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Retail shopping shifted towards online e-commerce during the pandemic in irreversible ways. That shift has come with the expectation that their goods be delivered at minimal cost, come with fast and responsive customer service, and that they are delivered to their doorstep within a few days or even a few hours.
Amazon popularized the concept of two-day order fulfillment – that with a few clicks on a website you can have almost every conceivable product from clothes to groceries delivered straight to your doorstep within two days or less. What was once unique to the e-commerce giant has now become the industry standard in online retail, thanks in no small part to the need for contactless shipping brought about by COVID. It’s estimated that COVID accelerated the shift towards online shopping by about five years.
That’s all well and good when you’re a national chain like Whole Foods or Walmart that has the resources and logistical capacity to offer two-day shipping to customers across the country. However, two-day shipping isn’t as accessible to smaller e-commerce brands that don’t have that kind of supply chain reach and raw economic power.
If you’re the owner of an e-commerce store that delivers nationwide, how can you ensure that your products can make it to your online customers in two days or less for the goods they need as soon as possible? You don’t do it by buying out one big warehouse floor in the middle of nowhere hundreds of miles away from where your customers actually live. You do it by using lots of little smaller ones in cities just across town from their house or office.
For many DTC e-commerce brands, micro-fulfillment is becoming the only realistic way that can satisfy the expectations of their online customers and enable them to compete with the likes of Walmart and Amazon.
They are becoming such a popular option for online retailers that it’s projected there will be one micro-fulfillment center for every 10 grocery stores by the end of 2030. It’s not just smaller retailers that are making use of them either – retail and grocery giants like Walmart and Whole Foods that see where the future of online delivery is heading are starting to repurpose their retail stores as MFCs for online order fulfillment.
We’ll explore what micro-fulfillment is and how it works, and how it stands to benefit your business.
What is micro-fulfillment?
When people think of online delivery, they typically think of huge warehouses the size of football stadiums or small airports filled with pallets and boxes sorted by minimum wage workers with orange vests preparing for deliveries across a state or the whole country.
Micro-fulfillment works differently. It operates on a much smaller scale, with less inventory, and with a much more automated workflow.
Micro-fulfillment makes use of small-scale warehouse facilities in big urban areas like New York City and Los Angeles where most online retail activity happens, to keep inventory closer to the consumer. 46% of urban shoppers prefer shopping digitally compared to 38% and 34% of those based in suburban or rural areas respectively.
The micro-fulfillment model makes use of automated warehouses to reduce the distance between customers, making deliveries cheaper, faster, and easier. The goal of micro-fulfillment is to reduce the distance between customers and their orders to reduce transportation costs and delivery times.
Organizing your e-commerce supply chain in this way enables brands to offer same-day delivery and potentially even sub two-hour delivery. Two-day delivery is becoming expected by consumers who are used to two-day order fulfillment from Amazon. Customers buying online now want delivery in a few days or even within hours, and this is quickly becoming the baseline for top-performing e-commerce brands.
It’s difficult for the vast majority of e-commerce brands to implement same-day delivery inhouse, due to the enormous capital needed to build their own warehouse networks. Enabling micro-fulfillment through partnerships makes instant delivery possible for these brands.
What is a micro-fulfillment center?
Micro-fulfillment centers (MFC) are small-scale storage facilities. They’re often in unused retail or commercial space that’s been repurposed for storage and order fulfillment. Micro-fullfilment centers are used by e-commerce brands to store their inventory closer to their customers to speed up delivery times and reduce the cost of transit.
MFCs typically occupy a space of 2,000-5,000 sq ft. of space. Apart from the physical facility itself, they also rely on inventory and order management systems to maintain sufficient inventory availability and to process online orders. MFCs are much smaller than traditional warehouses or fulfillment centers, which can often be larger than 50,000 square feet.
Large national brands with a robust network of brick-and-mortar stores can potentially implement micro-fulfillment using their brick-and-mortar stores to fulfill online orders. This is done more and more by chains like Whole Foods, which opened up dark stores during the pandemic used exclusively to fulfill online orders.
The micro-fulfillment model lets brands operate their own repurposed MFCs adding the convenience of multiple delivery methods, such as curbside delivery, in-store pickup, or delivery to the customer’s doorstep. Micro warehouses have proven highly successful for grocery chains, and they’re starting to catch on in other product categories like beverages and beauty/personal care.
Benefits of micro-fulfillment centers
So much for how MFCs work, but what makes them so much better than more conventional ways of fulfilling online orders?
There’s a reason why retail chains big and small are starting to embrace the micro-fulfillment model. It enables brands to offer two-day shipping, so they can elevate their customer service to a level that wouldn’t be possible otherwise.
1. Automation Creates Faster Fulfillment
Some MFCs, but not all, automate a lot of the shipping and storage process using robots and/or automatically generated packing lists, which cuts down on manpower and allows MFCs to processes orders quickly and efficiently
2. Efficient Use of Storage Space
Micro-fulfillment centers serve multiple brands rather than using a big space to serve just one. Therefore, they pack more inventory into a smaller space and store more items per square foot. The use of this smaller space is less expensive than setting up a new location or renting out your own warehouse, which means they involve much lower leasing and operating costs, especially when managed by a partner with sufficient scale, like Ohi.
