E-commerce continues to grow following a boost in 2018 and again with the COVID-19 pandemic in 2020. To capitalize on the continued growth with online shopping and demand for same/next day delivery, major retailers started to implement micro-fulfillment centers (MFCs) in 2021. MFCs are smaller, typically automated warehouses located closer to the customer and are stocked with high-demand items based on local consumer needs.
Quickly following the increased use of automated MFCs technology suppliers focused on expanding their capabilities and marketing strategies. In 2023, there was a surge in grocery retailers adopting the use of MFC, mostly adjacent to their stores. The pharmaceutical industry is another space getting into MFC, with the growth in online pharmacy services, sensitive products, and accuracy requirements. Parts distribution is yet another growth area, both to keep manufacturing equipment running and because more people are working on equipment at home as a hobby or for cost savings. There are hundreds of micro-fulfillment centers today; however, there are multiple studies suggesting there will be thousands by 2030.
MFCs are strategically located to allow delivery or enable customer pickup, providing same-day/next-day delivery. This places many of these facilities in urban or suburban locations near retail stores. As noted, most of these facilities are automated, including goods to person technologies, which take up less square footage and automatically bring products ordered forward to workstations. These products are then delivered to the consumer’s front door.
With Benefits Come Challenges
The main benefit of the MFC strategy is faster delivery/reduced lead time to the consumer, including within hours of the consumer ordering online. In addition, it provides lower shipping costs, increased order accuracy, improved inventory management, and overall enhanced customer satisfaction. This doesn’t come easy, as there are numerous challenges to establishing MFCs. Some of these challenges include finding the real estate/space in the specific area, limited inventory in the system, and the coordination/logistics involved in sustaining the operations.
With these challenges and most projects requiring a high investment, it is wise to spend the time planning. The planning process includes gathering the required data, such as inventory history, order history, and item master details. It also includes alignment with the business objectives, including customer service levels and key performance metrics. Are you looking to provide same-day service, in a specific region with 100% accuracy and on-time delivery? It is also critical to align on the potential growth projections and scalability of the application. Many of the automated solutions have modular/scalable designs, but you need to have your volumes, inventory, and growth per year defined.
If you are not familiar with the MFC automated concepts, then you could involve a consulting or integrator partner to evaluate the various options. It is likely you need to develop an ROI for the MFC strategy, which includes logistics savings, operational savings, and costs including real estate, building construction, added inventory, automation/technology investments, and other costs/benefits. Once you have a proven strategy, it is critical to find the right automation partner to engage with for the system design, fabrication, installation, testing, and commissioning. Most companies have resources/partners for building construction and real estate, but likely not with automation partners that provide this technology
In terms of the technology and providers that can provide MFC solutions, there are hundreds, but the following information highlights a couple concepts. Shuttle technology is a goods-to-person technology that can be leveraged for MFC. They are typically installed in lower clear heights and use robots to navigate aisles to bring totes with products forward to workstations to fulfill orders. There are many suppliers of shuttle technology suitable for MFC designs. AutoStore is a specific goods-to-person application that is integrated by many providers and is a common solution for MFCs. It is a space-efficient design, with a compact grid layout and is modular/scalable. The best way to describe the AutoStore is automated elevators used to retrieve totes with products and deposit them at workstations for fulfillment. It is a denser and more space-efficient system than a shuttle, because there are no aisles; the totes travel along the top of the system. The AutoStore is also a system that requires a lower clear height. The typical system height ranges from 25 to 28 feet, plus local fire code clearance above the system which is typically 6.5 feet. The shuttle has similar height requirements.
To maintain a successful MFC strategy, it is critical to keep the system stocked with the right products and inventory levels. This is an area where artificial intelligence (AI) can help by analyzing large data sets to provide insight for optimizing the MFC processes. But if you aren’t ready for that technology, then ensure you have the proper sales and operations planning, as well as related supply chain software tools to maintain the system’s efficiency. Accurate demand forecasting improves stock management by correctly forecasting the demand, making sure you have the right inventory stock in the MFC. And, efficient order routing optimizes the routing of orders through the fulfillment center for faster picking and delivery of orders.
Shippers need to keep up with consumer demands of same-day (within hours) delivery requirements, and automated MFCs provide a viable solution. These smaller, automated facilities are less expensive than building another large distribution center, and the optimized placement of these facilities could drive your e-commerce forward. However, nothing should be done without a complete analysis of your current logistics network, distribution facilities, store sites, and internal supply chain capabilities to execute a MFC strategy. Model scenarios with the addition of MFCs and test the impact to your business. If right for you, and with a proven strategy, the exciting work can begin with designing the systems and selecting a partner to move into the MFC future.
Norm Saenz is Partner and Managing Director, St. Onge Company.
This article originally appeared in the March/April, 2025 issue of PARCEL.
