Earlier this month, Dominic Wilson pointed towards a growing trend in logistics — micro-fulfilment. We have been noticing the trend for a while ourselves and decided to drop our 2 cents on it.
Small-scale warehouses, or micro-fulfilment centres as they are sometimes called, do not require a dedicated building for themselves.
Instead, any empty space we see in our cities already, can turn into a micro-fulfilment centre. It could be an empty parking lot, or the basement of an office building, or shelves in a Kirana store.
The writing is on the wall
Amazon is already playing the game in the US. Earlier this year, the company announced free 2-hour deliveries on grocery orders for all prime customers. In London, Commonsense Robotics is converting empty spaces into high-capacity, automated warehouses for large retailers.
Placing warehouses closer to customers is a significant competitive advantage. Amazon has the luxury of using Whole Foods’ stores as warehouses. Your next door retailer does not.
Same day deliveries is soon going to be table stakes to stay in the game.
If we can build and share warehouses in an on-demand fashion, it gives the small local retailers competing for power against the likes of Amazon and big-box retailers.
Wow! What would that look like, right?
We talked about the large empty spaces in our cities right — empty parking lots, basements, and garages.
Other than converting these spaces into Micro-fulfilment centers themselves, there is value in locating these spaces and making them available to small businesses over an internet platform.
Small business can use the warehouses based on the number of orders it helps him fulfill. No more, no less.
Imagine an Airbnb for warehouses. Or head over to Flexe.com. You’ll get the idea.
Now, we are trying something similar in India. Only, we use the surplus shelf space in Kirana stores. #Jugaad
400+ Kirana stores are already on the platform and we expect that number to 10x in the next one year.
Orders placed on PayTM’s e-commerce website, particularly daily staples, are fulfilled by Shadowfax’s delivery partners. They locate the product at a Kirana store near you, and complete the delivery.
Earlier this year, Shadowfax delivered a t-shirt in about 35 minutes.
The many benefits of micro-fulfillment
Warehousing has been working the same way since anyone remembers. Most leasing agreements for warehouses have a tenure of 3 to 5 years. Finding and negotiating a space for warehouse takes up a lot of time and makes the model difficult to scale.
An on-demand model for warehouses is like AWS for the offline world.
Micro-fulfilment will improve the way we utilise space in cities. It is cheaper for the logistics company to fulfill orders using such a model. And, your order travels less mile which is better for the environment.
Sharing economy works because it is such a good socio-economic proposition.
The on-demand model takes away the huge fixed costs that retailers used to incur in warehousing. Instead, they pay much smaller monthly rentals and can scale that up or down in any given month. This allows retailers to be more flexible and responsive to their customer’s needs.
In India, logistics costs account to almost 14% of the country’s GDP.
Since the on-demand model makes warehousing more efficient, we can expect that number to go down and deliveries to get cheaper at the same time.
An On-Demand Logistics Ecosystem
An on-demand service to rent warehouses, coupled with a plug-and-play platform for businesses to make instant deliveries, will allow any small business to offer a ‘prime service’ of their own.
Such decentralised platforms directly bring small businesses at par with mega-retailers like Amazon as far as order fulfillment is concerned.
This development is expected to generate more data on fulfillment at the local level. Retailers can use this data to seamlessly match products, storage spaces, delivery supply and customer demand.
After all, if you don’t need sweaters in Bangalore, and swim shorts in Ooty, it makes little sense to store them in the same warehouse.
Logistics companies of the future will add value by effectively leveraging data to improve operations, and not strictly from the hard assets they own.