3. Reduced Last-Minute Delivery Cost
The last mile of an online order’s delivery accounts for 41% of the total supply chain cost to deliver an item. The longer an order has to travel to get to its destination, the more chances there are for things to go wrong in that last mile like order mixups, traffic jams, and other delays.
When you keep the origin of fulfillment hyperlocal to the consumer, those items are subject to fewer delays like being stuck in traffic. Those faster delivery times optimize your order fulfillment and can also save you money on transportation. The potential cost savings are further magnified when your products are somewhat heavy, as traditional delivery methods charge by weight, whereas micro-fulfillment-based providers like Ohi have flat pricing regardless of weight.
3. Easier and Faster to Integrate and Scale
Not many brands can afford to open a huge warehouse staffed with people and have conveyor belts, sorting machines, and an inventory management system to go with it.
MFCs are smaller and less expensive to integrate into your existing operations. It’s a much smaller initial investment and a less risky commitment, which makes them more accessible to small businesses. That makes it much easier for them to expand into new areas and regions as they grow.
4. Ultra-Fast Delivery and Enhanced Customer Experience
Even one misplaced order or late delivery can tarnish your brand’s online reputation in ways that are hard to repair. The smaller scale and localized delivery model of MFCs make it easier to ensure that customers get the correct items on time and that they’re satisfied with their shopping experience, including their post-purchase experience.
MFC models like in-store pick-up and curbside delivery give customers more variety in how they receive their products.
5. Lower Environmental Footprint
MFCs aren’t just more efficient and cost-effective, they’re also more sustainable.
Using small, localized fulfillment centers rather than huge warehouses staffed with hundreds of people at the hubs of miles-long trucking routes reduces the carbon emissions your company produces.
Apart from being the right thing to do, it also reduces the negative externalities of carbon-positive supply chain logistics.
You can use it as a part of your marketing too. Using localized delivery systems makes you effectively carbon-neutral, so you can truthfully position your brand as an eco-friendly company. Consumers are more likely to purchase from a purpose-driven brand that supports a cause they believe in, such as climate change.
Difference between fulfillment vs distribution
The terms fulfillment and distribution are often mistaken from one another, and it may be necessary to distinguish them when deciding to transition to MFC-based fulfillment.
Distribution and fulfillment each refer to two steps of the supply chain, from the macro to micro-scale.
Distribution refers to moving sales inventory regionally across larger distances. It involves moving whole pallets or containers or goods to warehouses or distribution centers to be stored until they’re ready to be put on shelves. The products inside the distribution units are to be fulfilled individually.
While distribution moves large volumes of inventory from one place to another, fulfillment moves each individual item to the end-user.
The fulfillment process is usually carried out from a smaller warehouse, where items are stored locally until they can reach customers in a convenient and timely manner. While distribution centers store items in bulk in the long term, fulfillment centers use more limited storage space and store goods for shorter periods.
Delivery from fulfillment centers takes place locally and is carried out at a store, via curbside pickup, or delivered by and by a courier or a gig economy worker from an app like Shipt or Instacart.
Micro-fulfillment by the numbers
It’s one thing to point to the success of household name brands like Walmart, Target and Whole Foods who’ve managed to make the MFC model work for them. A closer look at the available studies and data examining broader trends about MFCs further confirm that micro-fulfillment is the future of online shopping.
With that in mind, here are some statistics about micro-fulfillment that are worth knowing:
- MFCs Are Projected to Have a Cumulative Worth of $36B by 2030: and about 6,600 nationwide at its current rate of growth (source)
- The Urban Percentage of the World’s Population is Projected to be 60% by 2030: and as much as 75-81% in more developed countries (source)
- 38% of Online Shoppers Will Abandon Their Order if it Takes Longer Than a Week: this is due to the precedent that Amazon 2-day delivery set – now consumers expect the same thing whenever the shop online (source)
- Most MFCs Will Be Retail-Based by 2025: this indicates that retail is the most common business model for micro-fulfillment – but by no means the only one (source)
- Online grocery sales will more than double their current market share by 2025: which will be 21.5% compared to 10% in 2020. That will create more need for MFCs to fulfill those grocery orders (source)
- Half of Online Shoppers Abandon a Purchase If They Can’t Get Their Order Within a Week: customers don’t just want fast delivery, they want free delivery – another standard set by Amazon (source)
- More than 25% of Shoppers Would Abandon a Cart Online If Same-day Shipping Isn’t Available: offering 2-day or same-day delivery is no longer a nice-to-have option – more customers are starting to demand it (source)
- Online Alcoholic Beverage Sales Grow by 8% per Year Between 2017 and 2022: as with groceries, there is a growing demand of online alcohol delivery, and for much the same reason – it’s the kind of product you’d want to have that same day rather than later that week
- 75% of Consumers Expect Delivery to Be Free Even on Orders under $50: and for most brands, MFCs are the only realistic way to provide this (source)
- 42% of Retailers Say That Faster Fulfillment of Online Orders Is Their Top Priority: which is an indicator that traditional fulfillment methods can’t keep up with rising customer demand for fast delivery and free shipping. MFCs can (source)
Micro-fulfillment business models
Micro warehousing can take on a few different shapes and forms, depending on a retailer’s specific needs and access to resources. Some make use of small, densely-packed warehouses that use machinery and automated inventory lists, and others make use of the floor space they already own to ship from their own stores or offer curbside delivery.
