If you’re a fan of HBO’s hit Silicon Valley, a parody on tech culture, you’ll likely remember “Action Jack” Barber’s famous Conjoined Triangle of Success framework that he proudly references as key to growth: compromise between sales and engineering teams.
The Conjoined Triangle of Success, unfortunately, cannot help us identify the best path forward for all aspects of growth, especially for those of us in retail who have witnessed the phenomenal increase in ecommerce over the last several years.
As digital order volume continues to accelerate – and as companies build out same-day fulfillment – micro-fulfillment centers (MFCs) have become a topic of debate in terms of when and how to best incorporate a fulfillment network to support order growth.
So, we dove into the world of MFCs in a two-part post to offer 1) an overview of the MFC market in this post and 2) criteria for considering an MFC in relation to the first pillar in the same-day fulfillment framework – Stores.
What differentiates one MFC from another?
Chances are if you are reading this article, you are familiar with MFCs already, but for those new to the concept, MFCs are small, automated warehouses designed to fulfill ecommerce orders, typically ranging in size from 5,000-25,000 sq. ft. This means they can fit in warehouses or in much smaller spaces, even attached to the back of a store.
There are two ways MFCs differ from one another: by business models and technology.
Primary MFC model: High upfront/low backend costs
On the business model side, almost all the players in the MFC space use a high upfront/Capital Expenditures (CapEx) and lower Operational Expenditures (OpEx) model. Providers, such as AutoStore, Attabotics, Berkshire Grey, Dematic and Exotec, are businesses that go to market in this fashion.
Each MFC offers different variations on this model – depending on the size of the site and overall network. These solutions can typically run between 4 and 8 million dollars upfront (excluding any costs of construction to modify your existing site).
Alternative model: Low upfront/high backend costs
Fabric and Takeoff Technologies also offer a traditional 3PL model with low upfront costs but higher variable or operational costs. Fabric offers “micro-fulfillment as a service” with an existing site in New York that can incorporate your product for same-day distribution, or you can deploy their technology at one of your sites where they will operate it for you.
This approach relies on heavy investment from an MFC partner to offer this model on a same-day basis, which is why it’s only available in select metro areas currently. A pre-built, nationwide, third-party network of same-day fulfillment would require a) many leases across the country in major metro areas and b) technology buildouts at those sites, which would add up to hundreds of millions of dollars without any upfront commitments from retail partners.
As a result, most MFC providers operate with a structure that requires the upfront build but then provides a longer-lived benefit to you at the right volumes.
Technology solutions improve operational throughput: number of customers served per hour
The technology component is core to the value proposition of any MFC provider. The primary purpose of the technology is to serve more customers in the same amount of time – operational throughput. A helpful way to think about this is the resulting tangible increase in the number of customers served per hour.
To achieve this end requires improving the picking operations for your fulfillment network, which is what MFCs solve. The technology provides gains in both your a) picking speed (measured in picks per hour – PPH) and b) storage density from either a warehouse or store, provided you have the minimum amount of square footage and ceiling heights to accommodate one of these systems. Furthermore, MFC providers are starting to tackle improved order staging, resulting in better handoffs to delivery teams for increased order efficiency through the system.
These two elements put together – picking speed and storage density – allow you to serve more customers and drive better output at any site. The result is the ability to fulfill more orders while reducing your cost to serve customers on each order. [Note: this is how retailers make an evaluation about whether to invest in an MFC.]
MFCs can be placed in either a warehouse or adjacent to an existing store/dark store to meet different delivery speeds – same-day, next-day or greater. However, faster delivery speeds are based on your fulfillment site’s proximity to the customer.
Three different technology types for MFCs: Shuttle and conveyor, hybrid, and autonomous robots
We’ve observed three different types of MFC technologies, all aimed at improving operational efficiency:
- Shuttle and conveyor systems
- Hybrid systems
- Autonomous robots
Shuttle and conveyor systems operate exactly like they sound: a shuttle moves in between each of the storage racks and retrieves a storage bin that contains the product to be picked. The shuttle then sends the bin to the picker via a conveyor system then retrieves the bin and shuttles it back into storage once an item is picked from the bin. (For a brief video of the technology in action, click here.)
Hybrid systems take elements from the shuttle technology and add autonomous robots to create a flexible storage and retrieval solution. For these MFC providers, there is not a common technology system, but it should be noted that most do away with the conveyor, which allows for both increased storage density and reduced potential failure points.
What this means is that should the conveyor get backed up or have an issue, the system can continue to operate since the robots are independent and don’t rely on a single track. (A brief video of the Attabotics system can be viewed in this Wall Street Journal Article.)
Autonomous robots, made popular by Kiva Robotics – acquired by Amazon in 2012 – are the third technology type observed in the market. Exotec is one example of an independent technology provider that employs this technology with a fleet of robots that climb storage racks to select the bin with the product for picking and then deliver the bin to a human at the picking station.
These systems also have the upside of not having a single point of failure, given each robot can operate independently, while also being easy to scale for added capacity by simply adding more storage racks and robots.
More players coming into the market as ecommerce sales grow
With the marked surge in ecommerce sales, coupled with labor shortages and increasing wages, solutions aimed at supply-chain efficiency will continue to pop up. Order fulfillment is a natural place for any retailer to consider when it comes to streamlining their business and increasing employee productivity.
As Wily Shih, professor and supply-chain expert at Harvard Business School says in The Wall Street Journal: “Who wins and who loses in supply chains will depend on who is able to use automation and software to pare down the industry’s dependence on workers, and to make those who remain that much more productive.”
What other factors have you found important in considering MFC providers?