Micro Fulfillment Centers are All the Rage Right Now. But Do They Make Sense for Every Retailer? These Are the Numbers to Run.
I wrote previously about the growing trials of micro fulfillment centers (MFC) and some of the varying technologies contained therein. Now, I’d like to dig a little deeper and provide my perspective around when the solution makes sense from an economic point of view. (I’m sure you’d appreciate that too, considering the business case that must be built to secure budget these days.)
MFCs, though wildly popular, are still maturing from a design standpoint.
There are basic shuttle-based systems that use 1D shuttles to retrieve items from a fixed infrastructure resembling a honeycomb of sorts. However, the potential downside of having each item or SKU in a fixed or designated location is you need to devote space for maximum velocity.
Another flavor involves ultra-high-density storage, in which robots or shuttles move about a single structure – sometimes referred to as a hive – and retrieve the items from totes. This approach requires some “digging,” but also allows for deployment in very tight spaces, which makes the MFC concept viable for retailers that want to make the best use of limited, or perhaps underutilized, square footage.
Yet another potential approach involves mobile automated storage and retrieval systems, often referred to as AS/RS. This MFC design allows direct access to all storage locations (i.e., less “digging”) and is almost entirely vertical in most cases.
Which is best (barring any physical footprint limitations)?
There are numerous cost-benefit calculations that can be used to determine whether such a solution makes sense for you. However, you must be careful as to which factors you take into account. Looking at it strictly from a technology / IT standpoint will likely result in a poor decision, as there are so many other considerations:
Labor – Most retailers are finding it extremely difficult to find labor at the moment, and this trend shows no sign of abating – driving labor costs higher. Therefore, even if you can get labor, the cost of that labor is increasing at a dizzying pace.
Customer service – Acquiring a new customer is a very costly proposition, as you know, and losing that customer due to constant mis-picks, late orders and inconsistent quality makes the return on investment (ROI) around technology far more appealing.
The reduced need for shelf space – There are many categories that have increasingly gone direct to consumer (DTC) or undergone SKU rationalization largely as a result of pandemic-driven supply chain disruptions. Does it make sense to reallocate that space to fulfillment?
Location (and namely, proximity): Incorporating an e-commerce fulfillment center into – or adjacent to – an existing store footprint allows for much faster deployments of an MFC, with the ROI being achieved much faster than possible with a new distribution center (DC) or other standalone facility. From a supply chain perspective, delivery routing doesn’t need to change at all – simply allocate some product for the MFC and the rest for the store floor.
As you can see, the ROI calculation for an MFC is far more complicated than a simple technology investment. This is truly a solution that impacts many metrics – some of which are very clear cut, such as the cost to fill each order, and some less so, such as customer satisfaction or net promoter score (NPS). All have a direct effect on margins.
How Does It All Add Up (for You)?
In some cases, a store’s volume may simply not make sense for such a solution. However, if you have a number of stores in a limited geography, the best approach may be utilizing one MFC for two or three nearby stores. Implemented properly, an MFC can:
increase customer satisfaction.
reduce the need for picking, allowing store staff to focus on customers standing right in front of them who, to your benefit, opted to get what they need in store versus relying solely on curbside services.
reduce the cost of fulfillment more broadly by allowing you to spread costs across multiple stores.
It’s important to call out that your ROI is very dependent on how many hours you keep the facility running. If the volume only calls for the MFC to run 6-8 hours a day, then your ROI will be significantly less than if you can keep it humming for closer to 24 hours.
Still, another factor to consider here is the need to pull e-commerce fulfillment activities away from third parties that have been essentially managing your brand’s relationship with the customer. While it will be hard to quantify the ROI of this change, know it will directly – and positively – impact customer loyalty. You’ll have more control over the customer experience. Therefore, it should certainly be part of the broader ROI analysis and ranked fairly high given the current opportunity to lure shoppers away from your competition as people start to return to pre-pandemic routines.
So, as you can easily see, the viability of MFC solutions from an investment standpoint is still as much of a variable as other emerging technologies. But one thing is for certain: in many cases, automation will (and should) rise higher on the priority list as labor becomes more of a challenge.
If you’d like help assessing the viability of an MFC in your store or want to learn more about the role that Zebra’s automation, mobility and scanning solutions are playing in MFCs around the world, don’t hesitate to contact me or other retail team members.
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Mark Delaney
Mark Delaney is currently Vice President Global Retail Strategy at FourKites. In this role, he works with the FourKites leadership team and recently vertically aligned business development and product teams to provide industry leading supply chain visibility to retailers regardless of the mode of transport. That visibility, along with world class analytics, provides FourKites' customers with the insights they need to better manage their businesses and deliver better customer service.
Mark previously served as a retail industry consultant at Zebra Technologies, working with retailers’ C-level leaders to determine which strategic technology solutions can best address their current challenges.
Mark has more than 20 years of experience in the retail industry and has worked with most large retailers globally. Before joining Zebra, Mark held leadership roles at Nielsen and General Mills and owned his own retail technology and analytics consulting firm.
He has always kept a strong pulse on industry trends and frequently solicits retailers’ feedback on the technology investments that his employer is making to help inform and advance innovation with a customer-first mindset.
Mark holds a BS in Marketing from SUNY Oswego and serves on several boards in his community. He is also the mayor of a village on the north shore of Long Island where he and his family live.
