Like it or not, the economy has been completely disrupted by “The Amazon Effect,” causing retailers to question every aspect of their business, both online and inside their brick and mortars.
It’s projected that Amazon will capture nearly half of U.S. online sales in 2019. Sales for the online retail giant are expected to grow by more than 20 percent this year to reach $282.52 billion, or approximately 47 percent of total U.S. online expenditures and 5 percent of the total U.S. retail market, Chain Store Age reports.
The dominance of the e-commerce industry and the consistent disruptions (including Amazon’s recent announcement to evolve Amazon Prime into a one-day shipping program) are perfect examples of this “Amazon Effect.” So what can companies learn from the changes taking place?
As a third party logistics provider for hundreds of e-commerce companies, we are constantly evaluating systems and processes to stay ahead of the curve. Here are a few areas that have seen some of the biggest changes.
1) What are some lessons learned from the Amazon Effect in the following areas?
a. warehouse network
Amazon has increased the need for efficiency and automation. It’s important that you tool your operation to ship quickly, same day if possible. If you aren’t able to do this in-house or your fulfillment provider is not setup to accomplish this, you’ll be forced to find a partner that can. A slow process these days leads to a number of problems, including lost sales, bad feedback and returns – all of which can lead to poor brand perception.
There’s also the issue of geography. Most merchants simply don’t have enough distribution centers to cover a large area. Having multiple, strategically located distribution centers allows merchants to reach the majority of their customers within an acceptable amount of time (even this is subjective and varies). For example, incorporating just two facilities in optimal locations can achieve a 2-day ground transit to over 90% of US households. Those without enough distribution centers (or sub-optimally positioned) will be burdened with the costs of express and priority shipping if they are to meet the demands of today’s consumer.
b. inventory management
Inventory management becomes uber important and warehouse systems need to provide real time data so as not to lose any potential sales. With Amazon Prime, inventory counts must be precise since orders need to arrive within a soon to be one-day window. If you have inventory received that is damaged, this can create problems that need to be resolved quickly.
It is incredibly labor-intensive to create a spreadsheet with columns representing product name, item number, and quantity; another column to remove items you sell and ship; and then log the returns and new incoming stock.
These days, inventory management software can allow you to go fully paperless and help eliminate the potential for human error by automating your processes. Barcode scanners can be used to communicate with other devices, such as barcode printers or mobile devices. You can track the physical location within the warehouse, helping pickers quickly identify location of product, retrieve it and move it to packing stations to prepare it for shipment.
Distributors must have sophisticated platforms to support multichannel sales, as well as multi ship rates and zones. Tools, including, Order Management Systems, Warehouse Management Systems, Transportation Management Systems and the integration of them all play a vital role in a successful order experience. It’s important to realize that these tools are ever changing and evolving. Merchants or their 3PL’s must continuously reinvest in these technologies to maximize the potential.
2) Not many can get up to Amazon’s size or deploy an army of warehouse robots. What should smaller companies prioritize in their supply chain logistics program?
The supply chain is being introduced to a number of advanced technologies, including automated trucks, delivery drones, 3D printers, and robots that pick and pack. While these are all exciting technologies, many are still in their infancy and will both improve and become less expensive over time.
Merchants, and especially their 3PL’s, should be following these technologies closely and be ready to act when the numbers pencil out. This being said, caution should be exercised not to lose focus on the fundamental technology functions like having a good Order Management System, Warehouse Management System and Transportation Management System.
3) Is there a competing school of thought or a past supply chain failure that can further enlighten about Amazon by comparison?
Change is inevitable in this business. Fulfillment centers should be spending hours of time working on integrations and updating systems to ensure they meet the needs of today’s online shopper. The fulfillment providers that continuously evaluate the market, keep up with the trends, identify and eliminate inefficiencies and reinvest in the right technologies will be the ones that come out on top.
4) What is the latest trend in…?
• supply chain automation
As costs and the availability of labor continue to challenge fulfillment operators, things like mechanization, automation, and AI will play an ever-increasing role in the future Distribution Center.
• third-party outsourcing
Value-added services are becoming increasingly important. Many fulfillment providers offer the basics: warehousing and shipping – but others go way beyond and offer far more value. These complimentary services can save you from having to manage these processes in-house or through several additional vendors, and include: customer care, kitting and assembly, reverse logistics, product refurbishment, order management technology, data analytics, subscription management, marketplace integration, payment processing and more. You may have needs for several of these functions, and with the right provider you can create a package that is provided by one supplier, simplifying your management efforts.
• balancing bricks & clicks (e.g. companies combining virtual & physical outlets)
If retailers want to find success in today’s market climate, then they must embrace multichannel – operating brick and mortar, as well as online. The online experience should serve as a seamless extension of the store footprint. Customers online should feel the same level of comfort searching products online as they would walking through a brick and mortar store.
5) What factors or efficiency gains deserve more coverage when it comes to Amazon and enhanced supply chain logistics? Is there anything that you feel is overdone/-rated?
Information is critical to making good decisions and improving the execution of order fulfillment. To stay ahead of the curve, merchants, and once again, especially their 3PL’s, need to leverage the data. This can be done with Business Intelligence (BI) tools that allow the merchant to slice and dice data in order to learn about their customers, order trends, operational metrics, and so much more. The more sophisticated the toolset, the more empowered the decision-makers will be.