Swimming with the Digital Commerce Sharks

Swimming with the Digital Commerce Sharks

Mar 22

Amazon is a leader in eCommerce and offers unmatched value to its customers with its 2-day and next-day delivery promise. Amazon even extends its 2-day shipping service to other sellers using “Amazon Shipping”. Amazon can provide the 2-day delivery promise using its extended network of distribution and fulfillment centers across the country. For any other B2C or B2B company to match this level of guarantee would mean a huge investment for which they can’t leverage the economies of scale that Amazon can.
While there is no guessing how far Amazon’s monopoly in eCommerce and fulfillment will grow, there is something other businesses can do. But in this scenario of “everyone else versus Amazon”, sellers, distributors, and shipping carriers will have to join forces, so to speak, to thwart or at least match Amazon on its promise.
The first step in this process is for organizations to understand how they can expand their existing network, either utilizing their own facilities or through partnerships.

  1. Brick and mortar retailers who have extended their retail store networks have to look inwards, leverage their real estate holdings, and adopt a model where the retail stores are used as distribution centers to fulfill online orders.
  2. Businesses can utilize 3PL/4PL services to extend their network to areas with no current physical presence. There are many options available in this space and more startups are coming up with tailored value-add for 2-day shipping.
  3. Big-box stores have an existing network of distribution centers and stores that can be of huge value to many smaller eCommerce businesses. Big-box stores can become part of the solution by opening their distribution networks and letting sellers leverage these extensive networks as well to provide faster deliveries, returns, and customer support.

For this model to succeed, adjustments have to be made to supply chain operations, merchandizing, forecasting, and replenishment processes. These changes have to be driven by technology in a bid to flexibly automate as much of their operations as possible.

  • Internal stores should be empowered to run pick, pack, and ship operations. A decent WMS solution capable of automatically manifesting to common shipping carriers and rate shopping for specific delivery is a must-have.
  • Robust integration is required to succeed in partnerships with 3PL/4PL and 2-day fulfillment startups.
  • Establish a process to automatically route online orders to the nearest fulfillment center (own or partner). Modern distributed order management (DOM) features handle order routing with decent accuracy. Establishing and maintaining zones and defining distribution priorities is the first step towards putting together a DOM system.
  • An agile demand and inventory planning, allocation, and replenishment process is fundamental for such an operational shift. Machine learning and artificial intelligence needs to lead the way in approximating true weekly demand and feeding to weekly distribution planning and replenishment from main distribution centers down to fulfillment centers. This process is key to the success of the operation, and it has to be accurate and automatic.
  • One big internal challenge in true omni-channel adoption is achieving consensus on how revenue centers are defined and how profitability is measured for online versus retail. If retail stores are acting as fulfillment centers, they are essentially consuming their sellable stock and there is no easy way to trace sales lost due to stockouts or unavailability of specific SKUs. One way to make this kind of model successful is to look at cross-channel revenue and profits separately for each store. Stores can also see their individual numbers go up with the success of the operation and maintain higher levels of safety stock at store locations instead of stocking only at the main distribution centers.

Amazon is big, it’s growing, and it’s here to stay. So is 2-day shipping. Sellers, distributors, and retailers must think creatively to counter the looming threat to their business. In order to survive and thrive, competitors must beat Amazon at its own game.

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