Despite how it can sometimes appear, the storage sector is quicker than most to embrace new technologies. The next titanic shift in storage may be the concept of the ‘micro fulfilment centre’. Already a necessary part of Amazon’s infrastructure, the demand for next-day and same-day shipping will soon extend to other online retailers. When it does, what will the effect be on the wider storage and fulfilment landscape – and will smaller retailers feel the pinch?
You probably have a basic idea of how fulfilment centres work. A customer places an order with a retailer, that retailer forwards the order to the fulfilment centre, and they dispatch the product on behalf of the retailer. This allows the retailer to source stock from warehouses in multiple locations and to outsource the logistics of order fulfilment, or in the case of an Amazon, to sell items on behalf of other retailers using its own logistics network.
Micro fulfilment centres perform the same job as their bigger cousins, but on a smaller scale. This allows them to be nestled within cities and other dense urban environments, dispatching either commonly bought items or those that have been forwarded on from larger centres – ensuring that customers in these urban centres are not reliant on vehicles travelling from regional hubs.
What micro fulfilment centres allow for is hyperlocal fulfilment, equivalent to having a local store deliver to your house with delivery that’s magnitudes faster than regular fulfilment; some products arriving the very same day.
Scaling up, sizing down
Having started out with a large inventory on the European mainland, Amazon and other retailers have expanded their remit by adding warehouses in each country and storing orders from suppliers and sellers more locally. Micro fulfilment centres are a natural extension of this premise, but one that could only be realised recently.
The first reason for the growth of micro fulfilment is obviously demand. The rise of one-day delivery has shown that people value rapid delivery and caused firms to explore the notion of same-day delivery, which micro fulfilment centres are vital for. But they also rely on two factors: algorithms and automation. In the first case, retailers must be able to predict which areas will have demand for which items; in the second, they need to optimise retrieval and delivery as much as possible.
The result is an entirely new combination of ingenuity, technology, and design. Micro fulfilment centres need to be more than just a smaller version of a fulfilment centre – they need to fulfil orders faster and more smartly than ever. This requires the use of automation to store, sort and retrieve items, and a high-density storage system that combines robots with an advanced warehouse management system (WMS), allowing them to navigate the tight confines of an inner-city warehouse, and ship orders at any time of day.
A sprawling empire
All of this is eminently possible for Amazon, and a frightening prospect for smaller retailers. The technology required to maximise the value of a micro fulfilment centre is on the cutting edge, and the logistics are a step above regular fulfilment. Yet micro fulfilment doesn’t just offer a valuable service to customers; it also offers potential efficiency savings for businesses, and a route for storage and logistics companies to compete with Amazon’s operations.
Amazon’s main advantage prior to this was the ability to stock an absurd variety of goods, sell them at a reasonable price, and get them to you quickly. While micro fulfilment allows them to do this even more efficiently, it is also inherently limiting in what it can provide. Micro fulfilment centres can by their nature store far fewer goods, with algorithms and some human intervention deciding which items go where, and what people are likely to want to order.
What this means at present is that Amazon is limiting its same-day delivery coverage to its Pantry service, offering food delivery services in a few major cities. This is a service which local supermarkets – themselves a kind of micro fulfilment centre – already offer and means Amazon have broadly vacated their usual territory to expand their food business.
What Amazon has that smaller businesses lack, is the ability to scale rapidly, and burst into other market sectors. Yet this is where storage and logistics firms could come into their own. By offering micro fulfilment services to other businesses, it should be possible to stock a small range of products from various companies, in the same way Amazon currently fulfils orders by its marketplace of sellers.
Amazon’s achilles heel here is the sheer variety of goods it offers, and the fact that it cannot reasonably offer same-day delivery for multiple categories of items without leaving some things out, making its offering seem incoherent. Small businesses have no such problem, as they can make entire ranges on their website available for same-day delivery.
An opportunity exists to exploit Amazon’s reputation as a ‘jack of all trades’, and eliminate its advantage of fast delivery. When the choice is between an artisanal product on Amazon, or an even faster product from a small business, consumers suddenly have much more to think about.
About the Author
This post was written by James Beale, Operations Manager at Invicta Pallet Racking. Invicta are renowned designers, installers and inspectors of high-density pallet racking systems, with clients including Booker, Brakes and Crown Records Management