consumerism has evolved. More consumers opt for quick commerce, where goods are delivered within hours of ordering.  To meet the influx of almost-instant order fulfillment requests, more companies are turning to micro-fulfillment centers.

A relatively new concept, these centers are small, urban warehouses where goods are packed and delivered from. Compared to more traditional, much larger warehouses, micro-fulfillment centers are located within cities, thus they are closer to end customers to ensure swift delivery of their goods. These centers also contribute to an environmentally-friendly delivery process because of the shorter distances travelled, leading to less carbon emitted by delivery vehicles.

However, building micro-fulfillment centers poses substantial challenges. In urbanized countries, where quick commerce is more popular, finding land to build on is often difficult. Plots are also expensive, especially in land sparse countries like Singapore or cities already packed with buildings like Bangkok.

Even if a space for a micro-fulfillment center is secured, finding and staffing the centers means higher employment costs.

Space and workforce obstacles may make starting a micro-fulfillment center seem nearly impossible, but both of these roadblocks can be circumvented.

Fixing the space problem

Repurposing retail stores to function as both retail stores and micro-fulfillment centers is growing in popularity, for good reasons.

Doing so means companies need not spend much effort and money to secure a plot of land and build a whole new building. Instead, the likely consideration is to add a small extension to its existing retail stores.

Retail stores are also located near residential areas, so transporting goods to customers’ homes is not a problem.

One of the biggest grocers in the United States, Walmart, has proven that this innovative solution works. The company opened two micro-fulfillment centers within its retail stores in 2020. It has since generated about US$1 billion (€0.93 billion) a month in the last few years from shipping orders from stores.

Another American grocer, Walgreens, is repurposing 8,700 of its retail stores to function as retail outlets and hubs for home deliveries. Employees serve in-store customers, and also pick and pack items for same-day home delivery. The dual purpose of its stores has helped significantly improve last-mile order-to-delivery cycle times from 5.8 days in April 2021 to 3.8 days in April 2023.

Fixing the manpower problem

Using retail stores as delivery hubs also means that workers can double up as retail staff and pack delivery orders, reducing human resources costs.

However, this strategy may not be feasible for larger hubs with more products and a greater volume of orders, where workers may end up stretched between fulfilling in-store and online orders.

To solve that, companies have turned to automation and artificial intelligence (AI) systems into the warehouse section of their retail stores, where products are picked out and packed. This has helped reduce the staffing requirements to fulfill orders and increase efficiency and accuracy.

Swedish furniture retail company IKEA, which offers next-day or same-day delivery from its retail stores, has taken this AI route. Its retail stores, which also function as micro-fulfillment centers, use advanced automated picking machines to store their inventory more efficiently and safely than a human agent can. This reduces the risk of injuries to human employees from packing heavy goods on elevated shelves, while saving space within the warehouse.

AI software is also used to sort through orders and analyze data. By doing so, it can even identify product demand patterns in real time to optimize inventory storage strategies and improve delivery times.

These perks mean companies are optimizing their costs with efficiency gain. At the same time, companies can upskill their workforce to increase operational efficiency through automation and AI, thus bringing their micro-fulfillment capabilities to the next level.

In today’s age of quick-commerce, micro-fulfillment centers have become increasingly important for companies to keep up with their customers’ demands. Starting one may be difficult but not impossible with the help of innovative solutions