The retail industry is constantly impacted by digital disruptions, on top of the obvious turmoil retailers face, due to the rapid growth of eCommerce. Retailers also face all of the disruptions in the transportation industry, as retail has always been about moving merchandise from its point of origin into the hands of consumers.
Retailers must be more proactive investing in and developing the digital delivery solutions of the future. In May of 2016, Internet Retailer stated, “as Amazon has increasingly focused on delivering its customers’ orders quickly and efficiently, the pressure on retailers to figure out how to keep pace is rising.” Relying on the large incumbent package delivery firms and their networks and processes, designed decades before the digital age and eCommerce existed, will only put you further and further behind Amazon.
One tactic Amazon employs in identifying how to disrupt supply chains is disintermediation, eliminating the middle man. Amazon disintermediated FedEx in their SmartPost service. Amazon now works directly with the United States Postal Service. Now, they are doing the same thing with Amazon Flex and they are disintermediating the courier companies. Through their Uber-like app, Amazon Flex works directly with independent contractors who deliver packages to consumers. Amazon saves 25% to 50% of the cost of packages delivered through these Amazon managed services versus the cost of the carriers and couriers.
In May of 2016, a Morningstar analysis stated, “we believe Amazon fulfillment infrastructure represents a considerable hurdle to other eCommerce players and traditional retailers, as no retailer can match Amazon’s fulfillment efficiency and geographic reach.” What can a retailer do to respond? On their own, no single retailer has the volume of orders and packages to innovate and invest like Amazon has. Retailers need to be open to exploring forms of collaboration among each other to move inventory closer to the consumer and to develop new fast and low cost delivery services. This could be as simple as using a 3rd party fulfillment service provider to spread inventory closer to major markets and reducing delivery distance, time, and cost. Also, combining package volumes from many retailers offers the opportunity for innovative new approaches to delivery, enabling companies to match Amazon in delivery speed and cost.
If eCommerce remains a logistics battle, Amazon wins. You can disrupt this course with a digital strategy that offsets Amazon’s big advantage in volume, allowing you to get back to competing as merchandisers and marketers with more than a fighting chance.
I released the video Supply Chain Revolutions: Responding to Digital Disruptions. I believe the video helps further explain the importance of understanding how digital disruptions are affecting supply chains. Also, explained is what needs to take place to respond to these disruptions. Supply chain professionals are more important to the success of our companies than ever before. This is the time to stage a supply chain revolution that responds to digital disruptions.