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Introduction
For the past year, grocery delivery brands in the market have been advertising their 10-minute delivery. One might wonder, how did we go from a minimum 7 days for delivery to just a 10-minute delivery? This is because these grocery brands started using Micro-fulfillment Centers (MFCs) as a part of their delivery supply chain.
These centers became instantly popular within the ecommerce ecosystem. Businesses rushed to the market with smaller warehouses and started advertising their best-in-market delivery time frames.
But, the business model did not seem to suit all business types. That’s why even today, we consider a multitude of factors when determining the use of fulfillment centers.
In this blog, we will take a deep dive into the concept of Micro fulfillment centers so that you determine whether micro-fulfillment centers are the right choice for your business.
What are Micro Fulfillment Centers?
Micro-fulfillment centers are just a downsized version of your regular fulfillment centers. These centers are cut down in size to increase their operational and financial feasibility and to improve the delivery metrics in a particular region or area. The center is usually closer to the end consumer, reducing the time and cost of delivery significantly.
The Micro-fulfillment centers are not usually bigger than 10,000 square feet and usually carry a fraction of the inventory as compared to a traditional fulfillment center. These fulfillment centers were first adopted by grocery delivery brands like Swiggy Instamart and Blinkit, which wanted to deliver within 10-30 mins.
However, considering the value proposition of faster deliveries and small-scale fulfillment centers, this became a common phenomenon. Ecommerce businesses from across categories began adopting this approach to enable faster delivery.
D2C brands set up micro-fulfillment centers around metropolitan regions to serve multiple areas at once. Alternatively, hyper-local businesses used shops as micro-fulfillment centers.
5 Primary Factors to Consider While Setting Up Micro-fulfillment Centers
Now that we have understood the preliminary concept of Micro fulfillment let us understand the five key factors you will need to look at while setting up the Micro Fulfillment center.
1) Location/Site
As Micro-fulfillment is targeted for a specific geography or region, the choice of location becomes crucial. You will have to look at stats like the percentage of new customers from the region, the customer retention rate, average ticket value, etc. The location chosen should be able to serve a considerable chunk of the existing customer base as well as have the potential to allow for expansion.
2) Software
The software will be a critical aspect of the micro fulfillment center. The micro-fulfillment center will be a part of the much bigger fulfillment chain.
The software will be connecting links between the MFC and the rest of the troupe. Additionally, the software has to have a better integrability with the Warehouse and Inventory management systems.
The relationship between the Order Management System(OMS) and your MFC software is vital for a smoother delivery. The software should ideally also have support for POS and tracking software as well.
3) Inventory
Micro-fulfillment Centers can carry a limited inventory and are quite forward in the fulfillment workflow. Therefore, it becomes crucial to decide the type and level of inventory you want to store in an MFC. You will need to strike the right balance between various products and their stocks to reduce the risk of a stockout. This can be done by analyzing customer purchase patterns for the region around the MFC.
4) Labor
Despite the scale of automation you plan to use in the micro fulfillment center, you will have to consider the availability of skilled labor.
The efficiency and skill set of the workers in the MFC will very likely determine the scale of output for the center. This ease of implementation will essentially decide the operational efficiency and feasibility of the micro-fulfillment center.
5) Delivery
The strength of the courier partners in the MFC area has to be considered. It won’t matter if your center can process 100 orders a day if your courier partner is not able to deliver them to the customer’s doorstep.
You can also now partner up with local carriers that have better reach and pricing structures. This will improve the delivery experience while lowering your overall shipping costs.
5 Key Benefits Of Micro Fulfillment Centers
Here are some of the common benefits that you can avail for your ecommerce business if you start using micro fulfillment centers.
1) Better Quality Control
With a smaller stockpile to maintain, MFCs have regulated the quality of the products much more efficiently. It is also easier to ensure better delivery accuracy due to the localization of the fulfillment process. You can even add steps to improve the packaging and address area-specific complaints.
2) Improved Delivery Times
MFCs are targeted to improve the delivery speed for a particular region. As the center is located in proximity, the packages have to travel over a shorter distance, reaching the customers more quickly. This reduced distance has allowed ecommerce businesses to offer same-day and next-day delivery services at a fraction of the cost.
3) Increased Conversion Rates
With the expedited services mentioned above, the customers are less likely to drop off from the checkout page due to the delivery time frame. The shorter delivery time frames can also be provided as an additional service to the customers who sign up for the loyalty program.
Furthermore, as the packages have to travel a shorter distance, the customers have to pay less in delivery charges. This again contributes to the improved conversion rate on the checkout page.
4) Financially Feasible Expansion
A micro fulfillment center requires comparatively less capital to set up and operate. This will allow you to improve profitability over an area. Along with this, you will require significantly less capital to start delivering in a newer region. Therefore, you can target more geographies without having to require heavy capital or depending on the delivery speed or quality.
5) Enhance Last-Mile Delivery Experience
Every MFC only fulfills orders for a particular region. This allows for a more accurate delivery process. Along with this, you have better control over the last-mile delivery components of your fulfillment process. Especially for hyper-local orders, you can enable GPS-enabled order tracking for an enhanced customer experience.
4 Drawbacks of Micro Fulfillment Centers
The above benefits may frame the micro fulfillment center as the ideal choice. However, it is important that you understand the drawbacks of these centers before you make the final choice.
1) Frequent Inventory Replenishment
The scale and size of a micro-fulfillment center means that it cannot store large amounts of inventory. If your inventory sell-through rate is high, you might have to deal with more frequent inventory replenishment cycles. This can result in increased shipping costs and add to the expenses rather than reducing them.
2) Limited to Some Product Categories
The space constraint in MFCs makes them unsuitable for bulky or oversized products. These centers will not be able to store the amount of inventory of these products to make it an operationally feasible step. Additionally, as these are smaller warehouses, it won't be financially feasible to implement the machinery required to handle these goods.
3) Increased Risk of Stockout
The lower count of inventory as well as the unpredictable surge of orders during the season, can leave them slammed. This can also result in stockouts in the most profitable time of the year. On the other hand, during the downtime, maintaining these MFCs becomes an additional expense.
4) Non-feasibility for all Business Models
Micro-fulfillment centers have a very rigid model and process they need to follow. As a result, they will not be able to effectively add to the supply chain of every business. For example, some businesses have next to no orders during their downtime and a sudden surge of orders during their peak season. It becomes hard to find the capital to run the MFCs during the downtime, and they are not very efficient in handling the surge of orders.
Conclusion
Every e-commerce business wants to deliver as quickly as possible. But, the cost and operational effort required to hold them back. With MFCs, it will now be possible to implement a quicker delivery model without having to worry about the costs. The above blog has hopefully provided you with enough information so that you can consider a micr0-fulfillment center as a part of your next expansion.
FAQs
1) Are there any other similar alternatives to Micro Fulfillment centers?
If you are looking for something bigger in size, you can set up a logistics center or a distribution center. Alternatively, you can also use a physical store as a micro-fulfillment center depending on the demand and the size of the store.
2) Who uses micro-fulfillment centers in India?
Micro-fulfillment centers are primarily being used by hyper-local delivery brands like Swiggy Instamart, Grofers/Blinkit, Big Basket, etc. Some carriers like Shadowfax and Dunzo can also assist you in setting up MFCs in a particular region.