An increasingly popular e-commerce strategy, micro fulfillment centers (MFCs) can be an effective way to meet rising volumes, the changing geographical nature of e-commerce demand, and the growing desire for same-day delivery. However, they’re not for everybody.
Industry giants such as Amazon and China’s Alibaba have largely driven the “best-in-class” e-commerce fulfillment strategy for the last decade. They’ve been investing in cutting-edge robotics and automation for their large-footprint operations – known as Customer Fulfillment Centers (CFCs) – that are continually redefining target productivity and service levels. Many companies have attempted to mimic the success of these large-scale solutions and reduce their operating expenses (OPEX) with micro-sized facilities designed to provide competitive productivity and service levels (i.e., micro-fulfillment centers).
For some, MFCs have been a game-changer. Others have experienced varying levels of success. Here are three things to consider when deciding if going “micro” is the best move for your operation.
1. What are your concurrent footprint and location requirements?
When it comes to MFCs, “micro” is a relative term. The size of a micro fulfillment center can range from 5,000 to 20,000 square feet. Their smaller size allows them to be located in urban areas, typically within 40 miles of their customers. Plus, smaller footprints mean smaller rents than a CFC, and their closer proximity to consumers makes for lower final mile delivery costs.
It follows then that your required footprint depends on the forecast number orders you expect to fulfill from that location. You can build a model (or let our supply chain design experts do it for you) to compare these two primary factors. You’ll need to include some accompanying variables – rents, proximity to courier hubs, and localized demographic data, to name a few – to help you determine the optimal location of your MFCs.
Retailers with existing brick-and-mortar locations can take a short-cut on their MFC journey. They can make room for in-store fulfillment by repurposing and reorganizing under-utilized space. For example, a leading grocer has redesigned its stock rooms to fulfill orders for that store and several surrounding sister locations. This fulfillment method has reduced OPEX for all of the stores involved in the arrangement.
Smaller footprints mean smaller rents compared to a CFC, and closer proximity makes for reduced final mile delivery costs.
2. Are your SKU profiles, counts, and order velocities best served from an MFC?
Facility design variables revolve around the right combination of SKU counts, profiles, and order velocities. Depending on the planned automation level, you can realistically set up an operation in 10,000 square feet or less that can house from 5,000 to 15,000 SKUs. A SKU profile composed of mainly small items ordered and fulfilled at the each or inner pack level is the best fit for an MFC-level facility.
3. What is your order picking method – manual or automated?
If you’re looking to operate an MFC with little to no robotics or automation, you can manage a broader assortment of SKUs within a given footprint. However, you should expect a higher cost per order due to the expected lower throughput rates. If you’re interested in introducing a level of automation into your MFC, you can substantially increase order picking speed at the cost of limiting your selection of SKUs. Automation systems tailored explicitly for micro-fulfillment center operations boast throughput rates above 600 units per hour (UPH), depending on the application. These solutions can reduce costs per order from $10-$15 down to $3-$6, a savings of over 60%.
In-store fulfillment |
Micro-fulfillment center |
Customer fulfillment center |
|---|---|---|
| $0-10M in e-commerce revenue | $10-50M in e-commerce revenue | $50M+ in e-commerce revenue |
| Same day fulfillment | Less than 4-hour fulfillment | Next day fulfillment |
| No additional square footage | 5,000 to 20,000 sqft | 50,000 to 300,000 sqft |
| Investment: $ | Investment: $$ | Investment: $$$$ |
| 60-100 UPH | 500-750 UPH | 500-750 UPH |
What should your company do? Like a lot of things, it depends. Answering these questions as accurately as possible can help you determine if the advantages of MFCs outweigh the cost and service performance of traditional fulfillment operations for your organization.
Getting your e-fulfillment strategy just right is more critical than ever. Reach out and see how Chainalytics can help you find the most cost-effective solution to quickly fulfilling orders and earning happy customers. Chainalytics’ combination of top supply chain talent, proven methodologies, and exclusive market intelligence consistently puts our clients ahead of the curve.
Alex Darby is a manager in Chainalytics’ Supply Chain Operations consulting practice. Alex brings a wealth of hands-on operational experience to the team after 5+ years managing fulfillment operations across multiple regions and a number of product lines for major retailers.
Chellappan Palaniappan is a consultant in Chainalytics’ Supply Chain Operations consulting practice. Chellappan’s previous experience in warehouse design, simulation, and continuous improvement within 3PL environments has proven invaluable to our customers during diagnostic and operational improvement engagements.
