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For retailers trying to attract and retain customers in an increasingly crowded environment, order fulfillment and delivery is now a key differentiator. Just a few years ago, two-day shipping was a nice customer perk. Now, it’s table stakes in many sectors.

According to Maergo’s “The State of Shipping Report 2022: Why Faster Shipping Matters,” most online customers (62%) expect their orders’ delivery window to be three days or fewer. Even more telling: 56% of abandoned carts can be attributed to delivery concerns.

While retail giants such as Amazon and Walmart can meet these shrinking delivery windows with the help of extensive investments in shipping infrastructure, smaller competitors must get a little more creative.

Many of these smaller companies have turned to micro-fulfillment to solve some of their biggest delivery challenges. Micro fulfillment provides a much more cost-effective way to achieve blazing-fast delivery times by using space in existing retail locations or small-footprint, last-mile distribution centers. Because these options use less space, businesses can avoid the huge real estate costs associated with traditional warehouses.

These micro fulfillment centers (MFCs) also use automation—either manual (like robotic pickers) or digital (robust warehouse management software)—to improve efficiency and speed.

Here’s how micro-fulfillment can solve last-mile delivery challenges, and how to make the most of a micro-fulfillment operation.

THE PARCEL DELIVERY PROBLEM

The Pitney Bowes Parcel Shipping Index from 2021 revealed that global parcel volume hit more than 131 billion in 2020—that’s 4,160 parcels shipped every second! It also predicted that shipping volume could reach as high as 303 billion by 2026. In today’s challenged supply chain environment, that big an increase could cause a lot more strain if shippers and retailers don’t optimize their operations now.

The biggest challenge to overcome? Visibility.

Shippers and retailers both often struggle to pinpoint a delivery’s location along its journey to the consumer. They also have trouble spotting issues and potential exceptions (delivery delays) to proactively prevent them from affecting customers.

This challenge comes into sharp focus if you’re shipping from a couple of centralized warehouses. This fulfillment model places your inventory farther from your end customers—warehouses need lots of space, and that space is usually not in the center of your delivery radius.

With farther to travel, each order must go through a series of stops, and even vehicle and facility changes along the route (depending on the distance to the customer). Longer distances also introduce many more opportunities for errors to crop up. If weather, traffic or even a flat tire delay a delivery vehicle, you may miss the delivery window and lose that customer. Zendesk’s CX Trends 2022 report showed that 61% of customers will switch to a competitor after just one bad customer service experience.

MFCs can help solve these challenges on a variety of fronts.

IMPROVE SPEED AND INVENTORY MANAGEMENT WITH MICRO FULFILLMENT

Visibility doesn’t just apply to tracking an order from warehouse to customer. It’s also an important consideration in an MFC, providing valuable sales volume and inventory data over time to allow more informed business decisions.

For example, having better control of order data can show demand trends to help keep faster-selling items in stock. This also helps with the workflow in the fulfillment center, as these higher-demand items can get priority placement so workers can grab them quickly.

Better visibility makes it easier to keep in-store shelves stocked, too—and replenishing stock from an MFC is faster than waiting for it to come from a central warehouse.

But the benefits of micro fulfillment don’t end with visibility. Because of the automation usually included in this model, picking and packing takes much less time and frees up your workforce to focus on other customer service tasks.

And with their smaller footprint (often fitting in the back of an existing retail location), MFCs keep inventory close to end customers. This significantly cuts down on delivery times, and means orders can often arrive in hours, rather than days.

BETTER SUPPLY CHAIN FLEXIBILITY, SCALABILITY AND COSTS

CB Insights reports that micro fulfillment can reduce costs associated with an order by 75%, compared to manual picking in a traditional warehouse. That adds up to huge savings over a year’s worth of orders and is due to several unique aspects of this model.

First, keeping in mind that the compact nature of micro fulfillment requires much less investment in real estate—often filling otherwise wasted space in retail stores that already exist—this tiny footprint also makes scaling up as you grow (or meeting seasonal demand) much easier and cheaper. But it doesn’t leave you with a lot of unused space when volumes drop again.

That small footprint also comes in handy for speeding up last mile delivery in urban areas. Instead of placing one huge distribution center on the outskirts of a city, a retailer can operate out of several MFCs placed strategically close to where customers live. This cuts transit time and overhead costs for each delivery.

Micro fulfillment helps keep items in stock on store shelves, too. Instead of waiting for a big delivery from a centralized warehouse, inventory can come from a nearby micro fulfillment location.

HOW TO GET THE MOST OUT OF MICRO FULFILLMENT

As with any other warehouse management process, the success of micro fulfillment depends on organization and efficiency. Follow these tips to take full advantage of everything a micro fulfillment model has to offer:

Optimize your inventory. This is especially crucial when you’re working in a small space. Keep your most popular, fastest-selling items in the most convenient locations to make picking more efficient.
Take advantage of automation. This doesn’t mean you have to invest in an expensive robotic picker system—digital automation in the form of a robust warehouse/order management platform can make manual picking just as quick as mechanical picking.
Choose the right WMS. Speaking of warehouse management platforms, the best software with the most bells and whistles won’t be cost effective if it doesn’t integrate well with your existing processes/scanners/tech environment. Make sure the one you choose is compatible with the way you work.
Choose the right location. Micro fulfillment’s biggest benefits are its ability to work in a small space and its improved speed of delivery. But those benefits evaporate if you don’t place your fulfillment centers in the right places. Whether using open space in retail locations or adding standalone tiny warehouses, be strategic in placing them near the highest concentration of customers.

