The Rise of Micro-Fulfillment Centers in Urban Areas

An eCommerce company will experience changes and adjustments as it succeeds and expands. Asian economies will continue to be resilient in 2024 despite uncertain external prospects. Small businesses will continue to prop up economies and generate more jobs. Despite the rosy picture, companies must anticipate difficulties.

Business scaling will necessitate more fulfillment capacity, which will provide further challenges. An eCommerce company will need to think about how to grow and adapt during its existence. It may include reevaluating elements like fulfillment centers and warehouses.

Consider whether your company might benefit from moving to smaller fulfillment centers during this process. 

eCommerce giants like Amazon and Walmart have established the standard for same-day and next-day delivery services. Businesses realize they require micro-fulfillment centers (MFCs) to handle this new eCommerce norm. MFCs shorten the final mile, and help enterprises quickly fulfill online purchases from customers. It keeps businesses competitive and enables them to provide affordable omnichannel products.  

_{Micro Fulfillment Market Size To Hit USD 113.84 Bn By 2032 (precedenceresearch.com)}

A micro-fulfillment center is a small-scale warehousing facility intended to promptly and effectively fulfill online orders. These are usually found in cities or other densely populated locations. MFCs use robotics and automated technologies to streamline eCommerce orders’ packing, shipping, and picking procedures.

A micro-fulfillment center’s primary goal is to reduce time and expense by bringing items closer to customers. Retailers and eCommerce companies can speed up order processing and provide clients with shorter delivery times by strategically establishing these smaller fulfillment centers in diverse areas.

To increase productivity in a constrained area, MFCs frequently use cutting-edge technology. Automation technologies such as robots, conveyor systems, and automated storage and retrieval systems (AS/RS) are extensively used. With less need for human interaction, these automated technologies assist in sorting, organizing, and fulfilling orders, resulting in faster turnaround times and better order accuracy.

Why Micro-Fulfillment Centers are Better for Urban Areas

In addition to their intended usage, micro fulfillment centers and conventional, large-scale warehouses differ significantly in size. As a consequence, they each provide a different set of advantages for firms.

Key Characteristics of an MFC

Micro fulfillment centers are smaller operations with a maximum floor area of 10,000 square feet. They are typically housed in an existing store or warehouse to avoid interfering with regular business. Due to their limited capacity, micro fulfillment centers must be restocked often, limiting the amount of merchandise they can hold for 24 to 48 hours. These fulfillment centers are designed to have goods available for picking, packing, and shipping as soon as orders are received; they are not meant for long-term storage.

Compare this to larger fulfillment centers, which can be significantly larger. Depending on the amount of activities, they usually vary in size from 300,000 to 600,000 sq ft.

Larger warehouses can hold enormous volumes of inventory, which may not need to be refilled as frequently and could survive for several months of operations.

Due to their smaller scale and focus on faster deliveries, MFCs have several distinct advantages for eCommerce:

Highly Adaptable

Due to their smaller size, micro-fulfillment centers are good options if you need to quickly adjust to shifting market trends and client needs. You can meet certain market demands by placing MFCs strategically in high-customer concentration locations. It often takes less time and money to establish additional MFCs. The cost of building or expanding a single big warehouse could become exorbitant. Businesses that rely on MFCs can rapidly expand into new markets or modify their fulfillment network in response to changing client demand.

Convenient for Your Customers

An MFC’s most significant competitive edge is its ability to transport quickly and cheaply. Strategically positioned in urban or heavily populated locations, MFCs shorten the distance shipments travel compared to conventional warehouses. MFCs may concentrate on accelerating order fulfillment, which can raise customer satisfaction by keeping inventory closer to consumers.

Optimized Efficiency

Micro-fulfillment centers usually stock a small range of quickly moving, in-demand goods. By prioritizing products that sell rapidly, you can increase the cost-effectiveness of your inventory management and reduce storage costs for slow-moving goods that might be kept in conventional warehouses.

Many MFCs use robots and automated storage and retrieval systems to expedite picking and packaging procedures. This increased operational efficiency can result in faster turnaround times.

The Challenges Faced by Micro-fulfillment Centers

Despite these benefits, there are also significant obstacles to working with an MFC. Retailers must carefully consider the following issues before deploying micro-fulfillment techniques to ensure proper execution.

