Micro-fulfilment Centres (MFCs)
Posted on 13th December 2024
In the past few years, the concept of the micro-fulfilment centre (MFC) has emerged as an important addition to the warehousing and logistics landscape. As e-commerce grows and customer expectations shift toward faster delivery times, companies are turning to MFCs as a solution. But what exactly are micro-fulfilment centres and why have they become popular?
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10. Conclusions |
1. The rise of micro-fulfilment centres
An MFC is a goods-to-person (G2P) picking solution with a significantly reduced footprint. According to Statista most of the 960 expected MFC installations worldwide to 2025 will be retail-based.
Although expansion of MFCs was driven by the pandemic, customer expectations for fast deliveries continue to drive growth. Retailers are also looking for opportunities to reduce costs and increase efficiency.
In this blog I explore the fundamentals, discuss the distinct types of MFCs, and review the design considerations. And finally, I explore whether automation can optimise the efficiency of these centres.
I have recently completed an MFC project for a client in the grocery sector. In this case, I compared a manually operated warehouse to an automated MFC. However, the lessons apply equally across the whole fast-moving consumer goods (FMCG) sector.
2. What is a micro-fulfilment centre?
MFCs provide dense, flexible centralised storage facilities. They allow retailers to fulfil online orders either from their stores or fulfilment locations close to customers.
Traditional distribution centres are often vast and situated outside city centres. In contrast, MFCs occupy much smaller footprints (often between 5,000 and 25,000 square feet) and are intended for rapid small order fulfilment.
It’s possible to pick orders straight from the shelves in local retail stores. However, this can detract from in-store shopping experiences for other customers.
Alternatively, orders can come from a purpose-built fulfilment centre, although suitable space for local MFC facilities is often difficult to find.
MFCs usually offer fast order fulfilment for same-day, or even same-hour customer collection or delivery. The centres are ideal for the FMCG sector and high-demand retail items such as grocery, healthcare, and fashion.
3. Why have micro-fulfilment centres become popular?
Easy ordering online and sophisticated apps have contributed to the popularity of MFCs. Other factors include:
Rising demand for speed and convenience: Consumers now expect quick and convenient delivery options. MFCs are closer to customers so they help reduce shipping time and costs. This makes them highly appealing in competitive e-commerce markets.
Speed: A quote from Turancan Salur of the rapid delivery service, Getir, summarises expectations well. “Ten minutes is now. When you’re hungry you’re hungry now. It’s an immediate need. ‘In half an hour’ is not fulfilling that need”.
Optimisation for last-mile delivery: Last-mile delivery has long been one of the most challenging and costly components of order fulfilment. MFCs reduce the burden by storing inventory closer to customers. This makes last-mile operations faster and more efficient. Environmentally friendly bicycle, electric moped, electric vehicle and automated robot deliveries are possible in densely populated urban areas.
4. MFC size and location
Existing sites, repurposed premises and new-build facilities are all suitable for MFCs.
Existing retail sites: A dedicated picking team can fulfil orders within a store. This can take place whilst other customers are doing their shopping but is far from ideal. Picking orders from additional storage space at the back of the store is also possible.
Dark stores: These are typically repurposed sites which don’t offer retail space for the public.
New builds: Custom-built facilities tailored for rapid micro-fulfilment requirements.
Whatever the requirements, finding a suitable location is often a challenge. For a new-build site, retailers must find space in densely populated areas which increases costs. The facilities need to be more than 5,000 square feet to serve a small local market. Purpose-built facilities with a large local customer base require at least 25,000 square feet to make the investment worthwhile. Overall, finding suitable land with appropriate development approvals is difficult.
MFCs typically need to provide:
unloading and receiving areas for vans and up to 18-tonne commercial vehicles
receiving and reserve storage areas
multi-temperature storage areas
order consolidation and packing areas
collection facilities suitable for customers, bicycles, mopeds, cars, and vans.
5. Customer experience
Although the UK’s FMCG sector is growing, competition remains high across all outlets from convenience stores to large supermarkets. High levels of customer service help ensure repeat purchases. Considerations include:
Spending: Compared to shipping options, online customers choosing local delivery or pick-up typically have higher conversion rates and order more.
Delivery time: Depending on a retailer’s website customers can see the expected delivery times before confirming their orders.
Stock availability and substitutions: Customers expect information about stock shortages before they place their order. Inventory accuracy within an MFC is essential to maintain high levels of customer satisfaction. Supplying customers with alternative products isn’t always appropriate.
Limited delivery slots: A key issue when shopping for food is availability of same day or immediate delivery slots. Quick turnaround deliveries during peak periods such as weekends and evenings are often in high demand.
Minimum order value and cost of delivery: Customers might need to spend a minimum amount or pay a ‘small order’ fee. Delivery fees might also vary, depending on delivery distance.
6. Grocery retailers active in the MFC market
Currently, Tesco appears to have the most advanced MFC operation, setting the benchmark. It offers advance booking for home deliveries, in-store collections (click and collect), same day deliveries and within-the-hour deliveries.
In most cases fulfilment is from existing Express and Extra stores. Whoosh is the quick home delivery service. Tesco offers services from over 800 stores and has 100 Express stores offering the Whoosh service.
Currently, customers can reportedly select 2,500 to 4,500 different products with delivery targets of 30 minutes. There is a set delivery charge at £2.99 for orders that cost £15 or more via Whoosh.
Tesco aims to improve customer experiences with estimated 15-minute delivery windows and live tracking of the rider on a map via the app.
