Supply chain disruptions and rising demand have made fulfillment much more difficult for big box stores. Now, some retailers are turning to microfulfillment to get products to customers. This new fulfillment strategy brings fulfillment work and infrastructure closer to retail locations.
While microfulfillment can require significant changes to in-store layout or big investments in new fulfillment centers, it could become necessary if supply chain shortages continue to linger.
What Is Microfulfillment?
Most fulfillment strategies are centralized, meaning large fulfillment hubs receive online orders, pack them, and ship them directly to customers or local stores for pickup. These fulfillment centers may be states away from the customer or store.
Recently, businesses have been forced to expand their fulfillment capacities in response to the pandemic and changing consumer needs. In addition to buying more, customers are also buying differently – often shopping online and taking advantage of fulfillment options like in-store pickup.
Instead of expanding centralized fulfillment centers, some businesses are adopting a microfulfillment strategy – distributing fulfillment and, in some cases, integrating it directly in stores.
The strategy allows businesses to take advantage of warehouse-based logistics, which often leverages automation and other technologies to maximize efficiency while bringing logistics closer to customers. In practice, the benefits of microfulfillment include faster delivery times and lower last-mile-delivery costs.
A distributed fulfillment system can also simplify reverse logistics for both customers and businesses. Managing reverse logistics can be difficult, especially during peak season, but local fulfillment centers provide customers and businesses with more options for handling the return of items.
The company may operate its microfulfillment operations directly or work with a provider of third-party logistics (3PL) that can manage its fulfillment centers.
How Do Businesses Use Microfullfilment?
There are two broad approaches to microfulfillment: the in-store model and the hub-and-spoke model.
In-store microfulfillment renovates stores to dedicate some amount of floor space to an in-house logistics center. This center will process local online orders and in-store pickup orders while also providing logistics support to the store.
With the hub-and-spoke model, businesses create local distribution centers or “dark stores” not accessible by consumers. These are smaller logistics centers that serve a region or area.
Which Stores Are Using Microfullfilment?
Many major retailers are experimenting with microfulfillment in one form or another. In particular, businesses in industries that had to expand their e-commerce offerings to stay competitive in 2020 and 2021 – like big-box and fashion retailers – are prioritizing microfulfillment.
Target, for example, began experimenting with a “sortation center model” in 2021 to support its strategy of in-store fulfillment. The company’s sortation centers provide support to local stores and handle last-mile delivery for the area.
This combination strategy, which utilizes both an in-store and hub-and-spoke approach to microfulfillment, allows the business to support in-store pickup and streamline online delivery operations.
Walmart also announced plans to greatly expand its fulfillment strategy in 2021 by building microfulfillment centers equipped with automation technology. Experts believe the strategy could help Walmart significantly reduce the cost of last-mile delivery, which often accounts for between 27-30% of a retailer’s total logistics costs.
Amazon has greatly expanded its fulfillment strategy by investing heavily in local fulfillment strategies that bring warehouse logistics closer to customers.
Smaller Retailers Primarily Rely on Out-of-Store Microfullfilment Strategies
Smaller retailers, if they are adopting the microfulfillment model, don’t usually have the store space to practice in-store microfulfillment. Instead, they may work with one of a growing number of 3PL companies that offer microfulfillment services.
These companies manage fulfillment centers that are close to major retail locations, providing many essential fulfillment services for the retailers they work with.
Smaller retailers still recovering from the pandemic are the most likely to work with these brands. The fashion industry, for example, was hit extremely hard by the beginning of the pandemic.
Most fashion retailers can’t afford to practice in-store microfulfillment, but they may be able to benefit from a hub-and-spoke approach, either directly owned by the store or powered by 3PL.
These microfulfillment hubs allow businesses to take advantage of cutting-edge warehouse technology. Gap, Inc. and American Eagle Outfitters, for example, are both investing in warehouse robotics that will allow them to streamline warehouse and fulfillment operations for online orders.
The robots are built primarily to handle picking and packing. As most warehouses face a significant labor shortage, the technology could help these companies – and other large fashion retailers – improve logistics efficiency and navigate the ongoing shortage.
Will More Stores Adopt Store-Based Fulfillment?
The supply chain disruptions that have plagued retailers for the past few years are likely to continue. While experts think many shortages will begin to resolve themselves this year, retailers may not see a return to normal until well into the future.
Microfulfillment helps retailers distribute their logistics operations and simplify last-mile delivery. The approach can help businesses save money and reduce delivery times. It may also allow businesses to take full advantage of cutting-edge warehouse technology, like picking and packing robots.