Micro-fulfillment! Get your micro-fulfillment here!!

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.

Happy New Year! On to 2021…bold predictions for a better or simply a “normal” year!

Happy first week of 2021! I hope you all had a safe, happy and most importantly healthy holiday season. While the latest trip around the sun has challenged us many ways, there is a light at the end of the tunnel and hopefully better times ahead. Better, simply meaning more normal times! But let’s look at some BOLD predictions for what 2021 might hold in store for us.

Blanket prediction, with multiple Covid 19 vaccines having been approved and now getting into arms, the globe will move towards controlling the virus and allowing the world to put this pandemic behind us. Let’s hope this comes to fruition sooner rather than later. But what else can we expect?

• Stores are not dead…they’re continuing to evolve. Okay I might sound like a broken record, and yes this trend is not unique to 2021. But what is going to be different is the impact Covid 19 had on retail as a whole and stores in particular. It has been well documented of how the lock downs adversely impacted physical stores, restaurants, bars and a plethora of service business that could not be done over Zoom, Teams or Google meet. From a retailer perspective, 2020 accelerated a number of store shuttering, by some accounts doubling the closures from 2019. While brands like GNC, Pier 1 and Chico’s are closing stores, you still see other players such as Amazon, Warby Parker, Bonobos, Indochino and Peleton opening physical locations. We are not seeing the end of the store, we are seeing the accelerated evolution of how the physical store is being leveraged. Yes it will continue to be used to attract and drive traffic to come in and acquire inventory. But will take on an ever growing role – service center (think Apple genius bar), a return center (look at Kohl’s and what they have done with Amazon) or a micro fulfillment node (look for grocers to push this usage). As we emerge from the lockdowns, savvy brands and retailers will continue to rethink and retool how stores fit into their overall strategy. They will not be blindly shuttering those assets.
• Sustainability and the circular economy drives consumer behavior. There is no doubt that what we saw in 2020 was a massive acceleration when it came to ecommerce. And with those mountains of online ordering creating a tsunami of goods being delivered to our front doors, this will invariably lead to a return tidal wave of coming the other way. The amount of returns and how retailers and brands will handle this volume is potentially more than a headache for the industry. Forward thinking retailers will see this as part of a larger theme – sustainability. Returns are a part of the circular economy that has been growing. It is not only the amount of product coming back into the supply chain, but also how retailers will strategically address this as their overall go to market. How do retailers and brands ensure that sustainability is not an afterthought but is integrated throughout the business? Consumers’ sustainability awareness, are deciding factors in how they spend their money. Retailers and brands need to keep this in mind with regards to how they approach all aspects of their businesses – from sourcing to returns.
• Automation gets closer to the consumer. Yes I know, the robots have been here for a while now. But we will automation start getting closer to the end consumer. Granted robotics have already made their way into our homes – see the Roomba. When it comes to our supply chains, automation has been a presence for decades. Starting on the manufacturing floor and now pushing into the sourcing, warehousing and distribution parts of the supply chain. Look for automation to push into consumer spaces in 2021. From sanitization robots keeping public spaces hygienic, robots focusing on security and automation that will function amongst the public to complete order picking or store replenishment. We will also see more usage of automation in the last mile fulfillment, from Kroger to DHL, companies will seek to leverage autonomous robots and drones, to get our stuff to us when and where we want it. Look for automation to become a greater part of our lives, from our homes, to how we get products delivered to our doors and when we are out in public. Hopefully this is not the start of Skynet…
• Not your parents’ point of sale. My first prediction is the store is not going away it is changing…same can be said about point of sale (POS). The days of static, fixed cash registers has long been eclipsed by mobile and cloud based POS. But even this is evolving. POS will become untethered. Only requiring an internet connection and digital interface, modern POS will occur almost anywhere these two tools are present. You might say, so what, we already knew this…but this will expand into social media. We are already seeing a surge into Facebook, Instagram and TikTok to allow for transactions to occur on these platforms. We are finally seeing it come to content via your television (I remember working on a report in 1998 while at Forrester talking about this possibility). We are not far from science fiction shopping where QR codes and other scannable objects will be sprinkled through out our physical world allowing us to interact and shop almost anywhere. Advertisement on a billboard, scan the QR code to purchase. Walking through a park and there is a nice flower arrangement in a planter, take a picture via the PictureThis app and connect with local florists that can sell you the arrangement or individual plants. Our “limitations” to participate in commerce will continue to crumble, as POS becomes omni present. Retailers and brands need to be prepared to service demand anywhere and anytime…in locations not imaginable a few years ago.

Let’s hope that 2021 proves to be all that we hope for. Especially with regards to a wide spread vaccine. Captain obvious comment – but the ability to spread the vaccine globally will be a massive driver to getting the Covid 19 nightmare behind us. Fingers crossed this continues to march towards reality in the first half of 2021. What we did learn from 2020 was the major shock to our system accelerated the thinning of the herd. It also will reveal with brands, retailers and supply chains are best prepared for 2021 and beyond.

