Micro-Hub – The key to a brilliant solution?

Speed ​​and flexibility are the driving forces

Logistics is constantly evolving. One challenge follows another: warehouse optimization, process acceleration, cost efficiency, CO2 reduction, automation, and competitive pressure. E-commerce and Amazon are the driving forces behind this development. Amazon is not only one of the world's largest online retailers, but also a driver and innovator of many technological advancements that wouldn't exist today without it. The journey from an online bookseller in 1994 to the e-commerce giant it is today is breathtaking.

The only question is when the next level, the plateau, will be reached, where things will consolidate and appropriate adjustments can be made to the development?

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Giants like Amazon seem to have dominated the market, leaving no room for competition. Ironically, the COVID-19 pandemic has boosted the market share of e-commerce giants, while others are struggling with severe losses and currently facing a disillusioned future. Logistics and intralogistics have done their utmost, but they too are powerless against pandemic-related restrictions and forced closures when brick-and-mortar stores are shut down.

While some are scaling back their operations by planning closures and staff reductions, the winners of the pandemic are expanding their market share. According to analysts, as early as 2018, 68% of total revenue in the German e-commerce market was generated via Amazon Marketplace and Amazon Vendor.

Media Markt, the bogeyman of radio and television retailers of yesteryear

The first Media Markt opened in Munich in 1979. Media Markt expanded rapidly. The business model was simple: large-scale specialist stores with a broad and constantly updated product range at permanently low prices, taking regional demand into account.

This forced many smaller radio and television retailers to close, as they couldn't compete with Media Markt's prices and services. Many of these shops disappeared from the cityscape over the years.

It seemed as if Media Markt had a wealth of resources at its disposal. Much like Amazon today, except that back then there was no internet, in the early 1990s all the latest products were almost always in stock and could be taken home immediately, while the average radio and television retailer first had to order the goods. This was usually a cumbersome process via wholesalers or partner distribution networks.

The success is primarily attributable to the logistical modernization of goods supply. The question was no longer whether the goods were in stock and available for delivery. It was the beginning of how quickly and flexibly logistics could respond to regional and local demand. Because that was Media Markt's great strength at the time.

Speed ​​and flexibility should become and remain the guiding principles of the future.

With the seemingly endless selection and speed of the internet, Media Markt Saturn, of all companies, can no longer compete with its large brick-and-mortar stores. It is experiencing declining sales across all product categories. One expert paints a bleak pictureunless Media Markt Saturn takes decisive action to change this situation.

Media Markt had completely overlooked the fact that the internet and e-commerce had emerged as something new, faster and more efficient than its previous efforts. The former online bookseller Amazon launched in 1994 and showed how it was done.

Another prime example of hubris regarding speed and flexibility: “We shouldn’t worry. In terms of both quality and price, digital photography won’t be in direct competition with traditional photography for at least ten or twenty years.” Nine years after this statement, AGFA went bankrupt in 2005. Only the brand name lives on.

Analysts currently estimate Amazon's market share in the German e-commerce market at 68%. And this figure is rising.

According to forecasts, e-commerce's share of retail sales is expected to reach 15% by 2024. The race for the future of the market and retail has therefore only just begun, even if at first glance Amazon seems to be uncatchably in first place.

Because for the foreseeable future, Amazon will remain dependent on the logistics infrastructure of third parties, just like the entire e-commerce sector in Germany.

The deeper one delves into the regional and local market, the less flexible supra-regional logistics centers become. This applies to both central warehouses like Amazon's and fulfillment service providers. Amazon currently has 11 logistics centers in Germany.

Media Markt + Saturn, in turn, have over 425 stores distributed regionally throughout Germany.

Although a direct comparison is difficult, it is evident that one has something that the other lacks: logistical breadth and e-commerce.

To increase speed and flexibility, a good logistics infrastructure (regional & local) and a well-established e-commerce platform are essential prerequisites.

Furthermore, there are 11,235 Aldi stores (North & South), 3,300 REWE stores, 3,200 LIDL stores, 4,273 Netto stores, 2,200 Rossmann stores, over 800 Müller stores, 410 Expert electronics retail locations, to name just a few examples, compared to the 11 Amazon logistics centers in Germany.

Speed ​​and flexibility are the driving forces

speed

Stocked goods need to be located closer to the customer. The closer, for example in the city, the faster delivery is possible. Same-day delivery or even immediate delivery by bicycle courier.

flexibility

Goods available for pickup around the clock. Pickup or delivery at any time, and much more, are the logical conclusions. The limitations on the product range, as previously seen at gas stations, are therefore eliminated.

E-commerce

Pre-ordering, mobile ordering, flexible purchasing and payment, in combination with the points mentioned under flexibility.

automation

Speed ​​and flexibility come at the cost of high warehousing and logistics expenses. Significant cost reduction is only possible through the automation of warehousing, management, and distribution of goods.

Autonomization

CO2 reduction through autonomous power supply is another point that logistics companies must consider in their planning. Photovoltaic systems, in particular, are seen as the most cost-effective alternative. Those who fail to plan and invest in a timely manner will face additional costs, such as taxes on non-renewable energy.

Related to the topic

Topics we have already covered in this regard

• Autonomous retail systems – Micro-Hub best practice
• Logistical acceleration of e-commerce and a turbo boost for smart cities
• Micro-fulfillment – ​​crises rarely come alone
• Last Mile Logistics – Facts You Should Know

Strategic Logistics Management

• The future of logistics centers
• Networked distribution centers – Intralogistics 4.0
• Local decentralized hubs – logistics centers
• Learn from Amazon Logistics
• The growing importance of Amazon's logistics costs

What Asia has over us

• Japan is already working on the future of tomorrow
• Urban Growth – How Japan is setting the course for the future
• Urbanization in South Korea
• South Korea is a pioneering market in online retail worldwide
• Autonomous retail systems – Micro-Hub best practice

Are micro-hubs the solution?

