Demand for microfulfillment centers has cooled alongside a leveling off of e-grocery sales, but growth opportunities for the technology remain, experts say.
Victoria Kickham started her career as a newspaper reporter in the Boston area before moving into B2B journalism. She has covered manufacturing, distribution and supply chain issues for a variety of publications in the industrial and electronics sectors, and now writes about everything from forklift batteries to omnichannel business trends for DC Velocity.
It wasn’t long ago that the term “microfulfillment center,” or MFC, frequently cropped up in logistics industry conversations. The trend reflected a need for local inventory sources that could fill accelerating demand for last-mile delivery as e-commerce surged during the Covid-19 pandemic, especially in the grocery market.
You hear the term far less frequently today. Demand for MFCs has softened alongside steadying e-grocery sales over the past few years, but experts say the market for microfulfillment remains strong, with emerging opportunities that hold promise for equipment vendors and e-commerce players alike.
“A lot of the growth [in MFCs] pulled forward during the pandemic. Grocers had to service this channel that they hadn’t paid attention to or that was a small portion of their business,” explains Greg Lary, senior sales manager for logistics technology vendor Knapp, which was an early leader in supplying shuttle-based microfulfillment systems to grocers around the world. “Recent data [show that] demand has leveled off. We’re not seeing major spikes like during the pandemic. We expect to see more of a sustained volume [moving forward].”
Indeed, monthly e-grocery sales have softened since the pandemic days, according to data from the Brick Meets Click/Mercatus Grocery Shopping Survey, an independent research project that tracks online grocery trends. Monthly e-grocery sales were $6.5 billion in March of 2020 and hit a peak of $9.3 billion in March of 2021. Monthly sales have declined or been flat since, although they remain well above those 2020 levels—sales fell to $8 billion in March of 2023 and remained there this past March, 23% above where they were at the onset of the pandemic.
“The new behavior of the consumer is becoming more ingrained,” Lary says. “E-grocery is here to stay and should be considered in the growth plans of our grocery customers.”
Lary and others say microfulfillment technology can help companies address those needs in grocery and beyond. They point to growth opportunities across retail, including the pharmacy and even the auto-parts sectors, as the MFC market continues to evolve and businesses seek more efficient ways to serve customers. Here’s a look at some of the latest trends shaping demand for microfulfillment.
THE CASE FOR FLEXIBILITY
An MFC is a small-scale, automated facility used by e-commerce businesses to store inventory closer to the end-consumer, allowing companies to reduce transportation costs and transit times. MFCs often consist of robotic shuttle-based automated storage and retrieval systems (AS/RS) with manual or technology-assisted picking stations, but they can also incorporate other technologies, including autonomous mobile robots (AMRs), as part of a goods-to-person picking system. The key is that the systems are smaller in scale than what you’d find in a typical warehouse or fulfillment center and are often located in dense, urban areas. They can also be built inside larger warehouses or in the backrooms or storage areas of retail outlets.
One of the biggest challenges associated with MFCs is return on investment (ROI), says Matt Kelly, director of business development and strategic partnership at automated warehouse solutions provider Hai Robotics, which offers an autonomous case-handling mobile robot (ACR) solution for microfulfillment. Kelly describes that solution, the company’s HaiPick system, as an ACR-driven AS/RS.
“I think [microfulfillment] went through a lot of hype … and now businesses are figuring out if it’s the right decision, because it’s very expensive,” Kelly says, emphasizing the low per-item cost of most grocery merchandise compared to the high cost of installing microfulfillment equipment and technology, especially the infrastructure required in fixed-automation solutions. “ROI is really the issue.”
In light of that, flexibility has become a key attribute in microfulfillment, according to Lary, of Knapp. Modular systems that can be easily expanded or adjusted are often the best way to ensure customers make the most of their investment, he says.
“One of the biggest challenges [early on] was [the customers’] real estate requirements,” Lary says, explaining that Knapp’s early MFC designs featured a single layout that didn’t always fit the customer’s space. “One of the costliest parts [of a system] are the modifications that have to be made to the real estate. We realized we needed to be more flexible.”
