What is Micro-fulfillment?

Micro-fulfillment is an e-commerce fulfillment strategy whereby online orders are picked, packed and shipped from the store closest to the customer. The key difference between micro-fulfillment and traditional store fulfillment is that a micro-fulfillment system manages the workflow for the associate and directs the associate via handheld device through each stage of the fulfillment process ensuring the most accurate and efficient method of picking, packing and shipping the orders. These workflows take into account the item type, location, most efficient pick path, along with many other supply chain best practices.

Online ordering has surged in volume versus store sales and it is likely that e-commerce will continue to make up a larger percentage of retail sales than in the past. While shoppers navigated more to e-commerce, they also grew accustomed and expected fast and cheap shipping for online orders. But with last mile delivery costs on the rise and a market push towards sustainability, retailers need to find ways to meet customer expectations while controlling costs and emissions. Micro-fulfillment can help retailers achieve order profitability and sustainability targets, while ensuring customer satisfaction.

Accelerate Order Delivery

By routing orders to stores based on proximity to the customer then fulfilling and shipping from those locations, the distance travelled by the package is significantly reduced. In addition, instead of all orders being picked and packed at a central location, like a DC, then picked up by a courier, sorted again at the courier’s distribution center, and then flowing through the courier’s delivery network, all orders fulfilled from a specific store can be shipped directly from the nearest store to the customer due to the proximity of the package destinations.

Control Delivery Costs

Delivery times are reduced because delivery distances and order sorting complexities are reduced. Also, shorter delivery distances mean lower delivery costs and less miles covered.

Increase Store Productivity

With time and money invested in identifying, building and staffing a retail location, retailers expect a certain return on their investment. Unfortunately, not all stores perform as well as expected for to a variety of reasons. With micro-fulfillment, online sales fulfilled from a specific store can contribute to the productivity of the store. Sales per square foot of the store and online sales can both contribute to store KPIs and even compensation plans.

Reduce Warehousing Costs

If a retailer or brand only sells goods through their own network of stores (non-wholesale), a micro-fulfillment strategy enables you to ship the majority of merchandise to your stores for online order fulfillment instead of fulfilling from a central warehouse. With all merchandise for sale online or in-store stocked at each location, the function of a distribution center is greatly reduced. With less stock on the shelves and less personnel required, a micro-fulfillment strategy reduces a retailer’s dependance on the warehouse, thereby reducing warehousing costs.

Push Towards Sustainability

The underlying concept of micro-fulfillment is for orders to be fulfilled closer to the customer, thereby reducing order delivery times and distance. A key outcome in the reduction of distance is the reduction in emissions. Shipping from a DC many hours away from a customer’s home versus shipping from a store 15 minutes from a customer’s home means a significant difference in the carbon footprint of the order.

Planning and Allocation

Micro-fulfillment requires a complete evaluation of a retailer’s fulfillment strategy and adds additional strains on the planning and allocation process. Planning teams need to consider online order volume when allocating stock to each store. The more stock keeping units (SKU) and stores a retailer has, the more complex this process becomes.

Labor Management

Store staff scheduling will be a challenge as store managers will need to balance the needs of in-person customers with those of online customers. Ensuring customer-level services are met while balancing labor costs and productivity adds an extra layer of planning at the store level.

Employee Training

Depending on the type and size of the store, employees may need to wear several hats and seamlessly switch roles — from being sales attendants to order pickers and packers to stock associates — depending on the volume of customers, online orders and staff on hand. Retailers will need train staff accordingly and set the expectations for the roles at the hiring stage.

Replenishment

If, how and when to replenish depleted stock are decisions retailers will need to face when items sell out. For example, if an online order comes in for an item that is out of stock at the local store, but available at an alternate store further away, should that item be shipped and at a higher delivery cost? Or should the item just appear out of stock? If the decision is to replenish, where should the stock come from? Another store? Which one and why? The answers to these questions will come from the fine-tuning of the replenishment strategy.

Micro-fulfillment treats a store as if it is a warehouse, where items located in the stockroom and on the sales floor are mapped to the aisle and shelf level. When an e-commerce order comes through from the order management system, store associates are notified of the new order and with the use of a handheld terminal (e.g., a mobile phone) they are directed to which items to pick, where to pick them from and in what order. The store associate scans the item as it is picked, capturing the inventory that has been consumed. The items are then assembled and packed at a designated packing station.

