The Rise of Micro Fulfilment Centres: Smaller spaces leading to bigger wins
With the outbreak of the coronavirus pandemic in 2020 the online retail segment witnessed a huge boom as consumers’ shopping patterns changed drastically. This gave rise to many new trends in the market; one of which is micro fulfilment centres (MFCs). Despite being a new concept, many retailers and organisations are seen leaning towards it. In the following feature, we explore the concept of MFCs, their challenges and scope in India, the application and much more.
Micro Fulfilment Centres (MFCs), also known as Dark Stores, are relatively small warehouses that are compact enough to be set up almost anywhere. These small, highly automated storage facilities are designed to fulfil online orders fast and efficiently and are situated close to where the customers live.
The two main components of MFCs are software management systems that process online orders, and the physical infrastructure, including robots that pick out items from storage aisles and shuttle them to packing staff.
But how are Micro Fulfilment Centres different from Traditional Fulfilment Centres?
MFCs and Traditional Fulfilment Centres are very different supply chain solutions. The MFCs satisfy the ever-expanding demand for e-commerce fulfilment, click-and-collect and home delivery; they seek to transform last-mile delivery logistics so that on-demand e-commerce can become a profitable and scalable business model. When it comes to MFCs in the logistics sector, “micro” is a comparative term.
The size of the MFC is usually from 5,000 to 10,000 square feet within the proximity of an urban e-commerce demand centre.
“Their size permits them to be located in urban areas, typically within a 7 to 10 km radius of the customer locations. Also, a smaller footprint means lower rental costs than a CFC, and their closer proximity to consumers makes for lower final mile delivery costs,” Gaurav Jaithliya, Co-founder and Chief of Strategy and Investments, Shadowfax Technologies said.
In terms of operations, Micro Fulfilment Centres & regular fulfilment centres have to work in conjunction with traditional fulfilment centres to ensure a hub & spoke distribution where Micro F.ulfilment Centres are used only for high volume SKUs serving the local e-commerce demand to make the unit economics work for online sellers.
Micro Fulfilment Centres are well equipped to independently fulfil online orders – quickly and cost-effectively. Micro Fulfilment Centres offer an end-to-end logistics solution, pushing into a brand’s already existing network and making e-commerce agile, shared Mr Jaithliya.
An MFC is often well equipped with a tech-enabled fleet for a real-time update on deliveries, robotics, and automation for error-free operations, operations management systems, etc when compared to FCs.
Challenges & Scope in India
As online platforms gain more popularity by the day, the demand and expectations of consumers are also increasing which is forcing companies to update their infrastructure to meet consumer satisfaction, and this is giving a major push to the adaption of MFC.
According to the latest study, Micro Fulfilment Market is expected to have a cumulative opportunity worth ~$10B in the next 6 years by 2026 with an installed base of ~2000 MFCs if the technology and concept remain permanent.
While we see MFCs gaining popularity across the globe, the concept is still quite new in India.
“In India, e-commerce consumption is less than one packet per capita. In China, it is 70; Europe is in the 20s. As it goes from 1(in India) to 10 or to 20, and it is only a question of time, the supply chain infrastructure would need to get modernised to meet the customer expectations of getting their parcel delivered the same/next day,” explains Mr Harsh Vaidya, Co-founder and CEO, WareIQ.
Adopting the concept can help companies create an online presence in a state without owning and operating stores, make their e-commerce or
omnichannel supply chains more efficient and cost-saving, thus giving them a competitive advantage.