Micro fulfillment centers: All hype or an effective ecommerce strategy?

  • October 07, 2020
Warehouse worker walking among shelves with hand truck in to large storage room

Micro fulfillment centers (MFCs) are an increasingly popular ecommerce strategy. MFCs can be an effective way to meet rising volumes, the changing geographical nature of ecommerce 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 last decade’s “best-in-class” ecommerce fulfillment strategy. They’ve invested in cutting-edge robotics and automation for their large-footprint operations, known as customer fulfillment centers (CFCs). Such centers help continually redefine target productivity and service levels. Many companies try to mimic the success of these large-scale solutions. The goal: reduce operating expense (OpEx) with MFC facilities designed to provide competitive productivity and service levels.

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?
“Micro” is a relative term for MFCs. The size of a micro fulfillment center can range from 5,000 to 20,000 square feet. The smaller size allows for urban locations, typically within 40 miles of customers. Plus, smaller footprints mean lower rents than a CFC. And closer proximity to consumers means lower final mile delivery costs.

It follows then, that your required footprint depends on the forecast number of orders you expect to fulfill from that location. You can build a model to compare these two primary factors. It should include some accompanying variables: rents, proximity to courier hubs and localized demographic data, to name a few. This data helps determine optimal MFC locations.

Retailers with existing brick-and-mortar locations can take a shortcut on their MFC journey. They can make room for in-store fulfillment by repurposing and reorganizing under-utilized space. For example, a leading grocer redesigned its stock rooms to fulfill orders for that store and several surrounding sister locations. This fulfillment method reduced OpEx for all the stores involved.

2. Are your SKU profiles, counts and order velocities best served by an MFC?
Facility design variables combine the best 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. An SKU profile composed of mainly small items ordered and fulfilled at the reach or inner pack level is the best fit for an MFC-level facility.

3. What's 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 automation into your MFC, you can substantially increase order picking speed at the cost of a limited SKU selection.

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.

— By Alex Darby

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