Micro-Fulfillment Trends and Strategies

Seven features necessary for future-forward, omnichannel fulfillment

eCommerce and gig economy disruption has infiltrated just about every shopping decision consumers make today, introducing countless delivery apps, the explosion of “click and collect,” as well as increasingly faster delivery options to consumer doorsteps.

You name it, consumers have access to whatever they want, nearly whenever they want it. And with ever-expanding online ordering options, today’s consumers have high expectations for their shopping experiences. “Digital consumers” are driven by rapid order fulfillment and delivery and are much more likely to shop if the retailer offers same-day delivery. 

So, what does this mean for retailers? For starters, “we don’t have this in-stock” isn’t an option. Consumers expect retailers to have an infinite shelf of inventory in real-time. Whether consumers are placing orders online or simply researching to shop in-store, they expect online inventory to match what’s on the shelf. And so the retail supply chain for businesses of all sizes are struggling to sustainably and profitably address order fulfillment and rapid delivery. Specific challenges include:

  • The urbanization trend affecting industries and challenging how retailers use space and house inventory

  • Traditional distribution strategies that no longer work and short-term fulfillment solutions that drain profits

  • Finding the right mix of existing store fronts, urban fulfillment centers, and possibly dark stores for the optimal fulfillment, distribution, and delivery strategy

  • Understanding how micro-fulfillment can meet the order fulfillment requirements created by modern consumer demand 

The impact of urbanization trends

Across the globe, people are moving to cities at rising rates. In the U.S. alone, 65% of the population live in cities and generate 75% of the nation’s gross domestic product. Worldwide urbanization trends are projected to continue, with the urban share of the global population expected to surpass 66% by 2050 (up 30% from 1950).

Rapid urbanization presents challenges to the general population (such as transit congestion), but also for retailers — greater demand for real estate from a reduced supply brings higher costs for less space. 

Urbanization is also changing inventory and distribution strategies, previously dominated by huge distribution centers in remote locations. While that approach may be cost-effective, how can a distribution center in a distant rural highway exit effectively support same-day fulfillment to retail stores or consumer homes in a downtown neighborhood? It’s fundamentally impossible. 

And while some retailers have started using urban fulfillment centers and dark stores to better address rapid delivery demand, they are still challenged with steep real estate costs, unused space at the back of stores, and lost revenue at underperforming retail locations. 

Rapid delivery: what’s not working

Retailers now must balance the high cost of inventory needs in urban locations with the rapid delivery requirements of online orders.

For some, this means partnering with third-party services to outsource order-picking and delivery. While these services get consumers what they want, retailers have realized that outsourcing picking and delivery to third-party companies hurts their bottom lines.

Here’s why:

  • Shopping Experience: Retailers lose control over the consumer shopping experience when they outsource to third-party apps. If an order is delayed, if an item needs to be replaced, or if the order shows up damaged or incomplete, who will the consumer hold accountable? More than likely, the retailer and it brand will take the hit. 69% of consumers say they’re more likely to shop at a competitor after even just one bad experience: Total Retail report

  • Consumer Data: Retailers also relinquish ownership of coveted consumer data when using third-party services. Buying patterns and brand preferences become insights owned by the third-party, which is problematic for retailers with consumers expecting a personalized shopping experience. 65% of consumers say they want personalized recommendations from retailers: BRP study

  • Order Fulfillment: Fulfilling online orders through only in-store inventory is not efficient. It reduces in-store supply and makes real-time inventory management even more challenging for retailers. It hurts profitability — especially for grocery retailers already fighting tight margins. Fulfilling online orders from in-store stock also inhibits the experience of in-store shoppers by creating competition for high-demand items and increased aisle traffic. 85% of grocery shoppers still shop in-store or mostly in-store, with their loyalty at risk with 97% of grocers experiencing in-store stockouts throughout the year: Grocery Insights report

Micro-fulfillment: meeting modern consumer demands

Micro-fulfillment is a mini-automated warehouse fulfilling online orders from the backroom of a store. Online orders are downloaded to a software management system, typically integrated on a broader software network. The automated system brings items in totes from storage racking to workstations where operators pick the needed items and pack orders for pick-up or delivery. 

