Micro-fulfillment centers are proving to be an important solution for grocers seeking to automate e-grocery fulfillment.
Ongoing shifts in the retail landscape, driven by e-commerce, along with changing customer demands and expectations, are creating an increased need for fast, efficient local fulfillment, opines David Dronfield, General Manager, Swisslog Middle East.
Micro-fulfillment centers (MFCs) are the next step in creating a harmonious omni-channel supply chain. Since their introduction around 2018, MFCs have continued to expand in popularity.
There are a number of factors contributing to the growth of Micro-fulfillment centers, including consumer demand for faster deliveries and more options; grocers wanting to compete with pure e-commerce companies, plus each other; grocers wanting to compete with service providers like InstaShop, and NowNow in the UAE, and more recently, Covid-19, which has led more people to shop online to avoid in-store contamination risks.
Micro-fulfillment centers (MFCs) are proving to be an important solution for grocers seeking to automate e-grocery fulfillment for pickup and delivery. The consistent volume of e-grocery orders that many grocers are now receiving, and the complexity of those orders, support a strong business case for local, automated fulfillment.
Automated MFCs allow companies with or without a brick-and-mortar footprint within a particular area to move fulfillment closer to customers to reduce transportation costs and enable shorter delivery times, benefitting both the retailer (or Fast-Moving Consumer Goods (FMCG) producer) and the customer.
Companies can build a micro-fulfillment center as a standalone facility, or inside or bolted onto an existing location, to expand fulfillment capacity. MFCs can support customer curb-side pick-up, too, or a hybrid of pick-up and delivery.
Co-locating the MFC at the retail store offers multiple synergies, but the implementation of an MFC requires careful planning.
The case for in-store MFCs
While some grocers have opted to centralize fulfillment in regional distribution centers that support but are physically disconnected from retail stores, there are clear advantages to co-locating an MFC within an existing retail store, when space permits.
In-store MFCs not only enable grocers to leverage their existing retail space, they also can reduce the inventory stocking requirements of the fulfillment center because store inventory can be used to supplement the inventory in the automation system.
Rather than re-creating specialty services, such as prepared foods or butcher services in the regional center, or even investing in cold storage automation, an automated MFC with high-volume manual picking can be configured to fulfill approximately 90% of the typical basket, with the remaining 10% being picked from the store as required.
This enables grocers to leverage the benefits of automation while reducing the size of the investment and offering online shoppers the same breadth of products as in-store shoppers. At the same time, they minimize the negative impact of manual pickers, with their oversize carts, on the in-store shoppers.
Some retailers may also gain synergies in receiving and stocking processes and increased labor flexibility when deploying automation in the store rather than in a separate location.
Overcoming MFC Challenges
Real estate is becoming scarcer in most major cities around the world, and this leads to higher costs, plus less available space to construct an MFC.
In larger stores without space for physical expansion, some grocers have accommodated MFCs through store compressions. By rearranging and consolidating in-store merchandise, they can create the space required for an MFC and, through the improved efficiency provided by the MFC, increase the sales volume per square foot for a particular location.
Government regulations must also be taken into consideration when setting up an MFC. There may be additional taxes, or restrictions on where an MFC can be established, and how close it can be to residential areas.
Residents may object to the increase in delivery vehicles, increased carbon emissions and noise pollution – all of which would make it more difficult to secure a planning or development permit.
Optimizing limited available space may also require re-evaluating processes in the main distribution center.
Swisslog is working with grocers today who are implementing more case handling processes in their main distribution center to enable shipping of mixed pallets or split case orders specific to the MFC, reducing the space required for receiving and streamlining replenishment at the local level.
MFC Automation software
A final challenge worth considering is the ability of the MFC automation software to adapt to the specific requirements of e-grocery fulfillment. Just because automation control software can meet the needs of some e-commerce applications does not mean it will work in e-grocery.
Grocers require a greater ability to manage inventory by expiry dates and lot codes, pre-picking and staging capabilities that smooth out the peaks that occur during the most popular order times, and the ability to easily re-configure storage bins at replenishment stations.
Co-locating the MFC at the retail store offers multiple synergies, but the implementation of an MFC requires careful planning and an experienced partner. At Swisslog, we are working with grocers at every stage of MFC evolution—from fully deployed to initial planning—to optimize space utilization, enhance inventory management and increase throughput and productivity.
With more than 2,000 warehousing and logistics automation projects completed worldwide, Swisslog not only has fundamental knowledge in food and beverage, e-commerce, and retail, but it has the ability to deliver logistics automation for the whole supply chain network within these industries, starting with large CFC and moving through Dark Store, down to MFC.