Posted on: October 4, 2021 Posted by: Ariel Tattum Comments: 0

Brands and retailers have been doing a lot of innovation over the last few years to offer customers a truly omnichannel shopping experience. From IKEA’s Planning Studio stores to Nike’s Nike+ app, brands have been rolling out increasingly sophisticated ways to engage with their customers. And the pandemic only accelerated the pace of change, with an impressive number of brands offering same-day pickup across their stores.

While brands and retailers have been making impressive changes, consumers continue to expect better and faster service, leaving brands no time to get comfortable as they look to the next frontier of omnichannel retail: same-day delivery.

For a glimpse at just how significantly consumers are moving toward this new reality, consider the spike in U.S. shoppers using same-day delivery between 2020 and 2021. Last year, 24% of shoppers with web-only merchants and 14% of online customers of store-based retailers opted for same-day deliveries. By early 2021, those figures had risen to 36% and 26%, respectively.

Don’t expect shoppers to abandon the convenience and ease of efficient e-commerce once the pandemic wanes. The future of retail is competitive, and survival demands rapid fulfillment of online orders while also running a profitable business. But how can retailers and brands without the resources and market clout of industry giants possibly compete?

The good news is that this mission is very much possible. First, brands need the right fulfillment infrastructure, decentralized inventory, instant fulfillment, and highly efficient operations in order to start meeting shoppers’ demands for rapid fulfillment without sacrificing the bottom line. Just as important as potential profitability is the need for brands to understand local sorting, allocation and demand, because without inventory in the right place at the right time, same-day experiences won’t be possible. 

Automated Fulfillment

The COVID-19 pandemic has played a decisive role in the e-commerce explosion and accelerated customer expectations of faster, cheaper delivery. By now, 60% of online shoppers are willing to take their business to another retailer if they can enjoy better shipping and fulfillment options.

With fast shipping becoming table stakes, the cost of providing it threatens to eat into online retailers’ and brands’ already-thin e-commerce margins. That’s because in order to enable speed, brands are either relying on high-cost manual labor to fulfill orders from nearby stores, or paying for long zone and hefty shipping costs.

Localized and highly efficient fulfillment systems can help retailers reap the benefits of having inventory close to customers without the associated challenge of in-store manual picking. That’s why local, automated fulfillment holds the key to e-commerce success.

Decentralized Inventory

The decentralized fulfillment model marks a break from the traditional model, which revolves around centralized facilities. These large hubs, some as big as one million square feet, allow retailers to utilize economies of scale, but are often located in rural or semi-rural locations, far from where most customers live. That makes high-speed delivery unrealistic, increases delivery costs, and renders supply chains vulnerable to last-mile challenges and other logistical disruptions.

By contrast, a decentralized network of micro-fulfillment centers (MFCs), housed in underutilized real estate in urban areas or in unused space in existing stores, is a model optimized for the on-demand era. MFCs are closer to where the customers are, which means both faster deliveries and lower delivery costs. 

Additionally, with more fulfillment centers dispersed across metros, retailers can circumnavigate region-specific disruptions or inventory shortages by utilizing other fulfillment centers in the network to balance loads. 

Economies of Density

While local fulfillment enables shorter delivery times, going local inherently means going micro, which actually means going against what we traditionally know about supply chains and economies of scale. The more consolidation there is, industry has learned, the more centralized operations are, and the more efficiencies retailers can drive. With existing supply chain models and technology, going local only makes the situation worse from a unit economics perspective.

While the principle behind economies of scale still holds, some key trends are shifting the industry to a new operating model, emphasizing fast delivery. First is the ongoing increase in e-commerce penetration, driving up local demand density and reducing the benefits of consolidating fulfillment operations. The second trend is the need to locate fulfillment closer to end customers, both for enabling speed and addressing last-mile delivery costs. And the third trend is that technology is opening the door for more local, faster, and efficient fulfillment models. These trends highlight a shift in the coming years from a focus on economies of scale to economies of density. 

For all this to be possible economically, retailers need a supply chain model that utilizes low-cost inner-city real estate, one that generates high throughput in small footprints and is far more efficient in terms of operating cost. Through a confluence of technology advances, micro-fulfillment has emerged as a new model, relying on a completely new architecture and tech stack. With robotics enabling higher throughput per square foot and a transition from labor-intensive operations, brands can achieve a new operating point that achieves a previously impossible combination of speed and efficiency. 

It doesn’t take the resources of industry giants to succeed in the on-demand economy. Micro-fulfillment enables brands to think and test locally, grow their footprint in the neighborhoods where their customers live, and thrive with scale.

Elram Goren is co-founder and CEO of Fabric.