High Cost per Unit

Micro-fulfillment centers can be more costly per unit to set up and run than standard warehouses. Because of their smaller size and the need for more regular replenishment, MFCs can require larger upfront investments in automation systems and transportation.

Not Suitable for All Product Types

Depending on the size of the facility, MFCs can only store a small amount of in-demand inventory.

Stocking large objects like furniture and household appliances can result in severe wear and tear on your machinery. You must also store fewer goods to match the micro fulfillment center’s storage capacity because oversized products require considerable space.

At Risk of Stockouts

Due to their small capacity, micro fulfillment centers might not always be able to maintain ideal inventory quantities. Furthermore, erratic shifts in customer demand can frequently result in stockouts. It can completely destabilize your supply chain and leave many unhappy clients. You’ll need reliable inventory forecasting and management solutions to reduce this risk.

Requires Complex Tech Integrations

MFCs primarily rely on automation, robots, and complex software systems for order processing, inventory management, and logistics. Integrating various technologies seamlessly while maintaining compatibility and smooth operation can be difficult. These tech systems are prone to technical problems, so you must rely on expert support. 

Understanding the Impact of Micro-Fulfillment Centers

Due to the fulfillment experience of major retailers such as Amazon, consumers have grown to anticipate quick and free shipping. Smaller and medium enterprises are also under intense pressure to meet these expectations.

It also explains the popularity of micro-warehousing and outsourced fulfillment solutions in recent years. These solutions assist in meeting the fulfillment requirements of expanding eCommerce companies.

By bringing inventory closer to end users, micro-fulfillment centers shorten travel times and enable companies to deliver faster. The biggest constraint is that MFCs have only two days of storage capacity. The substantial fulfillment requirements of expanding eCommerce businesses could be too much for micro fulfillment centers to manage.

_{Chart: Preferred Delivery? Free, Fast and Trackable | Statista}

Micro-fulfillment centers, however, can be the perfect solution for smaller firms looking to streamline their fulfillment procedures. It’s especially advantageous for businesses with limited resources and lower fulfillment demands.

Outsourcing fulfillment to a 3PL is a practical method for larger companies and expanding eCommerce enterprises. It maximizes the delivery experience without having to make the considerable expenditure required for larger fulfillment centers. You also won’t have to deal with the capacity constraints of tiny fulfillment centers. Businesses can grow their delivery experiences like Amazon by leaving order fulfillment tasks like picking, packaging, and delivery to professionals.

Also, 3PLs can expedite delivery times by storing substantial quantities of goods throughout an extensive network of fulfillment centers. Capacity won’t be an issue.  

Fast-moving consumer goods (FMCG) retailers stand to gain the most from micro-fulfillment centers. These are perishable, high-volume products with significant demand volatility and swings. Certain eCommerce niches, like those with seasonal sales peaks, are also best for micro-fulfillment.

Providing best-in-class last-mile delivery services is essential to success while vying for retail market share. With same-day or even next-day delivery, suppliers must be ready for consumers who expect quick and quality delivery options.

Thirty-five percent (35%) of customers cited long delivery periods as they had recently canceled their order. Nearly a quarter (24%) of customers stated they would pay more to receive products within a two-hour window, while 41% of consumers are prepared to pay a fee for same-day delivery. MFCs provide quick delivery timeframes, which can help retailers see higher conversion rates.

Micro-fulfillment isn’t ideal for every sector, though. For example, luxury items are moved less frequently than food so that they can be stored longer.

The emergence of micro-fulfillment centers is revolutionizing urban eCommerce logistics. In addition to lowering expenses and carbon emissions, these small-scale warehouses are helping retailers satisfy the increasing need for prompt and effective order fulfillment. As eCommerce keeps growing, we anticipate seeing more retailers and logistics firms adopt MFCs as a crucial part of their fulfillment strategies.

ZhenHub gives your business access to a global network of fulfillment centers to help you expand your eCommerce operations. Simplify your logistics and see where the minute details of each product’s journey from warehouse to customer. Sign up for instant access to our online dashboard for free. Contact our fulfillment experts and learn how to get started with micro-fulfillment centers.