Disruption in the logistics industry is on the upswing. With increased competition and customer expectation higher than ever, advanced technology and new business models have infiltrated the market to catch up with demand. But while we’ve heard plenty about things like Amazon’s drone delivery system and Uber’s self-driving trucks, there is a whole new wave of collaborative disruption heading logistics’ way. It’s called micro-fulfillment.

Think of it like Airbnb—but for logistics. In the same way Airbnb enables someone to rent out extra accommodation to guests, micro-fulfillment helps people turn their personal garages into company storage space. With large warehouses often located well-outside city limits, speedy last mile delivery has traditionally been a big industry pain point. However micro-fulfillment has the potential to eradicate these pains once and for all, bring warehousing closer to the end consumer, and democratize rapid delivery for companies worldwide. Intrigued? Here’s why you should expect it sooner than later:

Consumers expect fast delivery, but small companies can’t compete

According to a PwC report, businesses and individuals want their goods delivered faster and more flexibly. Even more, consumers expect delivery to be cheap – and oftentimes free.  Amazon Prime’s biggest selling point is unlimited two day free shipping, for example. And Walmart just began offering the same service, no membership required.

The only way to make this rapid-speed delivery possible is through the use of AI and analytics—something Amazon in particular has ingrained into its core. Amazon has more than 100,000 robots working away in fulfillment centers around the world. Robot arms are used to pick up bins, and hundreds of vertical shelves carry goods around autonomously at each warehouse.

At Amazon, AI is already heavily leveraged to make their fulfillment centers more efficient. However for smaller companies, there are well-known challenges to setting up big warehouses. Every $1 billion in ecommerce sales need 1.25 million square feet of warehouse space – much of it used for last mile delivery. Even if a company sells just one quarter of that, the cost is still extensive; not to mention the time involved, location limits and other overheads. In short: the majority of companies cannot compete with Amazon’s – or now WalMart’s – speedy logistics capabilities. But with the introduction of micro-fulfillment, that’s all likely to change.

With central warehouses, micro-fulfillment makes AI logistics available to the masses

In the same way Amazon uses human pickers to navigate its fulfillment centers using a tablet, and choose items off the shelves to insert into plastic bins, micro-fulfillment has the potential to achieve this on a city level. Similar to how Uber works, human drivers would be notified via an app to head toward a neighborhood garage and pick up items for delivery. Today consumers wait for the FedEx truck to stop by their doors—but in the near future, a last-mile delivery worker could very well be anyone with a car. On the garage owner’s side, the app will alert them when they need to be home to accept a shipment.

With central warehouses, deliverables can be brought closer to consumers. In fact, small warehouses in more centralized locations have actually already started to catch on. Institutional investors are gobbling up previously overlooked urban industrial buildings to use as last mile distribution spaces. Rents-wise, Class B facilities are outperforming significantly better than other industrial assets.

The supply market is already trained for micro-fulfillment

Fifteen years ago, micro-fulfillment would not have been plausible; it would’ve been difficult to convince property owners to rent out garage space attached to their family homes, for delivery people to go in-and-out daily. However with platforms like Uber and Airbnb highly popular today, the market has already been trained to use its own space, and work with technology to perform logistics tasks.

In short, micro-fulfillment will bring the sharing economy to warehousing and logistics. Not only will it make consumer’s lives easier, however sharing in logistics will provide participants with the knowledge they’re being socially responsible – and reduces expenses for property owners and companies alike.

Micro-fulfillment is still in its early days, with test clients in the Bay Area set to receive their first  shipments in Q1 2018.

So on both the supply and logistics side, the demand for mico-fulfillment is already there. With companies competing to meet consumer expectation for fast delivery and minimize those last mile pains for centralized distribution centers, micro-fulfillment is the next logical step for an already trained market. One hour delivery, here we come.

The Need for Automation

These factors are causing virtually every major grocery chain to explore opportunities to automate e-grocery fulfillment. This can prove challenging on several levels. First, it may involve bringing automation into retail stores that were never designed to accommodate it. Space constraints within the existing retail footprint will create challenges for many traditional material handling systems. The alternative is major new investments in dedicated fulfillment facilities. In addition, e-grocery order fulfillment can’t be fully automated. A majority of orders will include some combination of non-perishable items — which can be efficiently managed through an automation system — along with frozen items and perishables, such as produce, deli products and prepared foods, which don’t lend themselves to automation. These non-perishable items are also often sold by weight rather than piece, which introduces additional challenges. With the market still in its infancy, grocers are having to evaluate automation solutions while still defining fulfillment processes that optimize the use of technology while retaining the flexibility of manual processes in ways that don’t significantly compromise speed.