7. Grocery retailers in the home delivery market
Tesco Whoosh
Zapp (still active in London only)
Jiffy (ceased trading May 2022)
Getir (ceased trading in the UK April 2024)
Morrison active in partnership with Amazon
Waitrose and Sainsburys with Deliveroo
Other home delivery short lead-time options:
Uber and Deliveroo take orders via their websites.
8. Design considerations
Looking specifically at grocery FMCGs, I have previously covered the standard approach to warehouse design and data analysis, which serves as a good template.
The following details need further consideration when considering the design process for an MFC:
order details
number of SKUs stored and the pick strategy
temperature range of items stored
days of inventory in storage and the replenishment strategy
seasonality.
8.1 Order details
The exact details of typical orders are important:
the order types including collection, immediate delivery, and timed delivery
the number of lines and units ordered
order limitations
the volume, weight and variances of the products ordered
the mix of chilled, frozen and ambient products.
MFC orders are typically small and chosen from a limited number of lines or units. Ideally the order size is small enough to easily pack into one bag for collection or delivery.
8.2 Storage – stock keeping units (SKUs)
The number of SKUs delivered from a MFC is far lower than a traditional convenience store. For example, for a product like ketchup, Tesco has over 28 options in a large store. An Express store might have six options, and a typical MFC just two options.
8.3 SKU analysis
The number of SKUs supplied from a dedicated MFC is probably less than 2,000. A Tesco Express store offering Whoosh would typically offer more. Reducing the range allows more efficient picking and replenishment operations. This is an important consideration from the outset since a traditional supermarket might carry between 15,000 and 40,000 SKUs.
Accurate calculations for storage requirements are vital to make sure there is enough capacity for efficient order picking. If space is reserved for replenishment the design must accommodate this too. In addition, seasonality of products can also significantly affect annual plans.
8.4 Storage density
Key factors include the clear height of the building and floor quality, especially when automation is a consideration. You can include specifications for floors in a new-build project before pouring the concrete. In older facilities the availability of suitable floor surfaces requires consideration.
Customers wanting immediate delivery from an MFC have different needs compared to shoppers planning to visit a larger store.
8.5 Replenishment strategy
Replenishment from a distribution centre (DC) affects fulfilment operations. Stock planning and forecasting is essential to meet expected demand. The capacity within an MFC to hold stock in the pick faces and from back-room storage needs careful planning.
Ideally replenishment from the DC takes place early in the morning or overnight, when picking demand is low. This minimises the impact of replenishment on picking activities.
For automated MFCs replenishment from a DC is ideally in trays of unique SKUs. Received items can merge with existing SKU stock or have their own unique tray. However, mixing items with different ‘Use by’ dates is not recommended. The control systems should sequence items to pickers in order of these dates.
8.6 Temperature
Typical storage conditions for grocery products are:
ambient
chilled
frozen.
For each of these conditions the MFC’s design must hold stock in the correct temperature range. Storing chilled and frozen items requires special storage areas which add to installation and operational costs. For automated MFCs it’s worth considering a separate area with stand-alone fridge and freezer units outside of the automation.
8.7 Seasonality
As for all retail operations, product sales can vary seasonally. In the UK, for example, we are less likely to buy ice cream in February than in July. A flexible storage and picking solution is needed to adapt to seasonal changes in demand. Flexibility is also needed to accommodate the throughput velocity of different items.
9. Automation options
An automated solution suits a larger high throughput warehouse operation. Smaller retail stores serving as MFCs can hand-pick items from the existing retail space and deliver the same level of customer service.
Typically, investing in automation is based on several factors:
Efficiency: Faster picking and packing is needed to justify investment based on labour savings alone.
Space: Automated solutions can operate in very dense storage spaces.
Speed and accuracy: These are critical factors for MFC order processing. When customers receive an expected delivery time, fast picking, packing and despatch of the correct items are essential.
Considerations must also take account of:
High initial investment costs: System and hardware costs for automation are generally high. Return on investment (ROI) is usually justified based on either efficiency improvements or improved storage density. High volume orders and labour savings are usually required to achieve a good ROI. It’s unlikely storage is a deciding factor for MFC automation.
Floor and height requirements: If the MFC is an existing facility, floor specifications need full consideration. The types of automation usually suitable for MFCs require a clear height of approximately 10 metres.
Space requirements and layout design: Although automation is suitable for dense storage, there are several constraints in an MFC. These include space for induct and picking stations for robots to queue in advance of picking.
Flexibility: Meeting peak periods of demand and adapting to changing product types and ordering patterns require flexible solutions.
Lease option duration: If the MFC space is leased for just five years, for example, this might make the project unsuitable for automation.
Automation options worthy of consideration in no particular order include:
Exotec
Automating an MFC is viable in some cases where there is an option to buy and invest in a purpose built facility.
The decision to automate an MFC is one that needs to be considered because the ROI is likely to take many years. Lease durations and company strategies require serious thought.
10. Conclusions
In this exciting world, where change is constant, increased take up of facilities operating as MFCs is highly likely. Continued development of apps and online ordering services will make it easier for customers to place orders. Drives to improve customer service will make fast delivery a priority. Different automated delivery options with drones and robots will provide environmentally friendly and efficient deliveries.
Challenges which still require effective solutions include integration of manual and automated picking. Efficient replenishment whilst maintaining operational effectiveness within MFCs still requires development.
Lack of local availability of employees and the cost of manual order fulfilment are driving increased adoption of micro-fulfilment. However, we must still make progress on the return on investment for automated solutions.
Designing an MFC follows the same logical warehouse design approach. If you are designing an MFC, evaluating a location, or planning a larger project, please ask for some advice.
I would be delighted to provide a quotation to provide any assistance required.
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