Disruption in the logistics industry is on the upswing. With increased competition and customer expectation higher than ever, advanced technology and new business models have infiltrated the market to catch up with demand. But while we’ve heard plenty about things like Amazon’s drone delivery system and Uber’s self-driving trucks, there is a whole new wave of collaborative disruption heading logistics’ way. It’s called micro-fulfillment.
Think of it like Airbnb—but for logistics. In the same way Airbnb enables someone to rent out extra accommodation to guests, micro-fulfillment helps people turn their personal garages into company storage space. With large warehouses often located well-outside city limits, speedy last mile delivery has traditionally been a big industry pain point. However micro-fulfillment has the potential to eradicate these pains once and for all, bring warehousing closer to the end consumer, and democratize rapid delivery for companies worldwide. Intrigued? Here’s why you should expect it sooner than later:
Consumers expect fast delivery, but small companies can’t compete
According to a PwC report, businesses and individuals want their goods delivered faster and more flexibly. Even more, consumers expect delivery to be cheap – and oftentimes free. Amazon Prime’s biggest selling point is unlimited two day free shipping, for example. And Walmart just began offering the same service, no membership required.
The only way to make this rapid-speed delivery possible is through the use of AI and analytics—something Amazon in particular has ingrained into its core. Amazon has more than 100,000 robots working away in fulfillment centers around the world. Robot arms are used to pick up bins, and hundreds of vertical shelves carry goods around autonomously at each warehouse.
At Amazon, AI is already heavily leveraged to make their fulfillment centers more efficient. However for smaller companies, there are well-known challenges to setting up big warehouses. Every $1 billion in ecommerce sales need 1.25 million square feet of warehouse space – much of it used for last mile delivery. Even if a company sells just one quarter of that, the cost is still extensive; not to mention the time involved, location limits and other overheads. In short: the majority of companies cannot compete with Amazon’s – or now WalMart’s – speedy logistics capabilities. But with the introduction of micro-fulfillment, that’s all likely to change.
With central warehouses, micro-fulfillment makes AI logistics available to the masses
In the same way Amazon uses human pickers to navigate its fulfillment centers using a tablet, and choose items off the shelves to insert into plastic bins, micro-fulfillment has the potential to achieve this on a city level. Similar to how Uber works, human drivers would be notified via an app to head toward a neighborhood garage and pick up items for delivery. Today consumers wait for the FedEx truck to stop by their doors—but in the near future, a last-mile delivery worker could very well be anyone with a car. On the garage owner’s side, the app will alert them when they need to be home to accept a shipment.
With central warehouses, deliverables can be brought closer to consumers. In fact, small warehouses in more centralized locations have actually already started to catch on. Institutional investors are gobbling up previously overlooked urban industrial buildings to use as last mile distribution spaces. Rents-wise, Class B facilities are outperforming significantly better than other industrial assets.
The supply market is already trained for micro-fulfillment
Fifteen years ago, micro-fulfillment would not have been plausible; it would’ve been difficult to convince property owners to rent out garage space attached to their family homes, for delivery people to go in-and-out daily. However with platforms like Uber and Airbnb highly popular today, the market has already been trained to use its own space, and work with technology to perform logistics tasks.
In short, micro-fulfillment will bring the sharing economy to warehousing and logistics. Not only will it make consumer’s lives easier, however sharing in logistics will provide participants with the knowledge they’re being socially responsible – and reduces expenses for property owners and companies alike.
Micro-fulfillment is still in its early days, with test clients in the Bay Area set to receive their first shipments in Q1 2018.
So on both the supply and logistics side, the demand for mico-fulfillment is already there. With companies competing to meet consumer expectation for fast delivery and minimize those last mile pains for centralized distribution centers, micro-fulfillment is the next logical step for an already trained market. One hour delivery, here we come.
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2019 Trends, Logistics, and Strategies