Parcel delivery plays a critical role in ensuring a positive experience for customers. With rising costs and less forgiving consumers, it’s crucial to find ways to get products in your buyers’ hands in the fastest, most efficient way possible.

Micro fulfillment, with its cost and productivity benefits, can be the answer to your biggest delivery challenges.

Author’s Bio

Bill Catania is the CEO and founder of OneRail, which is headquartered in Orlando, Florida, and combines “a fast, intelligent platform, a scalable national footprint of couriers and a skilled Exceptions Assist team” to take “the friction out of delivery to make sure our customers are informed and happy.”

Collaborative Transportation Management

The concept has been discussed, but never realized on a large scale. With the capacity shortage continuing for the perceived future, shippers and LSPs are looking for ways to expand their network. Real-time visibility solutions can identify the capacity that is trapped in a given network. New solutions have been developed to allow companies to share capacity and cover a greater percentage of the loads. Work in 2018 has shown that, as the number of participants expand, the ability to dramatically increase available capacity rises. Collaborative transportation management will be the fastest way in 2019 for shippers and LSPs to meet their transportation capacity challenges.

The Global Trade Scramble

For many shippers and LSPs, there is no choice but to spend a lot of time and effort on strategies and tactics to mitigate the impacts of the current US administration, the affected countries and Brexit. The uncertainty that exists in the market is what is most disconcerting and driving this high level of focus. In North America, changing duties and quotas are driving companies to develop new sourcing strategies, evaluate the impact of new duties on the bottom line and vet new suppliers. Brexit is even more problematic for Europe as companies try to understand the effects on their supply chains and logistics services if the seamless flow of goods stops between the UK and the rest of Europe. In 2019, companies will focus on global trade and customs solutions that can help them navigate the potential changes, glean clearer insight into alternative trade opportunities that exist and ensure compliance with much higher customs clearance requirements. 2018 was also a very active year in the area of sanctioned parties list expansions, stepped up enforcement actions especially on challenging rules like the OFAC 50%, and it is very likely the pace of sanctions and enforcement actions will ramp up in 2019.

Home Delivery Hangover

Again, another “no choice” for retailers as consumer expectations for home delivery continue to rise with, again, record online sales during the 2018 holidays. Retailers will be focused on getting costs in line and better understanding what customers want and are willing to accept for home delivery services. In 2018, companies started to get a better perspective on the different kinds of expectations customers had for delivery services, and that “as fast as possible” and “free” were more market hype than reality. In addition, leading retailers started to focus on understanding the balance between delivery service and the fees charged and—most importantly—understanding that allowing consumers to self-select their delivery options based upon speed and price could lower or recover delivery costs. In 2019, retailers will increasingly look for home delivery solutions that allow them to provide consumers with delivery choice, and even steer them to options that help the bottom line.

Parcel Power

As ecommerce grows, so does parcel shipping. In 2018, the rapid expansion of domestic and international parcel shipping continued. Carriers established more aggressive pricing and delivery strategies to keep pace with the increasing demand and improve profitability. Governments adopted more stringent tariff policies to make sure they were not missing an increasingly large revenue stream from ecommerce direct from Asia. As the cost and complexity of parcel shipping increases in 2019, companies will deploy solutions that can minimize their parcel shipping costs through more intelligent carrier and mode selection, and effectively address international requirements such as landed costs, restricted party checking and customs filings.

Technology – Some Hot & Some Not

There was not a day in 2018 when some organization or technology company was not announcing their AI, Machine Learning, Big Data or Blockchain solution or initiative. Even the business and trade press pointed to these technologies as ushering in a new era in logistics technology. As 2018 unfolded, however, there was a divergence in the value of some versus others that will carry into 2019. In 2019, there will be greater investment in—and results from—AI, Machine Learning and Big Data because of the ability of these technologies to significantly augment existing solutions and deliver business value in the near term. Unfortunately for Blockchain, it heads to the “trough of disillusionment” for the next year as pilots end and questions remain about the change and costs required to deploy it, its technological limitations and, most significantly, the lack of standards. For anyone who has been in the tech industry for 20 years, Blockchain should be a reminder of the hype that XML received in the late 90s. The question for the value of Blockchain isn’t if, just when.
The macro trends of ecommerce, global trade destabilization and the over-the-road transportation capacity shortage will continue to shape 2019 just as they have in 2018. Shippers and LSPs are realizing that they must act differently to survive or thrive and will more aggressively adopt new logistics and transportation technology solutions. It has been 20 years since the impact of technology was so prominent in the transformation of logistics and transportation. How will your company use logistics and transportation technology to impact performance in 2019? Let me know.
Chris Jones is the EVP of Marketing and Services for Descartes – The global leader in uniting logistics-intensive businesses in commerce.

SMALL IS BEAUTIFUL: How Micro-Fulfillment is Solving a Macro Delivery Problem

Collaborative Transportation Management

The Global Trade Scramble

Home Delivery Hangover

Parcel Power

Technology – Some Hot & Some Not

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