Micro-Fulfillment: The Future of E-Commerce Fulfillment
The speed at which the retail industry is evolving to navigate e-commerce and gig economy disruption is happening far faster than we could have predicted. Gone are the days when shoppers were battling for parking at the local mall to take advantage of a department store sale, or shuffling through the aisles to hunt down dinner in a rush after work.
Today, consumers can shop any retailer in the world at any time of day from the comfort of their own home. And while two-day shipping started out as a luxury, it’s quickly become the industry standard for online ordering that modern consumers now expect and demand.
With this increasing consumer demand, options for online ordering have also increased, giving customers more power in where and how they shop. And if a shopping experience or product doesn't meet their high expectations, they can easily take their business elsewhere. In fact, 41 percent of consumers say they’re less likely to return to any store of the same brand where they’ve had a bad experience, and 69 percent say they’re more likely to shop at a competitor after even just one bad experience, according to this recent ServiceChannel report.
With customer loyalty on the line now more than ever before, retailers must focus on providing a positive and differentiated shopping experience at speed, tailored for consumers based on shopping habits and preferences. And to be future-forward, retailers must shift how they think about technology and space in their approach to order fulfillment.
The Rise of E-Commerce
While brick-and-mortar stores still capture nearly 90 percent of all retail sales in the United States, e-commerce is growing four times faster than overall retail, according to the U.S. Census Bureau. Most experts agree that this growth rate will only continue to increase in the coming years.
As consumers do more of their shopping from their smartphones and laptops, they’re also demanding faster fulfillment, with the ability to conveniently pick up items via click-and-collect options at the store of their choosing or have items delivered directly to their doorsteps.
Amazon.com's growth in two-day shipping and its most recent move to same-day delivery is increasing consumer expectations around speed. The company now offers Prime members in more than 10,000 communities free same-day or one-day delivery for more than 3 million items. A recent study by the National Retail Federation (NRF) found that nearly 40 percent of consumers expect two-day shipping to be free, and 29 percent have backed out of a purchase because it wasn’t.
As the industry struggles to keep pace with customer demand, other retail goliaths such as Walmart, Best Buy, and Target are following suit with more flexible and faster fulfillment options. In addition to using in-store inventory to fulfill online orders, grocers are looking to third-party delivery services such as Instacart, UberEATS, and Shipt to meet the demands for quick delivery. While this strategy might seem convenient, retailers lose control over the consumer shopping experience if an order is delayed or when a shopper has to replace desired items that were listed as in stock.
Another recent survey by the NRF found that more than 40 percent of retailers say their top customer-facing priority is faster fulfillment of online orders. Now more than ever, retailers need better visibility of inventory across their supply chain; more flexible distribution models; and an efficient, cost-effective means to get products to customers as quickly as possible.
Meeting the Demand With Micro-Fulfillment
Many retailers are now answering demands of e-commerce with decentralized distribution models that stage products closer to consumers in order to quickly prepare and deliver online orders.
Micro-fulfillment is a growing trend that puts mini distribution centers in the back of retail stores or in nearby urban fulfillment centers and dark stores to serve the needs of local markets. The most effective models use carefully configured spaces supported with a combination of intelligent material handling hardware, warehouse management software (WMS) and enterprise resource planning (ERP) software to optimize fulfillment. It’s a strategy that enables retailers to cut down the distance to customers, increase the speed of delivery, and reduce the complexity of click-and-collect.
Mega retailers such as Walmart, Best Buy, and Home Depot are using ship from store and in-store pickup options to fill online orders. When Amazon acquired Whole Foods in 2017, Amazon started offering in-store pick up at Rite Aid locations as well as accepting product returns at Kohl’s. Target is also now embarking on a micro-fulfillment strategy by remodeling up to 300 stores per year to speed up delivery in local markets. And other retailers are looking to creative spaces such as dark stores to set up temporary distribution facilities and micro-fulfillment centers.
Because it makes use of space they already own or lease, using stores as fulfillment centers saves money on real estate costs that might otherwise be spent on leasing a large warehouse or distribution center. For retailers that are currently partnering with third-party delivery systems to fill gaps in online order fulfillment and rapid delivery, micro-fulfillment enables them to take back ownership of the shopping experience and coveted customer data. Retailers can in turn use that data to provide a personalized customer experience to recapture loyalty.
Micro-Fulfillment: A Game Changer for E-Commerce Order Fulfillment
For retailers and grocers to address the business challenges of today’s hypercompetitive, omnichannel economy, they must use data as the secret sauce to personalize the customer experience and strengthen brand loyalty. This calls for fundamentally changing how they think about technology and space with a future-forward approach to fulfillment.
As retailers struggle with the complexities and pressures of e-commerce, micro-fulfillment has the potential to be a game changer to meet quick fulfillment while also providing retailers with the treasure trove of customer data that can be used to further improve the overall customer experience.
The most successful retailers are mixing a variety of products and solutions as well as partnering with automation technology providers to expedite delivery times without sacrificing the bottom line. With the right system, retailers can retain control of their data, attain seamless integration with other inventory management systems, and meet consumers’ expectations of fast delivery.
Matt Walker is program manager of micro-fulfillment at Dematic, an intralogistics innovator powering the future of commerce.