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"Micro fulfillment is that evolution of at least getting closer to the customer, so you can understand from a hyper-local perspective what zip codes, categories, regionalities, and seasonalities you are really servicing. Then, you can work backward and figure out how to service them in the most efficient way." — Corey Apirian, CEO, Davinci Micro Fulfillment
Getting a product from the assembly line to a customer’s doorstep has become much more complicated in the era of same-day delivery, varied pack sizes, expanded inventory, and multi-channel distribution.
Micro fulfillment centers, however, can help brands navigate this complexity more effectively.
Corey Apirian, CEO of Davinci Micro Fulfillment joined a recent episode of the "Unpacking the Digital Shelf" podcast, "Know Your Consumer at the Zip Code Level," to share how this model can help brands boost customer satisfaction, achieve profitability, and streamline their fulfillment operations. Here’s why Apirian thinks more brands should begin to explore micro fulfillment.
Though the size of a micro fulfillment center can vary by brand or retailer, Apirian defines it “as a miniaturized fulfillment center in a hyper-local area.”
While Gopuff and DoorDash may operate 5,000 square feet micro fulfillment centers, Amazon’s micro fulfillment centers may be 75,000 to 150,000 square feet.
In the middle of the spectrum, Davinci’s micro fulfillment centers are about 35,000 to 50,000 square feet. The company promises one-day ground delivery to more than 60% of the continental U.S. and two-day delivery to the entire country. Apirian says this footprint is optimal for several reasons.
"A lot of it really comes down to OpEx — operational expense," he says. "Essentially, inventory control becomes the ultimate thesis of micro fulfillment and how you get goods closer to the customer."
Micro fulfillment centers have emerged due to several trends focused on driving cost optimization and greater efficiency for brands and retailers.
Apirian says most brands’ traditional fulfillment operations aren’t set up to handle eaches (or individual items versus a case), and single-piece returns, even though ecommerce has shifted the standard price pack architectures.
The rise of marketplaces, direct-to-consumer (DTC) channels, and digitally-native brands (DNVBs) only have added more complexity. All of this comes with a tangible cost and impacts efficiency, which brands haven’t yet solved.
However, micro fulfillment may provide an answer.
"It becomes this totally connected environment, this connected ecosystem," Apirian says. "Micro fulfillment is that evolution of at least getting closer to the customer, so you can understand from a hyper-local perspective what zip codes, categories, regionalities, and seasonalities you are really servicing. Then, you can work backward and figure out how to service them in the most efficient way."
Micro fulfillment offers several benefits for brands.
Apirian says these facilities can serve as smaller hubs for larger, centralized distribution centers, allowing brands to leverage sortation and a forward-deployed inventory model to get closer to the customer and improve precision and inventory control.
Micro fulfillment also can make brands more agile and provide more diverse offerings, like larger pack sizes or variety packs.
Using micro fulfillment centers to understand customers at the zip code level also enables brands to better understand their buying habits and access real-time data and automated technologies that let them test and learn and better meet customers’ needs — especially when selling in an omnichannel environment.
"You might have Target and Walmart as mass retailers in the same pack," Apirian says. "You might have Amazon in a different pack size. You may have your club channels in a much larger pack size or variety packs of much larger pack sizes, however, you end up merchandising that. But if you think about a large, centralized fulfillment center, and not having the right order management technology to manage that, you're looking at a needle in a haystack to go get two inventory sets and consolidate them."
With a varied assortment, brands also can combat a lot of the price matching that happens online between big ecommerce players such as Amazon, Walmart, and Target, since they aren’t selling the same exact product to the same retailers.
Apirian says this is one of the main value propositions of his company, Davinci. It gives brands more control and allows them to better protect themselves with precise feeds of inventory and assortment planning that benefits both them and their retail partners.
He adds that although micro fulfillment could benefit several retail categories, consumer packaged goods (CPG) brands probably benefit most from this model.
This is because they can carry both low-weight, low-value items and low-value, high-weight items like beverages that play well with the economics of micro fulfillment centers and have a better chance at driving profitability at the SKU level compared to larger items like furniture that are more costly to ship and deliver.
Micro fulfillment may help brands meet the growing consumer demand for sustainability.
Traditional carriers like FedEx and UPS may travel hundreds of miles or across states to transport goods. However, micro fulfillment centers facilitate deliveries across a much smaller radius.
"Think about the different stops that the truck has to go on and the different sortation centers and all the different things that are happening in those environments that are negative to sustainable practices," Apirian says of traditional carriers.
With a micro fulfillment model, brands — especially those with a DTC channel — can start to incorporate reusable packaging since they’re executing point-to-point deliveries in a hyper-local area. This approach also reduces the risk of product damage and returns, because goods don’t have to travel as far.
In this way, brands not only can ensure safe and sustainable delivery of their products, but they also may be able to boost profitability by reducing their reverse logistic and product return costs.
Some brands are already employing this model to boost their bottom line and enhance their customer experience.
One of Davinci’s customers, a large water brand, moved its direct fulfillment operations from Amazon to Davinci’s network to reduce fees, shortages, and chargebacks it experienced on the platform.
The brand put all of its inventory in Davinci’s locations in the right quantities at the right time, leading to a 15% increase in sales year-over-year and a 12% decrease in costs by eliminating its previous Amazon fees.
"There was a 20-plus percent net margin improvement for this particular brand, and basically all we did was just keep them in stock the entire time and move it to direct fulfillment," Apirian says.
Another Davinci customer, a textile brand, also achieved great results by leveraging the company’s micro fulfillment network.
The brand had shipped to brick-and-mortar retailers for more than 30 years, but with the shift to Davinci, it was able to launch a different set of bath towels, hand towels, and washcloths on Target.com.
The new assortment sold so well that within 90 days the textile brand started ordering direct containers from the factory of ships-in-own-container towel sets that are now its top-selling item.
"We reduced all of that carbon emission — that waste of corrugate [packaging]," Apirian says. "We created more density and profitability for them by getting more goods into the container, and we created a new SKU out of thin air, really, for Target.com, that is not sold on any other channel."
Every brand is looking to increase profitability, and for many companies, micro fulfillment may be the solution. But before companies consider this model, according to Apirian, they really need to start by examining their data.
"It's understanding where you have ways to save money and create incremental sales. Micro fulfillment is likely going to unlock a lot of those things." — Corey Apirian, CEO, Davinci Micro Fulfillment
Brands also need to adopt automated tools and more advanced order management technologies to gain more visibility into their fulfillment operations.
Apirian says companies should initially focus on creating density, inventory, and integrations with channels and marketplaces. They then can use their existing distribution centers and mix in micro fulfillment centers from third-party providers to create smaller hubs, rather than standing up entirely new centers on their own.
With this approach, they can better understand consumers’ wants and needs at the zip code level, harness insights for better inventory control and assortment planning, and, ultimately, lower their costs, get products into consumers’ hands faster, and transform fulfillment from a cost center into a profitability-driver.
To hear more of Apirian’s insights on the advantages of micro fulfillment, listen to the full episode.