Here are a few different ways micro-fulfillment can work:
1. In-House Micro-fulfillment
In this model, retailers use their own physical brick-and-mortar locations to fulfill online orders, essentially turning their own stores into a network of MFCs.
The ease of scalability, economization of space, and added consumer convenience of this method have led more and more brands to embrace it, including national retailers like Kroger and Target. The caveat, of course, is that only sufficiently large retailers with a nationwide network of brick and mortar stores can implement in-house micro-fulfillment.
2. Marketplace Partnership
Let’s say that you’re interested in selling your products alongside hundreds of other competing brands in a marketplace that specializes in quick commerce or micro-fulfillment enabled e-commerce.
In that case, another option you can consider is partnering with a quick commerce marketplace that uses an existing network of micro fulfillment centers and dark stores to fulfill e-commerce orders. Such marketplaces include JOKR, GoPuff, and Gorillas. In this model, your customers order from the marketplaces (think Amazon but with micro-fulfillment), which control the customer experience and retain the customer data.
3. Direct-to-Consumer
If you want to employ micro-fulfillment with your direct-to-consumer (DTC/D2C) channel, you can choose to partner with a DTC-focused instant commerce provider like Ohi, which gives you access to their nationwide network of MFCs and technology that enables instant delivery.
Ohi integrates with your existing DTC website (on Shopify, BigCommerce, WooCommerce, or other platforms), adding sub two-hour, same-day, and next-day delivery options to your online store.
As a new client, you simply inbound inventory to one or more of Ohi’s hubs (distribution), and the Ohi team manages distribution through the network to MFCs in many of the largest metro areas in the US.
Brands that work best for micro-fulfillment
Ecommerce micro-fulfillment centers have opened up a lot of doors to brands that couldn’t otherwise offer the convenience and speed of same-day delivery.
That being said, they’re not a one-size-fits-all solution and they come with their own limitations. The MFC model works best with certain kinds of brands and products, such as:
1. Higher-Order Volume, Lower SKU Count
E-commerce distribution centers are best for brands that ship a lot of the same kind of item using a relatively low number of SKUs. The localized nature of MFC delivery doesn’t lend itself particularly well to highly specialized items like bespoke crafts, artisan goods, or customized products.
2. Consumables
The instant and local nature of micro-fulfillment delivery means that brands that make use of MFCs usually carry things that customers want or need immediately. They’re often the kinds of products you might find at your local convenience store or pharmacy, such as:
- Food, snacks, and beverages
- Cosmetics and personal care
- Toiletries and cleaning products
When you go to your local gas station to buy something like a roll of toilet paper or a liter of soda, it’s usually because you need it at that moment rather than two days from now. For this reason, micro-fulfillment is best for items that customers want immediately.
3. Non-Bulky Items
Local fulfillment centers do more with less and have a smaller amount of storage space to work with. They optimize for storage space and there’s no sense in filling a relatively small space with bulky items that don’t turn quickly.
For this reason, micro-fulfillment works best for non-bulky products that can be packed tightly together. Micro-fulfillment is better suited to smaller goods that can be packed and shipped easily without a lot of manpower or special handling. This excludes items like furniture, large electronics like TVs, and larger appliances.
Ohi instant delivery gives your DTC customers the convenience and speed they expect
The shift towards online retail has elevated customer expectations to the point where consumers now expect to be delivered their items within a day or even a few hours. Micro-fulfillment is the fulfillment strategy that lets you provide that.
To sum up, here are some of the benefits that micro-fulfillment gives your e-commerce brand:
- Ultrafast delivery speed
- Efficient use of storage space
- Reduced last-minute delivery costs
- Scalability for same-day and sub two-hour delivery
- Enhanced customer experience, which leads to higher CLV
- Lower environmental footprint
Partnering with a micro-fulfillment-based platform (like Ohi for DTC brands) gives you all of these benefits and lets you provide a level of customer experience and delivery speed that just isn’t possible with traditional fulfillment.
About Ohi
At Ohi, we’ve flipped the script for e-commerce fulfillment, transforming it from what is traditionally seen as a cost center into a growth engine. Brands join the Ohi platform to deliver powerfully fast, brand-focused, and memorable post-purchase experiences that enable them to grow. Want to learn more about how Ohi enables instant commerce? Get in touch today.