Micro Fulfillment Centers: The New Rising Trend for E-Commerce Warehouse

Despite challenges brought on by the Covid-19 outbreak, Vietnam’s e-commerce business is nevertheless expanding rapidly. According to the Vietnam E-commerce Association, the e-commerce sector’s developing rate is over 25% and values over $20 billion USD (virac).

Rising demands will lead to a need for increased fulfillment capacities, which will then come with its own set of challenges. For example, customers have come to certain expectation that their online orders will arrive within two to three days, or maybe even hours. According to Forbes statistics, 22% of users abandon an online purchase because the shipping process is too slow.

As a result, many organizations are compelled to modify their operational strategies in order to compete. The existing network of distribution centers in use today might not be enough to meet the rapidly rising demand from consumers anymore. Shipping speeds have emerged as a key differentiator for businesses looking to stand out from their competitors.

Micro-fulfillment center (MFC) might be the solution for businesses who are having trouble adjusting to the currently booming e-commerce scene.

What is a micro-fulfillment center?

Micro-fulfillment center (or MFC) is a small-scale storage facility that e-commerce companies employ to keep products closer to the end-user and cut down on shipping expenses and lead times. A typical MFC center has a footprint of 250 to 1000 square meters and has the capacity to store up to 15,000 SKUs.

An MFC focuses on improving last-mile delivery times, functioning as a pick-and-pack center, storing finished goods that are immediately shipped to customers as soon as an order is placed.

MFCs typically use software automation to optimize order processing and inventory storage. Most centers only hold enough inventory to fulfill orders for a few days, sustained by a frequent restocking cycle.

MFCs usually have a compact design and are either independent or part of another facility, such as store basement, or existing retail space. Businesses can choose to hire a 3PL company that provides the service or run their own micro-fulfillment centers.

Why MFC is gaining popularity?

Experts estimate that micro fulfillment reduces cost per order by 75 percent. Retailers used to stockpiled inventory and replenished store shelves by the pallet load. Many businesses have integrated e-commerce and buy-in-store fulfillment in the same space as e-commerce has grown. However, the cost for one-or-two day shipping several cities away can be substantial. The micro fulfillment center shortens the last mile by relocating top-selling inventory closer to the customer, so shipping individual parcels costs less.

Here are the primary reasons many businesses have started adopting MCFs as part of their fulfillment process.

Faster product picking

MFCs are usually equipped with order management software, automated storage systems, and even robotics technology. MFC operations can pick a product SKU in seconds, lessen the amount of manual labor and error, and easily increase its fulfillment capacity.

Reduced fulfillment expenses

MFCs require significantly less space and labor costs, as they’re mainly used to stock finished inventory and operated through automated order fulfillment. Deliveries are also much faster and more cost-effective, with MFC inventory replenishment done in bulk at scheduled intervals.

Faster last-mile delivery

An MFC stocks finished goods ready to ship as soon as a customer orders. With each center located in strategic real estate areas closer to customers, MFCs can send deliveries much quicker than traditional fulfillment strategies. The click-to-customer cycle is much faster, allowing businesses to increase inventory turnover, reduce carrying costs, and see faster return on investment.

Greater competitive advantage

Providing next- or same-day delivery services can set a business apart from the competition and increase sales conversions. Furthermore, a convenient and easily accessible location to the target market opens up multiple other shopping options. A retail store can offer curbside pickup, click and collect fulfillment, or free home delivery for online orders. An MFC’s small size also makes it more agile and responsive to any market shifts. On-hand inventory can be easily adjusted to accommodate seasonal trends and local demand.

Businesses that deliver products to the end customer can improve their overall supply chain with a micro fulfillment center strategy. When it comes to last-mile delivery, speed is the main differentiator in the market. The faster a business can fulfill a customer order, the more sales it can stand to make.

The rising trend of micro fulfillment centers allows businesses of all sizes to remain competitive, meet customer demand, and better optimize their fulfillment operations. MFC is not a one-size-fits-all solution and has its own drawbacks, but it can be a strategy that works for many different types of organizations.

*Source: quickbooks.intuit.com, www.cnb.com, www.shipbob.com