Micro-fulfilment: What Is It and How Does It Work?

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Micro-fulfilment is a strategy eCommerce businesses are using to meet customer demand for faster delivery and pick-up times for online purchases. By setting up a smaller, more convenient – and often automated – warehouse to fulfil orders, businesses can cut their fulfilment times significantly.

Here we take a look at what micro-fulfilment entails, how the system works best, and what SMEs can do to take advantage of this new fulfilment system.

What is micro-fulfilment?

Micro-fulfilment is a retail strategy designed to make the fulfilment process more efficient. It uses localised warehousing and combines it with the efficiency of automation – from order receipt to picking, packing and same-day delivery.

The concept of putting small-scale warehouse facilities or micro-fulfilment centres (MFCs) in densely populated central locations is ultimately to improve delivery times. Last-mile delivery can be costly and complex, so putting MFCs closer to the consumer enables a substantial reduction in the time and distance between a product being ordered and getting it to the end user.

Why is micro-fulfilment on the rise?

The modern consumer doesn’t want to wait for their online purchases – they expect fast delivery of goods or will switch to competitors who deliver rapid order fulfilment. Micro-fulfilment, therefore, has become retail’s answer to this demand.

Throw in a global pandemic that keeps people at home and away from public places, and instances of online shopping skyrocket. This is especially true for online grocery shopping, which has seen supermarkets struggling to provide efficient order fulfilment and faster modes of delivery.

Under these conditions micro-fulfilment presents an opportunity for businesses to invest in supply chain technology to boost resilience, and it also helps businesses to maintain some control over the shopping experience.

Two men unload goods from a van for delivery

Micro-fulfilment has flourished as consumers demand faster pick-up and delivery times for their online purchases

What is a micro-fulfilment centre?

Micro-fulfilment centres (MFCs) – also known as urban fulfilment centres – are small, highly automated storage facilities located close to the end consumer to reduce the cost and time of delivering goods. An MFC has three key components:

  • Management software that processes online orders
  • Physical infrastructure, including automated picking and transfer
  • Packing staff

MFCs may be housed in a purpose-built or dedicated space. Alternatively, an MFC can be set up within a store’s existing facilities, where automated systems can be installed without the need to expand that facility.

Once set up, an MFC serves as a base for online order fulfilment, ship-from-store orders and local pickups within a designated region or postcode.

Micro-fulfilment centres vs traditional warehousing: What’s the difference?

The main difference between MFCs and traditional fulfilment centres is size. MFCs are much smaller, typically taking up between 30 and 100 square metres of space, whereas traditional fulfilment centres can be 30,000+ square metres.

MFCs can be built into existing stores or as stand-alone facilities with the purpose of servicing a defined area or cluster of locations. The compact design allows MFCs to be set up in areas behind existing stores, in a basement or even in parking lots.

Another difference between a conventional fulfilment centre and an MFC is location. The size of traditional fulfilment centres means they tend to be placed in industrial precincts on the outskirts of town. This means transporting orders from the fulfilment centre to the customer is more costly and time-consuming. This larger space can also incur significant leasing and operating costs.

Thirdly, the digitised and automated technologies used in MFCs often mean that employees have considerably less manual work to do – significantly reducing labour costs.

A couple at the till making a purchase in a supermarket

Dark stores are often set out just like conventional stores – but they are not open to customers

What is a dark store?

Dark store – or ‘dark fulfilment centre’ – is a term used for a distribution centre designed exclusively to service online shopping. First established in the UK, a dark store is a warehouse that services online sales – sometimes with a ‘click and collect’ service. Dark stores are again usually placed in densely populated areas so that delivery times are shortened and customers get a faster and more convenient shopping experience.

Dark stores are so named because they are not open to the public. The interior of a dark store looks like a conventional store – set out with aisles of shelves containing inventory stock available for purchase – but they generally aren’t located in shopping centres or retail precincts. Dark stores are more likely to be situated slightly away from these areas, but close to good road connections for convenient collection or dispatch.