Happy New Year to everyone. Here is to a boring and normal 2021.

Peak…what peak? Demand spikes predictability…I don’t think so.

Any of you who work in supply chain, retail, fulfillment or shop, know that we are in entering into the crazy holiday season for retail. Otherwise known as the “peak season.” A season where we look forward to Black Friday, Cyber Monday and other massive revenue driving events. But does this mean anything anymore?

Much has been written about how we look at demand signals and where these are coming from. In the good old days, we looked at some simple times – Christmas peak season and back to school as the big events, with smaller events such as Valentine’s day and Mother’s day. Fast forward to today, and now we are seeing mini-peaks emerging all over the calendar. Whether they are artificial events such as Amazon’s Prime Day or Singles’ day in China, we are now seeing these types of commercially created demand spiking events. On a smaller scale, retailers such as Old Navy created artificial demand from their $1 flip flop day. But we also have to think about other bolt of the blue demand drivers. The latest one comes from the recent US Presidential election.

Those of us who spend much of last week switching between all the major networks as states were counting votes, were exposed to a number of pundits working the “big boards.” Whether MSNBC, Fox or CNN, we all watched as states and counties were analyzed over and over. Counties like Houston County in Georgia were highlighted as they were counting votes. Of course John King from CNN was corrected in his pronunciation. Outside of counting votes, an interesting demand spike emerged. As Steve Kornaki from MSNBC mentioned his stockpile of Gap Khakis on air, the San Francisco retailer enjoyed an unexpected spike in their Khaki pants sales. A pleasant outcome for the Gap. But in a world of hyper-connectivity and social media, we are seeing more of these mini-demand spikes. Whether it is national soccer team that goes further in a tournament than expected or a princess wearing a specific dress, demand spikes are and will continue to emerge from a random and unexpected places.

So what does this mean for retailers and their supply chains?

• It all starts with visibility – supply chains are always chasing the elusive network visibility. Being able to have a rich and real time picture of your supply chain. This quest for this Holy Grail continues to be elusive. But the effort must continue. Know what is happening within your supply chain is the first step.
• Rethink your inventory strategy – not simply when it comes to your working capital, but also your work in progress, raw materials to name a few. How do you better meet these demand spikes? Know what is available to promise, in real time. Rethink how you build and place your safety stock across your network.
• Work your data governance – end of the day, we are all digital and data companies. Double your efforts when it comes to how you work your overall data strategy. How are you leveraging data within your network, which sources are you tapping into and how are you internally leveraging this data?

End of the day, demand driven events are going to be difficult to predict and anticipate. Consumers, with all their available choices and empowered by their digital assets, are increasingly fickle and unpredictable. Retailers and their supply chains cannot depend on the predictability of known demand driving events. While they will continue to adapt to meet the demand associated with Black Friday, Cyber Monday, Singles Day, Mothers’ Day etc, they will also have to be nimble enough to meet demand spikes when a journalist gets prime time coverage for a week and is pitching your khakis.

Amazon’s interesting play with their new stores.

Hey look Amazon is in the news again! Surprise surprise. They just announced their first Fresh grocery store – click here for article. On the surface it appears to be a traditional grocery store, but with a number of technological goodies from Amazon. From Amazon Echos allowing patrons to ask for directions and help in the aisles to smart shopping carts that allow for frictionless transactions. Of course all this can be tied to the customers’ Prime account. It is almost as if Amazon was looking to combine the online experience to the brick and mortar world. So is there something beyond simply grocery shopping here? Absolutely.

Bezos always has some secondary goals with his efforts. Other than world domination. Let’s go beyond the fact Amazon wants to capture even more of your household spend. This concept grocery store is an opening to more micro-fulfillment centers for Amazon. Amazon is known for opening mega fulfillment centers to service geographic areas. These distribution centers are sprinkled across the country, with the idea in mind to ensure customers are within easy reach of an Amazon fulfillment center. If you want to see where the centers are located, check out this wiki page. But what about getting into denser population centers. Where having a massive distribution center might not be optimal? What about having a micro-fulfillment center where consumers are trained to interact with automation? Hmmmm….exactly.

These Fresh grocery stores will allow Amazon to offer a location for their

customers to get groceries and pick up or return orders. They have an opportunity to interact face to face with these customers. Amazon will also be able to fulfill online grocery orders within the store. Adding the automated grocery cart mimics similar technology leveraged in traditional warehouses where eaches picking is done with automation. Could Amazon leverage the automated shopping carts to do order picking when the store was closed to the public…or even where the store was live. Amazon could basically flip between a traditional grocery store and a micro-fulfillment, warehouse lite. The technology could empower more sophisticated home delivery or BOPAC (buy online pick up at curb) from the store. Amazon could also leverage these facilities to train consumers to interact with more in store automation. Consumers would be introduced to the automated shopping carts. A shopping cart that could guide the consumer through their shopping lists. Next step would be getting used to having other automated devices doing replenishment, cleaning, stock counting or security within the store.

