The appetite for online shopping spiked dramatically during the Covid-19 pandemic. Sales in the e-grocery sector alone increased by an impressive $60 billion last year, according to Mercatus. That growth spurt, coupled with consumer demand for rapid delivery, meant retailers had to reconfigure their fulfillment operations in a hurry.
Automated micro-fulfillment centers, or MFCs, with sizes usually ranging between 10,000 and 20,000 square feet, are emerging as a solution to these challenges.
Neil Saunders, managing director of the retail division at GlobalData, defines an MFC as a “fulfillment center that’s bolted on to a store,” serving pretty much the same customers as the parent location.
MFCs check off three attractive boxes for retailers, Saunders pointed out. First, they’re efficient fulfillment mechanisms. “You’re using existing assets and existing inventory, and that’s just a lot more cost-effective,” Saunders said. Second, because MFCs serve the local area, customers don’t have to travel far to pick up their orders. The third advantage, said Saunders, is the ability to cater to multichannel customers.
The growth of omnichannel shopping, including the Buy Online, Pick Up in Store (BOPUS) model, is increasing demand for MFCs. During the pandemic, consumer expectations for same-day delivery increased, stressing the retail supply chain. As a result, 44% of stores served partially or entirely as fulfillment centers. By 2022, that number will jump to 57% as stores focus on BOPUS, according to a McKinsey report.
“Small fulfillment centers at the back of the store help handle the rising volume of such orders,” Saunders said.
Fitting Into Fulfillment Plans
Retailers pick MFC locations based on customer density and buying habits. Large retailers will frequently use a mix of large warehouses and MFCs to complete orders the most efficient way possible, Saunders said.
MFCs are emerging as an especially good fit for grocery retail. First, the rise of omnichannel shopping means grocery retailers had to hire expensive labor to fulfill orders, a proposition that erodes already anemic profits.
The high number of items in a typical grocery retail order also makes manual fulfillment time-consuming and expensive. “High-volume, low-margin categories like groceries are models that beg for automated fulfillment, especially given the slim margins the industry runs on,” Saunders said.
Automation For All Sizes
Of course, automation need not be limited to the grocery MFC. As labor costs rise, automation with robots enabled by strong connectivity is key. Traditional warehouse fulfillment centers already use a range of technologies. For example, connected sensors check refrigeration conditions and help manage inventory on smart shelves. Autonomous robot handlers, meanwhile, attend to the easier aspects of order fulfillment, handling products that are uniform in size and easily picked.
MFCs are starting to experiment with similar automation, Saunders said. “Technology is starting to play more of a role across all fulfillment centers, whether they’re large or small,” he said.
Bristling with IoT devices and programs that need connectivity in real time, MFCs are prime candidates for 5G networks, said Mike Noonen, CEO of MixComm, which develops solutions for high-band 5G and satellite communications. 5G already delivers significantly lower latency than 4G and promises to deliver ultra-low latency in the near future. 5G also accommodates a larger density of IoT devices. Successfully deploying a micro-fulfillment strategy requires reliable connectivity to effectively manage rapidly fluctuating inventory, reduce errors and eliminate cost overruns.
“Latency and synchronization of information are table stakes for automation in the micro-fulfillment warehouse, and 5G enables those business critical applications,” Noonen said.
Essentially, MFCs need a whole range of routine order fulfillment operations to be automated to be truly profitable, and 5G enables the connectivity to handle the attendant information exchange—quickly, securely and without bottlenecks.
One Solution For Several Challenges
Retailers realize that connectivity inside retail space must be a foundation to build on for the digital transformation journey past 2025. Strong connectivity will help enable 5G and IoT device implementation for the smart stores, drones, robots, digital signage, heat mapping and safety devices for employees. As a result, there will be a need for more bandwidth, cloud computing and private networks with added security.
Omnichannel shopping, slim margins, demanding customers and unpredictable supply chains are only a few of the problems keeping the retail C-suite up at night. Automated micro-fulfillment centers help alleviate these headaches.
“In ten years, a lot more stores will have automated MFCs,” Saunders predicted. “The technology is becoming better. It will become cheaper. Most importantly, it solves a genuine and pressing need, especially for grocery.”
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