In some cases traditional retail outlets have been converted into dark stores to act as local fulfilment centres. For traditional brick and mortar stores that have struggled to compete in the the new world of online shopping, conversion is a smart choice. Instead of simply closing their doors altogether, they are utilising these locations to optimise their online eCommerce activities through speedy fulfilment of orders and the convenience of customer collection.

How does micro-fulfilment work?

When the pandemic hit and shutdowns drove more consumers to eCommerce and online shopping, micro-fulfilment facilities became a popular solution for grocery stores and other retailers because they have the capacity to process upwards of 5,000 orders per day.

Some key elements of the way MFCs work are:

  • Automation

MFCs use integrated automated technology to expedite last-mile delivery and order fulfilment – such as mobile robots, pallets, and shuttles for order picking. Automation enhances efficiency and eliminates many repetitive, manual and labour-intensive activities.

  • Connectivity

Warehouse automation software connects networks of MFCs and operational systems to provide real-time order management, capable of delivering thousands of orders per day. Connected networks make customisation possible governed by delivery location and customer preferences.

  • Digitisation

Operational processes from storage and order processing, to dispatch planning, packing and shipping are all digitised functions in an MFC. This enables retailers to streamline their processes, ensure labelling is accurate, and make delivery of goods speedy.

A person carrying delivery bags

Micro-fulfilment centres are situated to make getting goods to customers over the last mile faster – either through customer pick-up or delivery

What are the benefits of micro-fulfilment?

Overall efficiency is the main benefit of a micro-fulfilment model. When we break this down further, benefits include:

1. Automation for picking and packing efficiency

MFCs host game-changing, efficiency-boosting technology that means greater agility and more efficient picking than manual processes – some MFCs have the capacity to process thousands of orders a week.

MFCs often use robots to transport items from storage, then a human worker will manually pack the final order. AI software can also be used to help optimise the placement of different goods and their movement through the centre.

2. Local and small-scale inventory

Automation makes it easier to split inventory across various local and small-scale locations. With MFCs eCommerce stores can also locate top-selling SKUs close to customers to enable rapid fulfilment, while order fulfilment of other products is dispatched from a more traditional warehouse.

3. Quicker delivery times

Using a strategically placed MFC expedites last-mile fulfilment, since goods are stored in closer proximity to consumers. Pickup and deliveries are faster, with orders able to be delivered within hours of being placed.

4. Curb-side & in-store collection, and home delivery

Curb-side pickup and in-store collection are both terms used for a ‘click and collect’ model where customers buy online and pick up from a store. The concept isn’t new but with the intensive automation of MFCs the process is less labour intensive, and more cost- and time-efficient – making last-mile delivery much quicker for the customer.

5. Overall cost savings

Overheads are usually lower in smaller MFC facilities compared to traditional warehouses. This is due to automated operations, reduced labour expenses, streamlined logistical operations, and a reduction in logistics costs such as fuel and delivery fees.

Which companies and industries currently use micro fulfilment the most?

Unsurprisingly the industries that have been quick to adopt micro-fulfilment strategies are those in the grocery and FMCGs sectors. Many large retailers such as Amazon, Target and Kroger have invested considerably in micro-fulfilment facilities and technology.

Walmart, one of the largest retailers in the US, has set up in-house MFCs in several of its stores. Walmart’s Alphabot automated system is designed to pick 10 times more inventory stock than staff in a traditional warehouse setting. Walmart’s MFCs are stocked with the most popular products ordered online, which include packaged and frozen foods.

A delivery man getting out of his van

SMEs can use a micro-fulfilment strategy to compete with larger companies on shipping times – but it can be costly to set up unless you find a Micro-fulfilment as a Service (MaaS) provider to suit your business

For SMEs what are the benefits and downsides of using a micro-fulfilment system?

For SMEs, micro-fulfilment is a way to be compete with larger businesses on shipping times by locating inventory stock and order fulfilment as close to the consumer as possible.