These new store concepts are not simply about getting you to buy groceries from Amazon. They could prove to be the beginning of new play from Amazon to create more micro-fulfillment centers and introduce more automation into the shopping experience. So the ecommerce giant continues to expand its brick and mortar presence. How times continue to change!

Amazon fulfillment center coming to a mall near you. Not as bad as you think.

There has been some recent reporting that Amazon is in talks with mall management companies to take over some of the space from anchor tenants. Click here for a recent piece in the WSJ. Legacy tenants such as Sears and JCPenney. Legacy names that have fallen on hard times and faded away from the mainstream retail conversation. Many are fretting that this would be a terrible move for malls, letting the very player that has put these malls under duress come right into their house! Set up a fulfillment center, and just crush whatever life there is left for these malls. Not so fast!

I’m not convinced. First, what choice do malls have? The days of having mega retailers act as the anchor tenant have gone. The internet made sure of that. The advent of the World Wide Web meant that the mega shopping malls, were just a click away. I remember working at Forrester in the late 1990s, I had a large mall owner as a client. We had a conversation that went something like this:

Mall owner: “We are really excited about the web. We want to create a portal, where the brands and retailers that are in our mall could be part of our portal. Customers can then access our site and get to their pages.”

Response: “The internet is that portal. Why would you need to go through a secondary portal when I can get to those brands and retailers directly?”

Needless to say the silence after that conversation was deafening. This was retail thinking driven by a brick and mortar only mentality.

So fast forward 20+ years. Malls are taking it on the chin. They are scrambling to figure out how to get foot traffic into their physical locations. Many have turned to more experiential type tenants – restaurants, salons, gyms, medical offices or amusement park style operators (visit the Mall of America in Minnesota for a true experience). Some have looked to add residential inventory as well – or built around a larger attraction such as a sports venue. The Atlanta Braves’ new baseball park, Truist Park, is built with an outdoor mall and residential space – the Battery.

But many malls are still stuck with massive anchor footprints, a reminder of the Jurassic time in retail. Some are looking to bring grocers into those spaces. A local mall in the Boston region added a Wegmans a few years ago, hoping to attract foot traffic. And now, some mall owners are considering bringing in their biggest nemesis of all – Amazon – into that space. Here is why that might not be as bad as some believe:

• Create some buzz – want to bring your property some buzz? Let Amazon put up a distribution center. The local media will certainly pick up on it. There will be news reports on the automation that Amazon will be using to fulfill orders, clips of the boxes zipping around the conveyors and on Kiva Robots. There will be talk of how many employees the fulfillment center will now employ.
• Amazon employed foot traffic – maybe a small victory, but any mall should be happy to have bump in terms of having “guaranteed” foot traffic as Amazon employees will be present through out the day. There is the potential for these employees to become patrons of the other services within the mall. Maybe that is fool’s gold. But at least there is some opportunity to have a pseudo captured audience.
• Incentivize Amazon to do more than simply deliver – Malls who look to Amazon to take some fo the real estate space, should work with Amazon to not simply use the space to do last mile order fulfillment, but also BOPAC (buy online pick up at curb). Think of it. What do malls have other than a lot of physical store space? Lots of parking and are usually located in convenient geographic locations. Amazon could offer customers the ability to come and pick up their orders as well. Create designated curb side pick up spots, create spots where patrons can pick up merchandise but also park for a period of time in case they want to also go into the mall to pick up something. Could Amazon take some of the real estate and create seasonal stores – small footprint stores with the high demand merchandise and other Amazon products. Much like what they already do with their pop up and other physical stores now. Finally leverage this footprint to process returns. Maybe once the patrons return items, they might also stop at the food court or see what is going on in the mall.
• Leverage the Amazon fulfillment know how – This might be a stretch, but what if the Amazon fulfillment anchor tenants, also took on last mile fulfillment for the other tenants on the property. Amazon is already working on becoming a 3PL, delivering and fulfilling for other brands and retailers. Imagine if as an anchor tenant, Amazon worked with the other tenants to deliver merchandise from the stores. Either last mile fulfillment or BOPAC. Of course they would make their money in the services they offered. While the tenants would be able to take advantage of the fulfillment infrastructure and knowledge of Amazon. This may feel like giving up even more to Amazon, but sometimes if you can’t beat them, join them.

While I am sure that mall owners would prefer that their anchor tenants were not named Amazon and that they could still draw the foot traffic needed to make the property profitable, those times are in the rear view mirror. Mall owners need to face today’s reality. Having an anchor tenant such as Amazon, using the real estate to fulfill eCommerce orders, might be one of the few ways to get someone to pay for that space. But if you can work with them to offer other services such as BOPAC or become a returns hub, you now have new ways to getting people into the mall.

Yes Amazon will continue to eat at some of the mall’s core business, but might as well try to profit from their physical presence. It isn’t a pretty relationship, but it might just give malls some extended life.