If you are supply chain nerd like myself, or are in the grocery or general retail space, micro-fulfillment has been the all the rage for the past few months. The end of 2020 saw an interesting upswing when it came to discussion of this trend. Not surprisingly, this coincided with the Covid 19 fueled e-commerce boom of last year. So what is this new buzz word? Basically this is all about getting inventory closer to the consumer, in smaller footprint distribution nodes to be able to fulfill our orders at a faster and more efficient pace. But you might ask yourself, “wait, isn’t Amazon already doing 2 day, same day or 2 hour fulfillment?” Yes. However, don’t dig into the amount of money it is costing them to do this. Micro-fulfillment is giving retailers, direct to consumer and other companies a path to meeting these ever shrinking windows of fulfillment that consumers believe they need. So what is really happening?
Micro-fulfillment, is the natural continuation of what we have been seeing in the supply chain space for years now. We have moved from a traditional linear model of moving product: source it, make it, ship it, store it, sell it, to a more complex networked approach. We can drop ship items from the factory floor direct to consumer, we do distribution center (DC) by passing, we ship directly from DC to consumer, we have an increased number of nodes where consumers can access their inventory (lockers, 3rd party locations even the trunk of your car). What this has done for supply chains is exploded the number of nodes we need to service with regards to “last mile” fulfillment. Emerging from this is revisiting of our overall warehouse strategy. Do we need millions of square feet of warehousing space…yes…but we also need more flexible space. This is where micro-fulfillment comes in. When we look at micro-fulfillment we need to consider the following:
- How time sensitive is my product for delivery? If you are fulfilling a perishable product, think groceries, then time is of the essence. Getting someone their Ben & Jerry’s ice cream and fresh shrimp is time sensitive. Having that inventory closer to the consumer means you have a greater chance to meet those requirements than if you are fulfilling from a large DC that is not in a central location.
- Is there critical mass in the areas I want to put a micro-fulfillment center? No surprise that Amazon’s first foray into micro-fulfillment took place in Manhattan. There is a natural density of customers, within a tight radius to warrant investing in such a center. This is why most of these models are being looked at in more densely populated urban settings.
- What other resources can I leverage? Going down the path of micro-fulfillment does not mean building or renting more physical space. Do you have the existing physical stores that could serve the micro-fulfillment needs? Many grocers are looking to leverage their existing stores to pack orders that will be sent out for fulfillment – basically using their existing real estate for both in store and micro-fulfillment needs.
- Do I have the right technology in place to properly manage these nodes? I have said this many times, so I apologize for sounding like a broken record, technology is a tool not a panacea! But you absolutely need the right tools to properly manage micro-fulfillment. You will need rich data on your product, demand, density of demand and fulfillment orchestration. Not an easy task. To properly manage these companies will need to have a holistic view of inventory and demand, but be able to drill down to the local level when it comes to fulfillment.
- How flexible can your network be? In the future, micro-fulfillment sites will also offer the “pop up” site capability. All one has to do is look around to idle mall space the month leading up to Halloween. You find a number of pop up Halloween themed stores. The same will come to fulfillment. Our micro-fulfillment nodes will have to be flexible, as demand and delivery patterns change, so might the locations of these centers. Is your node capable of being moved to different locations based on demand patterns?
I am sure we will keep hearing about these micro-fulfillment centers. At least once all the buzz around Gamestop dies down. We should not view this as a radical new idea when it comes to fulfillment but really a continuation of the drive to make fulfillment more in line with the demands consumers are placing on our networks. Each supply chain must determine what their overall fulfillment strategy will look like, how it will evolve and what other capabilities are required. It will certainly not be one size fits all. Rather a collection of strategies that best fit your product, customer and time frames required.
The Thinking Frog 