Micro-hubs are considered to play a key role in the future market and smart cities . This applies to everything related to "smart," be it smart factories, smart grids , and other technologies. It addresses the future issue of how we will manage the Earth's resources and ourselves. Industry 4.0, the Internet of Things, digital transformation, and artificial intelligence are all part of this larger picture.

Smart City is about implementing digital technologies in urban areas, which network administration, suppliers, households, businesses and municipal facilities in the best possible and most energy-efficient way.

Micro-hubs are seen as having great potential because they offer the most efficient way to centralize the supply of material goods to people in urban areas. Thanks to short supply routes and digital processes, energy-efficient and environmentally friendly distribution is possible.

It's not about transporting people to goods, but rather optionally transporting goods to people, which allows for optimal logistical distribution. How the goods ultimately reach the customer (last mile) is secondary. The goal is to avoid the wasteful use of energy resources, such as by driving an oversized car for a small shopping trip, as has been the practice for decades.

What exactly is a hub? And what is a micro-hub?

Hubs are used in transportation and information technology. Generally, this means that the connection between two end nodes A and B is not direct, but routed via a central node Z.

Hub comes from English and means turntable or central meeting point. In German : Hauptschlag Basis .

There are various transport and networking options

• In a point-to-point (direct connection) system, the transport volume must be large enough to allow direct transport.

• The liner (also known as shuttle or line) system is a classic method of bundling cargo. Suitable for maritime and continental trade flows.

• In transportation, a hub-and-spoke system refers to a star-shaped arrangement of transport routes, where all routes converge on or radiate from a central hub in all directions to serve the area (star topology). This system is important for almost all modes of transport: road freight is used by all groupage forwarding companies to offer 24-hour transport in Germany and 48-hour transport across Europe (groupage services). Parcel delivery services represent another area of ​​application. Here, parcels collected at depots during secondary transport are consolidated in the main transport route and transshipped via a hub. The spokes thus represent the connections between the hub and the depots. However, a hybrid form of the two network alternatives is most common. Depots with a high degree of interdependence due to high parcel volumes are usually connected by point-to-point links, also known as direct transport. The hub primarily handles packages whose sender or recipient depots do not represent full truckloads. Overnight service offered by city courier services: Since the discontinuation of the German Federal Railway's scheduled delivery service in 1990, regional city courier services have organized themselves into various cooperative ventures (Association of German Courier Services, Ilonex, KEP AG, OPS, GO!) and operate their central transshipment hubs near Bad Hersfeld in Germany. They benefit from the speed of Sprinter vans and the German motorway network (spokes). Systems with multiple hubs, interconnected by direct transport links, are also possible. The GLS Germany network is one example. The company refers to these hubs as "central transshipment points" (CTPs).
• Micro-hubs represent an extension or complement to the existing hub-and-spoke model and hybrid form with point-to-point connections. More precisely, micro-hubs constitute a mini or microbuffer warehouse within the hub-and-spoke network, whose focus is not on the optimal intermediate storage of goods, but rather on the diverse digital and physical interfaces to the end consumer: It is the missing component and solution to the "last mile" hurdle.

Micro-hub

A micro-hub is the next logical step in the development and optimization of logistics processes. It completes the stage of merging online and offline, leading to unified commerce.

The technical implementation of such micro-hubs poses no problem today. Daifuku has already provided such a micro-hub as an Autonomous Retail System (ARS) for E-Mart, the largest retail company in South Korea.

More information here:

• Micro-Hub – The Autonomous Retail System (ARS) from E-Mart

In general, the Japanese are several steps ahead of us in this development, which is no coincidence, as Japanese society is already considered urbanized with almost 92% of the total population!

Related to this:

• Japan is already working on the future of tomorrow

The prerequisites for micro-hubs already exist in Germany!

Converting the central warehouses of retail companies or logistics centers into micro-hubs would be possible without major problems. Initially, it would suffice to expand only a portion of the operation for micro-fulfillment and adapt it to the market using scaling solutions. For example, existing supermarket chains could be converted into micro-hubs, or a section of them could be restructured as a micro-fulfillment solution.

More information here:

• Logistical acceleration of e-commerce and a turbo boost for smart cities

epilogue

To pick up where the Media Markt story left off: Are the "small" electronics stores now returning to cities as "electronic microhubs," cities that once had to close because of Media Markt? From this perspective, does a renaissance of city centers seem possible, relieving the pressure on green spaces and brownfield sites outside cities that have previously been developed for logistics and industrial centers? Could these microhubs help to calm traffic in city centers, similar to how they would on highways?

“Yes and no,” because it’s a very complex issue and we’ll have to learn a lot the hard way. But it’s a feasible concept, one that has left many urban planners utterly despairing.

Comparing the market of the 1990s with today's, we see that an incredible amount has changed in the last 30 years. We can expect the same to continue in the coming decades. The world is constantly evolving, and we have viable solutions at our disposal.

 

Xpert.Plus – Your consulting partner for micro-hub storage systems and solutions: Smart, fully automated small parts warehouses such as high-bay warehouses with Industry 4.0 – IoT technology

Xpert.Plus is a project by Xpert.Digital. We have many years of experience in supporting and consulting on warehouse solutions and in warehouse optimization, which we combine under Xpert.Plus in a large network.

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Xpert.Digital – Konrad Wolfenstein

Xpert.Digital is a hub for industry focusing on digitalization, mechanical engineering, logistics/intralogistics and photovoltaics.

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