Brands and retailers have been doing a lot of innovation over the last few years to offer customers a truly omnichannel shopping experience. From IKEA’s Planning Studio stores to Nike’s Nike+ app, brands have been rolling out increasingly sophisticated ways to engage with their customers. And the pandemic only accelerated the pace of change, with an impressive number of brands offering same-day pickup across their stores.

While brands and retailers have been making impressive changes, consumers continue to expect better and faster service, leaving brands no time to get comfortable as they look to the next frontier of omnichannel retail: same-day delivery.

For a glimpse at just how significantly consumers are moving toward this new reality, consider the spike in U.S. shoppers using same-day delivery between 2020 and 2021. Last year, 24% of shoppers with web-only merchants and 14% of online customers of store-based retailers opted for same-day deliveries. By early 2021, those figures had risen to 36% and 26%, respectively.

Don’t expect shoppers to abandon the convenience and ease of efficient e-commerce once the pandemic wanes. The future of retail is competitive, and survival demands rapid fulfillment of online orders while also running a profitable business. But how can retailers and brands without the resources and market clout of industry giants possibly compete?

The good news is that this mission is very much possible. First, brands need the right fulfillment infrastructure, decentralized inventory, instant fulfillment, and highly efficient operations in order to start meeting shoppers’ demands for rapid fulfillment without sacrificing the bottom line. Just as important as potential profitability is the need for brands to understand local sorting, allocation and demand, because without inventory in the right place at the right time, same-day experiences won’t be possible. 

Automated Fulfillment

The COVID-19 pandemic has played a decisive role in the e-commerce explosion and accelerated customer expectations of faster, cheaper delivery. By now, 60% of online shoppers are willing to take their business to another retailer if they can enjoy better shipping and fulfillment options.

With fast shipping becoming table stakes, the cost of providing it threatens to eat into online retailers’ and brands’ already-thin e-commerce margins. That’s because in order to enable speed, brands are either relying on high-cost manual labor to fulfill orders from nearby stores, or paying for long zone and hefty shipping costs.

Localized and highly efficient fulfillment systems can help retailers reap the benefits of having inventory close to customers without the associated challenge of in-store manual picking. That’s why local, automated fulfillment holds the key to e-commerce success.

Decentralized Inventory

The decentralized fulfillment model marks a break from the traditional model, which revolves around centralized facilities. These large hubs, some as big as one million square feet, allow retailers to utilize economies of scale, but are often located in rural or semi-rural locations, far from where most customers live. That makes high-speed delivery unrealistic, increases delivery costs, and renders supply chains vulnerable to last-mile challenges and other logistical disruptions.

By contrast, a decentralized network of micro-fulfillment centers (MFCs), housed in underutilized real estate in urban areas or in unused space in existing stores, is a model optimized for the on-demand era. MFCs are closer to where the customers are, which means both faster deliveries and lower delivery costs. 

Additionally, with more fulfillment centers dispersed across metros, retailers can circumnavigate region-specific disruptions or inventory shortages by utilizing other fulfillment centers in the network to balance loads. 

Economies of Density

While local fulfillment enables shorter delivery times, going local inherently means going micro, which actually means going against what we traditionally know about supply chains and economies of scale. The more consolidation there is, industry has learned, the more centralized operations are, and the more efficiencies retailers can drive. With existing supply chain models and technology, going local only makes the situation worse from a unit economics perspective.

While the principle behind economies of scale still holds, some key trends are shifting the industry to a new operating model, emphasizing fast delivery. First is the ongoing increase in e-commerce penetration, driving up local demand density and reducing the benefits of consolidating fulfillment operations. The second trend is the need to locate fulfillment closer to end customers, both for enabling speed and addressing last-mile delivery costs. And the third trend is that technology is opening the door for more local, faster, and efficient fulfillment models. These trends highlight a shift in the coming years from a focus on economies of scale to economies of density. 

For all this to be possible economically, retailers need a supply chain model that utilizes low-cost inner-city real estate, one that generates high throughput in small footprints and is far more efficient in terms of operating cost. Through a confluence of technology advances, micro-fulfillment has emerged as a new model, relying on a completely new architecture and tech stack. With robotics enabling higher throughput per square foot and a transition from labor-intensive operations, brands can achieve a new operating point that achieves a previously impossible combination of speed and efficiency. 

It doesn’t take the resources of industry giants to succeed in the on-demand economy. Micro-fulfillment enables brands to think and test locally, grow their footprint in the neighborhoods where their customers live, and thrive with scale.

Elram Goren is co-founder and CEO of Fabric.

https://www.supplychainbrain.com/blogs/1-think-tank/post/33761-keys-to-success-in-an-age-of-on-demand-shopping