Micro Fulfillment Centers

Micro Fulfillment Centers

With so many online sales as of the past few years, many companies have started looking into more warehouse options, including the recent development of micro fulfillment centers. These locations can be tempting because they’re presented as a way to help companies generate more sales and improve customer support, but there are some limitations with their smaller footprint.

What exactly are Micro Fulfillment Centers?

Micro fulfillment centers (MFCs) are smaller locations designed to perform specific fulfillment functions, often for local markets or smaller regions. They’re not nearly as large as a standard warehouse, usually 3000 to 10000 sq. meters, but their smaller size allows them to have the flexibility to provide targeted help. This includes only stocking high-volume SKUs to give you more space and prevent stockouts, targeting regional customers, and more. In most cases, MFCs are heavily automated because robotics can perform warehouse actions faster.

Because of the minimal size requirements, MFCs look very different from your average warehouse. Large retailers can easily turn part of an existing store or warehouse into an MFC to serve local customers and restock their stores. Companies can use off-site locations like small warehouses and storage facilities to create an MFC. There are also a growing number of third-party providers that offer fulfillment outsourcing. They prioritize storage facilities in large metro areas and offer services directly to sellers as well as national fulfillment brands.

If are considering micro fulfilment centers and if you think that they could be right for your business, here are some pros and cons to consider before you decide.

Benefits of Using Micro Fulfillment Centers

There are three important elements of how a micro fulfilment center can create a positive impact on your bottom line, either by improving the customer experience or reducing expenses.

Reduced delivery times and costs

A core benefit of MFCs is that they improve your ability to deliver goods to customers quickly. Transit time is lower because they’re scattered across the country, near your audience. Faster shipping can make your customers happier, and the closer distance will reduce your shipping costs on each order. The automation MFCs use will speed up pick-and-pack operations, allowing you to have later windows for same-day and next-day fulfillment, also assisted by the close proximity.

Decreased error rates

Automated picking via robotics enables MFCs to offer very low error rates for order fulfillment. Reducing errors is tied to both improving customer satisfaction and cost reduction because you’ll manage fewer returns, refunds, and exchanges. Typically, when you get an order incorrect, you’re on the hook for costs associated with returns, including paying for return shipping as well as resending the correct items.

Optimized inventory fulfillment

Automation makes it easier to split your inventory across various channels or locations, allowing customers to choose how they want to get their products. Grocery stores, for example, have traditional brick-and-mortar shopping mixed with click&collect orders. An MFC in this store’s existing warehouse space would pick and pack orders for click&collect while ensuring the store location has emergency stock in the event of a supply chain disruption.

Additionally, an ecommerce store could use an MFC for SKUs that are top sellers and usually purchased alone. This makes it so that the products are closest to customers and enable quick fulfillment for the majority of its inventory, while other products are fulfilled from a more traditional warehouse. That enables faster fulfillment and minimizes the amount of space a company would need to rent (either directly or from a third-party fulfillment partner) in metro areas with expensive real estate.

The downsides

Robots can be extremely expensive. Well, generally speaking most robotics and automation tools are extremely expensive. The equipment’s complexity can easily be a multi-million-dollar investment even before you pay for the physical facility, and either you or your partner will need to recoup that investment.

It won’t fit all of your SKUs

Nope, just the top-selling ones. Also, you cannot fulfil heavy items such as furniture or large household items, as it will cause a lot of wear and tear on the robots and machines.

Ownership and labor

Owning a micro fulfillment center requires an investment in infrastructure, people, and tools. You’ll need a warehouse large enough to store your goods, capital to invest in team members, and the proper management tools to hold everything together.

That comes with all the related costs in terms of training, HR, benefits, and more. MFCs can have expensive labor or support contracts because of the robotics they require and backups you’d need to avoid downtime. This risk can make outsourcing a smarter option.

Verdict

MFCs can be either extremely good for your business, being exactly what you were looking for, or they can just be straight up bad for your type of business. So, as always – it depends. But here’s our recommendation:

If your company is large enough to run its own centers for local fulfilment, then go for it!
The other type of company that would benefit from MFCs are small companies with predominantly regional sales requirements. Outsourcing fulfillment to a partner with an MFC can help you reach a local market quickly and the partner typically has a smaller stock level requirement, so you won’t sink as much capital in stocking products.