Micro-Fulfillment solution software allows retailers to reclaim ownership of consumer shopping data to create personalized shopping experiences. Ultimately, consumer data is the key to unlocking and maintaining consumer loyalty in today’s shopping landscape where consumers expect brands to know their individual preferences.

Micro-fulfillment solutions not only can provide the flexibility to meet evolving consumer demands, but also the ability to profitably fulfill online orders in locations near consumers. They allow retailers to shift to a future-forward, omnichannel distribution and fulfillment strategy.

Micro-fulfillment solutions must be compact and high-density. Why? So they can be implemented in small locations but be stocked with large volumes of inventory. 

By fitting into spaces as small as 10,000 sq. ft., micro-fulfillment solutions can be installed into the backrooms of actual retail stores or nearby urban fulfillment centers and dark stores. This maximizes existing space to create a “backroom fulfillment center.”

While a micro-fulfillment solution can feature a wide variety of automation technology, the best solutions rely on proven technology, such as automated shuttle car technology and goods-to-picking systems. Solutions that depend on untested technology introduces unnecessary risk into the supply chain — and with brand reputation riding on seamless customer experiences, that’s a risk retailers can’t afford to take. 

The software powering any micro-fulfillment solution must work seamlessly with all inventory management systems, warehouse management systems (WMSs), and enterprise resource planning (ERP) systems to ensure complete integration with a retailer’s network. As a result, retailers can take full advantage of consumer shopping data to unlock and maintain consumer loyalty through personalized experiences based on consumer shopping habits and preferences.

Micro-fulfillment solutions are critical to operations — retailers must have always-on access to customer service to prevent downtime to deliver orders and maintain margins. Most retailers that would be interested in micro-fulfillment are likely looking to implement solutions at multiple sites. So, it’s essential that they have customer service support no matter their store locations.

Micro-fulfillment solutions are ideal for several types of commerce, including grocery, apparel, consumer electronics, sporting goods, auto parts, and industrial supplies. If consumers can buy it online, micro-fulfillment is an option for order fulfillment. To accommodate this wide variety of inventory, micro-fulfillment solutions should be able to store and process products with different temperatures requirements — for example, multiple temperature zones, from room temperature to cold zone environments, within the same micro-fulfillment solution.

Most micro-fulfillment solutions are designed for high capacity, with aisles and shelves for storing inventory. But not all solutions allow manual access for service and troubleshooting. Manual access to the aisles and shelves is necessary during downtime to get the system up and running as soon as possible.

Micro-fulfillment is an obvious solution to e-commerce order fulfillment, but it can also provide a major inventory asset in supporting other nearby retail locations, dark stores, and urban fulfillment centers. Micro-fulfillment maximizes existing space to promote sustainable operations and increase profit margins for the long-term.

Dematic Micro-fulfillment solutions

Dematic designs, builds, and supports intelligent automated solutions empowering and sustaining the future of commerce for its customers. The Dematic Micro-fulfillment solution meets and exceeds all features necessary for effective, profitable online order fulfillment in as little as one hour. 

The Dematic Micro-fulfillment solution is fully customizable and can be built and installed in as little as 12 weeks. It can be configured to fit into footprints as small as 10,000 sq. ft — ideal for the back of a retail store so orders can be fulfilled as close to the consumer as possible. 

The Dematic Micro-fulfillment solution is powered by Dematic software and proven automation technology, such the Dematic Multishuttle® storage system and goods-to-person picking workstations. Additionally, Dematic has a robust worldwide presence making it possible for our customers to implement micro-fulfillment solutions wherever they are located, supported by unmatched always-on customer service with local operations in over 35 countries.

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