Today, Knapp’s shuttle-based microfulfillment AS/RS can be customized to accommodate those differences and scaled to adjust to changing business demands: Customers can mix and match totes, trays, and cartons of various shapes and sizes; add racks when they need more storage capacity; and add shuttles for higher performance. This enables customers to design a system that fits their space requirements and budget. Oftentimes, they start small and add to the system over time.
“[It’s] less about ‘here’s what we have’ and more about fitting and using the space,” Lary explains, adding that the Knapp system can also incorporate AMRs—a technology that’s gaining traction in microfulfillment primarily because of its flexibility.
Hai Robotics’ ACRs are a case in point: The mobile robots consist of a base with a tower or ladder-like structure attached for transporting multiple containers at a time. The ACRs come in various styles and heights, with some capable of reaching as high as 39 feet. The robots retrieve cases or cartons from storage shelves and deliver them to workstations staffed by humans for picking and packing. The system’s software allows the robots to identify and retrieve specific totes or cartons within a storage system rather than moving an entire rack or shelf—differentiating Hai’s system from similar, shelf-to-person AMR solutions. The system allows more flexibility than fixed-infrastructure automation, Kelly explains, adding that, to date, Hai Robotics has implemented microfulfillment solutions for customers in the grocery, cosmetics, and e-commerce apparel industries around the world.
Matt Inbody, vice president, global execution excellence for supply chain automation specialist Dematic, agrees that the move toward AMRs will be a key trend in microfulfillment moving forward.
“The trend is toward efficient and cost-effective solutions. Lower-investment systems, such as AMR shelf-to-person solutions, are gaining popularity due to their appealing balance of automation and cost,” he says. “While many systems are still in development and refining their models, the future looks bright for these innovative solutions.”
Yet despite that generally rosy outlook, the grocery industry still faces one big barrier to microfulfillment ROI: cold storage. Kelly explains that, for many companies, the automated equipment that is the cornerstone of microfulfillment often stops short at the freezer because of the high cost of robotic solutions capable of working in extreme temperatures.
“It’s super expensive—and there’s not a lot of technology that can [operate] in that environment,” he says. “Freezer equipment for that application is substantially more expensive than having human beings walking around.”
NEW MODELS, NEW MARKETS
In-store fulfillment holds promise for the MFC market, according to Kelly and others, who say that turning retail storage areas into minifulfillment centers answers the call for systems that support both click-and-collect business and last-mile delivery—both of which are here to stay despite a return to in-store shopping post-pandemic.
“There is a lot of discussion around in-store fulfillment, which is a form of microfulfillment,” Kelly explains. “[You can] deploy a standard system that works much like a warehouse, but it’s in the store.”
Lary agrees, noting that much of the traditional microfulfillment market was designed for that purpose, whether it meant building standalone MFCs in dense, urban areas or carving out space for them in stores. E-grocery will continue to drive that trend, but other growth areas include convenience stores, pharmacies, general retail, and industrial parts—including parts used in the automotive and HVAC industries. Hub-and-spoke models—in which retailers use warehouses with larger automated systems to supply orders to stores—remain popular as well.
“We are seeing both of those models being applied—especially in denser, affluent areas,” Lary says.
Inbody, of Dematic, agrees, adding that flexibility and simplicity are key to making microfulfillment work at all levels, in all situations.
“Simple, easy-to-interface automation will drive the future of microfulfillment centers, reducing the need for large, fixed-automation units,” he says. “We anticipate continued growth in urban-based high-density systems, especially in [affluent] areas with a high population density. The evolving landscape of urban and suburban office spaces will also play a crucial role in the real estate aspect of urban fulfillment centers.”
The news that e-commerce microfulfillment specialist Takeoff Technologies filed for Chapter 11 bankruptcy this past spring raised questions about the strength of the microfulfillment market—but at least one of Takeoff’s business partners says the move is not an indicator of the sector’s strength.