Levels the Playing Field

Competing with direct-to-consumer giants like Amazon for fast and free shipping is a contest retailers are destined to lose. Not every retailer has the deep pockets, diversification or logistics network of Amazon to be able to leverage its flagship offering — same-day shipping —without incurring losses. But retailers do have an advantage over Amazon and may be able to beat them at their own game. The advantage? An already established network of supply chain fulfillment nodes: retail stores, with their proximity to customers in a variety of geographies, give retailers the opportunity to ship fast and at lower costs than a company like Amazon, which for the most part relies on warehouses that serve a number of different geographies. Now’s the time to unlock this potential.

Re-examines Fulfillment Processes

E-commerce orders, depending on the type of retailer, hovered around 10-15% of total orders. Therefore, with e-commerce only a fraction of the retail business, it’s understandable why efforts were placed into increasing store sales and explains why e-commerce became an operational silo. In an omnichannel world, this model is outdated and dangerous. Online orders and store orders are now part of one ecosystem. Retailers need to break away from traditional ways of doing business (e.g., online orders fulfilled by a DC and click and collect fulfilled by a store — but only if the items are in stock, or only if the store associate feels like fulfilling the order) and find new ways of getting product to customers that are cost-effective and efficient.

Drives Technological Evolution

Micro-fulfillment will not be possible without the adoption of new technology. Beyond micro-fulfillment, success in the next era of retail requires digital transformation to help drive new fulfillment strategies and processes. For an industry historically averse or oblivious to technology, there will likely be some growing pains, but the alternative is far worse. Retailers cannot afford to be left behind by competitors who have accelerated their adoption of technologies and customers who have come to expect the convenience and service those technologies are able to facilitate.

1. Develop an Allocation and Replenishment Strategy

With a micro-fulfillment strategy, retailers will need to be able to forecast online sales by geographic location and then allocate those sales to a store or even a cluster of stores. This brings additional complexity to the planning and allocation process. If a retailer decides to go the micro-fulfillment route, one of the first steps is developing internal processes to forecast both in-person and online demand for each store.

2. Identify KPIs to Measure Success

Micro-fulfillment is a complex strategy that requires a retailer to rethink their supply chain processes with the benefits being last mile cost savings, the ability to compete with same-day shippers and increased customer satisfaction. The key to ensuring the strategy is working (or will work when running simulations) is to create a set of KPIs to measure and benchmark performance.

3. Choose the Right Technology

Retail is a notoriously difficult industry to staff with historically high turnover. In addition to providing robust functionality for inventory management, the in-store system a retailer selects also needs to be highly intuitive and easy to use (maybe even gamified) due to the sporadic nature of retail associate schedules and a revolving door of employees.

4. Train Store Associates

New store associates will need to be told upfront what their tasks and responsibilities are and trained accordingly. In the past, associates may have been trained on how to upsell an extended protection plan, but in the future they may need to also be trained on how to pick and pack an order.

5. Continuously Monitor and Adjust

Once processes are up and running and micro-fulfillment is in full swing, data and analytics will be key. Retailers will need to understand their omnichannel sales mix (e.g., pure store sales vs. online orders shipped to home vs. online orders picked up in store, etc.) in order to manage impacts, identify trends, analyze costs and regularly make adjustments.

As warehouse space becomes scarcer and warehouse operating costs increase, retailers that have the capabilities to implement a micro-fulfillment strategy — high square footage in stores, large number of SKUs, wide store network — should begin to take some things into consideration. The first step in the process will be to understand the benefits of this strategy, such as the delivery cost savings for the bottom line and increased sales and customer growth at the top line. Once operations are running smoothly at the planning and store level, the natural evolution for micro-fulfillment is automation. Take into consideration that not all products can be automated (think of a hockey stick), but for the most part a majority of consumer goods can be sorted, picked and packed by a robotic system. A system like this will need to be placed at the back of the store, in the basement or a couple doors over and it will require a large initial investment. However, the savings in variable labor costs and efficiencies in fulfillment will begin to pay off over time along with growth in customer satisfaction.

Tecsys’ end-to-end retail fulfillment platform, which includes order management, warehouse management and transportation management systems, are scalable and configurable solutions to help you provide seamless omnichannel experiences for your customers and cost controls for your business. Our micro-fulfillment capability will help you streamline your fulfillment process and deliver speed, efficiency and cost savings. Plus, it’s secure, scalable and highly intuitive for easy adoption by store associates.