The benefits for SMEs of using micro fulfilment systems include:

  • Faster picking

From the moment a customer places an order online the clock starts ticking. The speed of product picking is the first step to delivering orders in the quickest time. With consumers increasingly expecting rapid and even same-day delivery, using picking robots helps to keep pace with eCommerce demand.

The efficiency of picking robots varies depending on the product category but can, in many cases, complete order fulfilment 10 times faster than humans can.

  • Faster delivery and smaller facilities

Faster picking and the location of MFCs mean quicker delivery times than from a conventional distribution centre.

MFCs are typically less than 1000 square metres in size so can be in situated in urban locations nearer to the customer, enabling faster delivery. Traditionally larger scale warehouses and distribution centres are in located in semi-rural and industrial areas making it almost impossible to achieve same-day delivery.

  • Lower long-term operating costs

MFCs offer speed of picking and quicker delivery times, and they are also less expensive to operate. Once up and running an MFC using warehouse automation technology will reduce operating expenses and can cut the cost per order by 50% or more.

  • Improved workplace safety

Warehouse automation is safer because tasks are delegated to picking robots and other autonomous machines. This technology mitigates the risk of injury and accidents for staff picking products stored high above the ground, heavy lifting and carrying.

At the same time, there are some downsides for SMEs thinking about using a micro-fulfilment strategy:

  • Cost of initial investment

MFCs require a substantial upfront investment. High-quality, high-tech automotive machinery and technologies don’t come cheap, meaning it is beyond the reach of some retailers and SMEs.

  • Inventory control issues

Rapid picking and smaller inventory stock levels mean inventory issues are commonplace. Inventory control is complicated when stock is decentralised through a network of MFCs, and accurate inventory management and rapid replenishment tactics are required to avoid stock-outs.

Inside one of Fabric's automated MFCs

Companies like Fabric offer Micro-fulfilment as a Service (MaaS), setting up up micro-fulfilment services for their clients. Image: Retail Insider

What companies offer micro-fulfilment services?

For those retailers that don’t want to or can’t own and operate an MFC there are other options available, such as Micro-fulfilment as a Service (MaaS). MaaS service providers will purchase or lease a building to install MFC centres, or install an MFC onsite in a facility owned by their client.

MaaS providers leverage existing micro-fulfilment sites on a by-use basis, offering businesses and growing brands various benefits:

  • Customer proximity to serve them at the speed they demand by localising inventory stock everywhere it is needed. Once an online order is made, robots fulfil it faster than a human possibly can by picking, packing, and shipping in a matter of minutes.
  • Immediate ROI without a large upfront investment because MaaS is charged on a by-use basis. There is little or no upfront capital investment, and all areas of the operation are handled by the MaaS provider.
  • Control of customer relationship management. By maintaining control of their fulfilment, brands can manage their customer relations, monitor the delivery experience, and generate valuable data to aid continuous improvement and targeted consumer offers.

There are now numerous companies offering services in the micro-fulfilment space. Businesses that sign up for MaaS will ship inventory stock from their warehouse to a MaaS location where that inventory is either stored or immediately placed inside an MFC. The MaaS company will then fulfil customers’ orders on the company’s behalf.

Some examples of companies offering these services are:

  • Takeoff Technologies, which offers retailer end-to-end technology, including eCommerce ordering and inventory control to run an MFC.
  • Fabric, which piloted its micro-fulfilment technology by setting up a MFC for Israel’s largest pharmaceutical company. Fabric has since turned its focus to the US grocery sector, and makes the claim that its robotics technology can fulfil grocery orders within an hour.

Micro-fulfilment has been one of the most important trends that has emerged during the Covid-19 pandemic and it’s predicted to grow, with more than 10% of grocery sales expected to be fulfilled using this method in the US by 2025. Even pre-pandemic consumers expected shorter and shorter delivery times – but post-pandemic the expectation will likely intensify.

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Alecia Bland - Unleashed Software
Alecia Bland

Article by Alecia Bland in collaboration with our team of inventory management and business specialists. Alecia's background is in ancient languages. When she's not reading a book with her cat for company, you can usually find her cooking, eating or trying to make her garden productive.

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