Logistics technology vendor Knapp has partnered with Takeoff Technologies on microfulfillment projects since 2017 and extended that partnership as recently as February, adding a modular product portfolio to provide grocery retailers with right-sized automation for high-, mid-, and low-volume facilities. Greg Lary, senior sales manager at Knapp, said the bankruptcy news was a surprise to Knapp and that future projects with Takeoff are on hold, although Knapp continues to service existing projects the companies developed together.
“We were one of the creditors financially impacted. It was a surprise to the organization for sure,” Lary says, adding, “Our relationship is good, [but] we are not actively pursuing more projects through Takeoff while they figure out how and if they go forward.”
At press time, Takeoff was still pursuing the sale of its assets.
“I think the situation is going to raise concern about the condition of microfulfillment in the industry in general, and I think, at a surface level, I can understand why,” Lary adds. “But I don’t think Knapp, as an organization, sees Takeoff’s situation [as a reflection of] e-grocery [demand] or how Knapp plans to invest. We still see the channel as being viable and grocers invested in it; [and] automation is part of it. The vision still makes sense, even though Takeoff has some challenges at the moment.”
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.
National nonprofit Wreaths Across America (WAA) kicked off its 2024 season this week with a call for volunteers. The group, which honors U.S. military veterans through a range of civic outreach programs, is seeking trucking companies and professional drivers to help deliver wreaths to cemeteries across the country for its annual wreath-laying ceremony, December 14.
“Wreaths Across America relies on the transportation industry to move the mission. The Honor Fleet, composed of dedicated carriers, professional drivers, and other transportation partners, guarantees the delivery of millions of sponsored veterans’ wreaths to their destination each year,” Courtney George, WAA’s director of trucking and industry relations, said in a statement Tuesday. “Transportation partners benefit from driver retention and recruitment, employee engagement, positive brand exposure, and the opportunity to give back to their community’s veterans and military families.”
WAA delivers wreaths to more than 4,500 locations nationwide, and as of this week had added more than 20 loads to be delivered this season. The wreaths are donated by sponsors from across the country, delivered by truckers, and laid at the graves of veterans by WAA volunteers.
Wreaths Across America
Transportation companies interested in joining the Honor Fleet can visit the WAA website to find an open lane or contact the WAA transportation team at trucking@wreathsacrossamerica.org for more information.
This story first appeared in the July/August issue of Supply Chain Xchange, a journal of thought leadership for the supply chain management profession and a sister publication to AGiLE Business Media & Events’ DC Velocity.
Companies can find it challenging to meet the increasing demand to make their supply chains sustainable—except when external events force their hands.
Our research shows that when large-scale disruptions compel companies to rethink their operations, improving sustainability is often part of the redesigned supply chains that emerge from such crises. Counterintuitively, supply chain sustainability (SCS) efforts appear to thrive in a crisis.
While companies should not limit their SCS efforts to crises, an awareness of these opportunities can help them identify opportune moments to advance their green agendas. This is especially the case in today’s volatile business environment, where adjustments to operational footprints in response to disruptive market forces are becoming more frequent.
The pressure to make supply chains more sustainable has risen steadily over the four years we have done this research. We measure 10 sources of pressure, including investors, government entities, corporate buyers, company executives, and consumers, and the pressure from all of them has increased over the four years.
Investors represent the fastest-growing source, with a 25% increase in average respondent score throughout observation. Next come corporate buyers, with a 15% increase, followed by governments and governing bodies (11%).
Overall, the research indicates that commercial interests—be it access to capital gated by sustainability-minded investors or sales opportunities gated by sustainability-minded procurement teams—are pushing companies to improve their SCS performance year after year.
OBSTACLES TO SCS
However, meeting stakeholder expectations of significant reductions in supply chain carbon footprints is still a stretch for many companies.
