Micro-fulfilment centres are reshaping logistics across cities

July 15, 2020
StoreShippers - Nienke van Meekeren
July 15, 2020
StoreShippers - Nienke van Meekeren

With the rise of e-commerce, new logistics challenges have arisen. Consumers are ordering more frequently, in smaller quantities and sometimes across national borders. In addition, they expect their purchase to be at their door tomorrow, or even the same day. Retailers are constantly looking for a balance between offering an optimal customer experience, but in a cost-efficient manner. To realize this, they are investigating options to improve their delivery performance and shorten the distance between fulfilment centres and the consumers. Implementing a micro-fulfilment strategy can help with this.

49% of consumers state that same-day delivery makes them more likely to shop online

What are micro-fulfilment centres?
Micro-fulfilment centres are small warehouses with a smaller footprint than tradition distribution centres and are often located in accessible urban locations, close to where the consumers live. Because they are in close proximity to the consumer, they support to fulfil online orders fast and efficiently. Some of these micro-fulfilment centres are stand-alone warehouses and others are occupying spaces that are already part of the urban landscape, such as vacant retail premises or parts of office buildings. Variations of micro-fulfilment centres are ‘dark stores’ and converting space inside existing stores into micro-fulfilment centres.

Two key drivers behind micro-fulfilment strategies
The fact that many retailers are increasingly turning to micro-fulfilment strategies can mainly be explained by two elements: increased customer demands and last-mile challenges.

1.         Increased customer demands
With the worldwide growth of ecommerce and the fierce competition within the sector, consumers are becoming more and more demanding and impatient. E-commerce giants like Amazon have set increasingly competitive delivery standards that consumers are now used to and which they expect from every retailer. This is mainly visible in terms of flexibility, speed and costs. The consumer used to wait patiently and without complaint for their order for days. Nowadays, delivery must take place as quickly as possible. 80% of consumers want to receive their package at least the next day, and 49% of consumers state that same-day delivery makes them more likely to shop online. More than half of the consumers are even willing to pay more for same-day or faster delivery.

Because the logistics sector is strongly influenced by consumers, the sector is forced to adapt to the increased expectations and wishes in terms of delivery speed, convenience and accessibility. To achieve this, it is necessary that inventory moves closer to the consumer and that products are sourced locally.

2.         Last-mile challenges
When realizing a positive customer experience, the last leg of the supply chain makes the biggest difference. However, this last leg is seen as one of logistics’ biggest pain points. The so-called last-mile is often the most time-consuming and expensive part of the shipping process. This certainly applies to deliveries in (inner) cities, where the number of transport movements has increased explosively due to the growth of e-commerce. The rise of micro-fulfilment centres can significantly ameliorate the pain points of last mile deliveries. Currently, 54% of the world’s population live in urban areas. This number is even expected to rise to 68% by 2050. By placing micro-fulfilment centres in densely populated urban areas, reducing the distance between the fulfilment centre and most consumer homes, retailers can reduce the cost of last-mile delivery. Moreover, brick-and-mortar retailers can use their existing stores as a micro-fulfilment centre. Lowering the cost of last mile gives retailers a competitive advantage.

The benefits of micro-fulfilment centres
The implementation of micro-fulfilment centres offers various benefits for retailers:
1.         Micro-fulfilment centres can be placed hyper locally on store level, meaning they are close enough to where consumers live to reduce the last-mile delivery costs and enable more seamless and rapid delivery services. It also supports in-store pick-up.
2.         Because of their small physical footprint, micro-fulfilment centres are a significantly lower investment than a large automated warehouse.
3.         Micro-fulfilment can make e-commerce accessible to more retailers, because it reduces the costs of picking, the costs of the last-mile and the costs of real estate.
4.         Micro-fulfilment centres help to relieve congestion in cities. This makes it a sustainable alternative to traditional ecommerce logistics.

Micro-fulfilment is a great opportunity for retailers to meet the increasing customer demands in a cost-efficient manner.

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Blog by: Nienke van Meekeren
Sources used: UC Group, SupplyChainBrain, TotalRetail, AB European Real Estate
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