The One-Hour Mandate

Another variable that must be considered is consumer expectations and preferences, which are still evolving and may vary in different neighborhoods within the same market. Today, consumers in densely populated urban areas are showing a preference for in-home delivery while those in surrounding suburbs seem content with in-store pickup. Will in-home delivery ultimately surpass store pickup, or will a substantial segment of the market continue to be willing to drive to the store to pick up their orders? That’s a question that will only be answered with time. Expectations around speed of fulfillment are easier to predict. Groceries aren’t a “want,” like many other e-commerce purchases. They are a need that is consumed continually in most households, creating the demand for short delivery times. Waiting even a day or two for grocery orders will prove unacceptable for many. Just as some e-commerce companies created competitive advantage by shortening delivery times, large grocers are using one-hour fulfillment as a target for e-grocery customers. This is a very aggressive goal and will not be possible in all cases, but there is little doubt consumer expectations will quickly be shaped by the situations where one-hour fulfillment is possible.


Urgency and Uncertainty

Grocers are rightly feeling a sense of urgency around e-grocery fulfillment. With the total market for e-grocery services projected to reach $100 billion by 2022, the stakes are high. Get it right and tap into the biggest growth opportunity the industry has seen in years. Get it wrong and risk losing ground to competitors. Despite the challenges and uncertainty, grocers have several advantages when it comes to e-commerce. They benefit from a highly concentrated and localized market that removes some of the barriers to last mile delivery. Every home needs groceries and local competition is typically limited to four or five retailers so grocers may be able to consolidate multiple deliveries within the same neighborhood, much like a parcel carrier. Grocers also have the advantage of having a highly local network of stores that can be used to support both home delivery and curbside pickup. Key to their success in leveraging that asset will be choosing a right distribution strategy and matching that strategy with automation that enhances productivity, reduces fulfillment costs and can adapt to future changes in the market.


There are a number of strategies being employed by grocers today to introduce automation to improve the speed and efficiency of e-commerce fulfillment.

Hub-and-Spoke

Some grocers are developing centralized fulfillment centers that support multiple stores in a hub-and-spoke arrangement. The automated fulfillment center assembles orders for all non-perishable items and then bulk ships those orders to the stores where they are topped off with perishable items. Completed orders are then available for curbside pickup at the store or delivery to the home. This approach allows the fulfillment facility and automation system to be designed hand-in-hand and eliminates the space limitations imposed by integrating automation into existing retail locations. These facilities can also be designed to scale easily to accommodate continued growth by using modular automation solutions that enable a pay-as-you-grow approach. However, they are inherently capital intensive and can create an extra layer of transportation between the hub where orders are fulfilled and the store where orders are distributed, potentially limiting the ability to support expedited orders.


Bolt-on Store Automation

In many cases, it will make sense for grocers to bring automation directly to the store. Using compact, robotic automation technologies, they can create small fulfillment centers at the back of the store that automate current manual processes for non-perishable item picking while utilizing store inventory to top off orders with perishable goods. This allows them to fill complete orders from one location, reducing transportation time and costs. This scenario could support faster fulfillment times than the hub-and-spoke approach, but unless the store is physically expanded to support automation most locations will not be able to bring perishables and bulk items in close proximity to the automation system, limiting the productivity of manual pickers who may still need to go out into the store to complete orders. Creating a full fulfillment center may be possible in some locations, particularly high-volume locations with available space, by physically expanding the store. This requires some additional investment but could allow these locations to achieve order cycle times similar to a larger hub-and-spoke warehouse without the need to transport orders to the store.


Micro-fulfillment Centers

The shifts in the retail landscape created by e-commerce have created opportunities to convert abandoned or underperforming retail outlets into micro-fulfillment centers that serve the same area as a traditional grocery store with automated fulfillment for curbside pickup or home delivery. This strategy sacrifices in-store shopping so is particularly attractive to pure-play e-grocers but creates the opportunity to optimize the environment by efficiently integrating automated and manual picking. It allows grocers who don’t have an existing brick-and-mortar footprint within a particular area to move fulfillment closer to customers to reduce transportation costs and enable shorter delivery times.


The Automated Grocery Store

Rather than bolting on automation to the back of the store, some grocers are experimenting with moving it to the middle of the store, creating a new type of grocery store that combines automated e-fulfillment with traditional shopping. This is still an emerging concept, but early executions place an automated storage and retrieval system in the center of the store which holds the majority of the non-perishable items with perishable and specialty items located around the outside of the store. Shoppers have the flexibility to place their orders in advance or while in the store and can choose to pick their own perishable and specialty items or have the store complete their order for pickup or delivery. It remains to be seen how integrating automation into the shopping environment in this way will impact the consumer experience and how consumers will respond to that new experience. A less intrusive approach is also being piloted in which large kiosks within superstores streamline the pickup of smaller orders. When shoppers place their order, they receive a bar code which is then scanned at the kiosk and their order is presented to them within seconds. While this approach allows shoppers to get in and out of the store quickly, avoiding navigating large stores and going through checkout lines, it is not well suited for the typical grocery order.