Reducing Scope 3 emissions—those associated with assets not owned by the company and therefore largely out of their control—is proving particularly tricky. These problems are reflected in our latest research. Almost half of the “2023 State of Supply Chain Sustainability” report respondents indicated their organizations will not begin measuring or reducing Scope 3 emissions for five years or more. Scope 3 reporting and collecting reliable data across company boundaries appear to be especially challenging.
Another indicator of the bumpy road to SCS is the number of companies rethinking or scaling back their net-zero emissions pledges. Again, these issues are reflected in our research. Across all global respondents in the 2023 report, only 35% confirmed that their companies have net-zero goals. Moreover, many within this minority group appear unprepared for the net-zero deadlines they set for themselves.
DON’T WASTE A CRISIS
Four years of researching SCS efforts have allowed us to study the impact of various large-scale global crises on firms’ commitment to this work. We have found that the effect varies with the type of disruption experienced.
For the most part, crises that provoke acute supply chain network disruptions necessitating supply lines to be redrawn tend to result in an increased commitment to sustainability in supply chains. However, economic crises that require companies to regroup tend to dampen their SCS commitments.
For example, in the 2023 report, respondents were asked to rate their companies’ continued commitment to SCS in light of three crises: the Covid-19 pandemic in 2020–21, Russia’s invasion of Ukraine (asked in 2023), and adverse economic conditions in 2023. In the first two cases, SCS efforts did not flag, but they did in the third situation. The survey results show that 79% of respondents confirmed that their SCS commitments increased in response to the Covid-19 pandemic, and 61% said they have increased due to the Ukraine invasion.
In contrast, 56% of respondents indicated that their commitments to SCS declined over concerns that an economic slowdown was imminent in 2023. The research shows that when an economic downturn is in the offing, firms tend to concentrate on developing leaner, more cost-effective supply chain networks, even when such efforts do not align with sustainability goals. Also, companies are more focused on short-term risk-mitigation efforts—rather than longer-term sustainability targets—when dealing with economic headwinds.
However, when global disruptions upend operations, the reaction is different. Companies redesign their supply chain networks in response, and building sustainability into these revamps makes sense. In recent years, we’ve observed that the most opportune time to redesign a supply chain with sustainability in mind is, paradoxically, when the supply chain is broken.
AN EXTENSION OF REDESIGN
In today’s uncertain world, there is no shortage of global-scale disruptions to supply chains, and these are unlikely to diminish in the face of future uncertainties, such as climate change and geopolitical instability.
Framing SCS as part of a company’s ongoing supply chain network redesign efforts might be a way to secure resources for these programs.
Moreover, perhaps this rationale need not be restricted to global crises. A host of competitive challenges can require firms to review the structure of their end-to-end operations. A company might need to change the geographic profile of its supply base as political tensions rise, decentralize its supply chain to reduce risk, or reconfigure its last-mile operations in changing e-commerce markets.
Further research is needed into the relationship between sustainability efforts and managing and mitigating disruption risks. Meanwhile, current and potential disruptions can offer an opportunity to integrate sustainability into the design and management of supply chains.
Krish Nathan is the Americas CEO for SDI Element Logic, a provider of turnkey automation solutions and sortation systems. Nathan joined SDI Industries in 2000 and honed his project management and engineering expertise in developing and delivering complex material handling solutions. In 2014, he was appointed CEO, and in 2022, he led the search for a strategic partner that could expand SDI’s capabilities. This culminated in the acquisition of SDI by Element Logic, with SDI becoming the Americas branch of the company.
A native of the U.K., Nathan received his bachelor’s degree in manufacturing engineering from Coventry University and has studied executive leadership at Cranfield University.
Q: How would you describe the current state of the supply chain industry?
A: We see the supply chain industry as very dynamic and exciting, both from a growth perspective and from an innovation perspective. The pandemic hangover is still impacting decisions to nearshore, and that has resulted in a spike in business for us in both the USA and Mexico. Adding new technology to our portfolio has been a significant contributor to our continued expansion.
Q: Distributors were making huge tech investments during the pandemic simply to keep up with soaring consumer demand. How have things changed since then?
A: The consumer demand for e-commerce certainly appears to have cooled since the pandemic high, but our clients continue to see steady growth. Growth, combined with low unemployment and high labor costs, continues to make automation a good investment for many companies.
Q: Robotics are still in high demand for material handling applications. What are some of the benefits of these systems?
A: As an organization, we are investing heavily in software that will allow Element Logic to offer solutions for robotic picking that are hardware-agnostic. We have had success deploying unit picking for order fulfillment solutions and unit placing of items onto tray-based sorters.
From a benefit point of view, we’ve seen the consistency of a given operation improve. For example, the placement accuracy of a product onto a tray is far higher from a robotic arm than from a person. In order fulfillment applications, two of the biggest benefits are reliability and hours of operation. The robots don't call in sick, and they are happy to work 22 hours a day!
Q: SDI Element Logic offers a wide range of automated solutions, including automated storage and sortation equipment. What criteria should distributors use to determine what type of system is right for them?
A: There are a significant number of factors to consider when thinking about automation. In my experience, automation pays for itself in three key ways: It saves space, it increases the efficiency of labor, and it improves accuracy. So evaluating which of these will be [most] beneficial and quantifying the associated savings will lead to a “right sized” investment in technology.
Another important factor to consider is product mix. With a small SKU (stock-keeping unit) base, often automation doesn’t make sense. And with a huge SKU base, there will be products that don’t lend themselves to automation.
With any significant investment, you need to partner with an organization that has deep experience with the technologies that are being considered and … in-depth knowledge of the process that is being automated.
Q: How can a goods-to-person system reduce the amount of labor needed to fill orders?
A: In most order picking operations, there is a considerable amount of walking between pick faces to find the SKUs associated with a given order or set of orders. Goods-to-person eliminates the walking and allows the operator to just pick. I have seen studies that [show] that 75% of the time [required] to assemble an order in a manual picking environment is walking or “non-picking” time. So eliminating walking will reduce the amount of labor needed.
The goods-to-person approach also fits perfectly with robotic picking, so even the actual picking aspect of order assembly can be automated in some instances. For these reasons, [automation offers] a significant opportunity to reduce the labor needed to fulfill a customer order.
Q: If you could pick one thing a company should do to improve its distribution center operations, what would it be?
A: Evaluate. Evaluate the opportunities for improving by considering automation. In my experience, the challenge most companies have is recognizing that automation is an alternative. The barrier to entry is far lower than most people think!
Toyota Material Handling and its nationwide network of dealers showcased their commitment to improving their local communities during the company’s annual “Lift the Community Day.” Since 2021, Toyota associates have participated in an annual day-long philanthropic event held near Toyota’s Columbus, Indiana, headquarters. This year, the initiative expanded to include participation from Toyota’s dealers, increasing the impact on communities throughout the U.S. A total of 324 Toyota associates completed 2,300 hours of community service during this year’s event.
The PMMI Foundation, the charitable arm of PMMI, The Association for Packaging and Processing Technologies, awarded nearly $200,000 in scholarships to students pursuing careers in the packaging and processing industry. Each year, the PMMI Foundation provides academic scholarships to students studying packaging, food processing, and engineering to underscore its commitment to the future of the packaging and processing industry.
Truck leasing and fleet management services provider Fleet Advantage hosted its “Kids Around the Corner Foundation” back-to-school backpack drive in July. During the event, company associates assembled 200 backpacks filled with essential school supplies for high school-age students. The backpacks were then delivered to Henderson Behavioral Health’s Youth & Family Services location in Tamarac, Florida.
For the past seven years, third-party logistics service specialist ODW Logistics has provided logistics support for the Pelotonia Ride Weekend, a campaign to raise funds for cancer research at The Ohio State University’s Comprehensive Cancer Center–Arthur G. James Cancer Hospital and Richard J. Solove Research Institute. As in the past, ODW provided inventory management services and transportation for the riders’ bicycles at this year’s event. In all, some 7,000 riders and 3,000 volunteers participated in the ride weekend.