- 22 March 2019
- Written by: Supply Chain
- Categories: eLearning, Supply Chain
In today’s evolving corporate world, Amazon and other ecommerce and tech innovators continue to raise the bar when it comes to customer expectations. As suggested by its name, the Amazon effect refers to Amazon’s influence. In fact, Amazon recognized the thriving opportunity in the market and used the web to revolutionize how we buy and sell.
As a result, various manufacturers and wholesale distributors have been greatly affected by the Amazon Effect despite not competing directly with Amazon. Amazon’s influence has raised customer expectations for things like:
- Frictionless commerce (characterized by Amazon’s 1‐click checkout and Amazon Go)
- Fast, low cost, or free delivery, with accurate real‐time tracking and easy returns
- Nearly infinite selection, breadth and depth of products for sale
- Rich online product searching, filtering, and product information
- Meaningful reviews and ratings
Many businesses are struggling in the age of disruption and high customer expectations. The persistent question is how to survive the Amazon effect?
1. Provide Value
Companies need to understand that is complicated to surpass Amazon, mainly because they have already all the resources they need in terms of scale, technology, capital, and experience. A good way to get into this game is by providing value that Amazon is unable to. For instance, through unique customer experiences, products not available elsewhere, specialized technical expertise and advice, and personalized services (including onsite or in‐person services).
Let’s take for example a manufacturing industry who are differentiating to thrive in the age of Amazon: Sugar Bowl Bakery, a manufacturer of baked goods with two manufacturing plants in the San Francisco Bay area. This company is differentiating itself is by making healthier options that still taste good, such as their newly launched whole‐grain Breakfast Bites, sweetened with dried fruits in the Blueberry Lemon and Cranberry Orange versions. They appeal to health‐conscious shoppers and are ahead of trends. Besides this they are constantly working on efficiencies to keep costs competitive.
2. Optimize—Creating a high‐Performance Omnichannel Engine
One way to differentiate from Amazon is by optimizing execution in order to profitably meet the rising customer expectations that Amazon has created. An omnichannel experience is needed to satisfy customers and reach new heights. With omnichannel offerings and capabilities, you can ease and remove customer struggles. This leads to a consistent style of customer interaction throughout your different channels (Online and Offline). This means that your business needs to be fast, efficient, integrated, and profitable.
3. Rapid, Profitable Fulfillment
Today, modern consumer expectations include ever‐faster order‐to‐delivery cycles. It is certain that expedited delivery, especially over long distances, can be very expensive, and Amazon is making it even harder for competitors with their practice of subsidizing their own shipping costs. In fact, in 2016, Amazon’s shipping costs exceeded their shipping revenue (including all Prime subscription fees) by $7.2B (about 5% of revenue) and that figure is estimated to have grown to over $10B in 2017. Amazon is in fact sacrificing profit to subsidize shipping costs and grow market share. They can do this in part because the stock market continues to reward them for high growth over high profits.
However, Amazon’s competitors can not expect to have that same luxury. So, those competitors must become as efficient as possible, so that they can offer rapid delivery, while still turning a profit. In practice, there are several keys to this:
Improved Forecasting and Inventory Optimization
This does not involve only forecasting. It is also about understanding where those units are going to be consumed, and being able to forward‐position the right amounts at the right places.
Having the right inventory in the right places is the first step. To truly optimize fulfillment, a company can use a Distributed Order Management (DOM) system that optimizes each order, shipping it from the best location, using the best mode, at the lowest cost, while still meeting customer delivery requirements.
Compressed cycle times/digital supply chain
Providing rapid fulfillment requires continually working on compressing cycle times throughout the end‐to‐end fulfillment process and across the supply chain. This is a combination of rethinking existing processes to eliminate steps and waste, and automation, moving towards a fully digital supply chain.
4. Integrated Channels
Customers now expect seamless integration across online, call center, physical locations, and onsite services. In order to meet these expectations, tight integration is required between all of the systems involved, across all channels, on both the frontend and backend. A good approach is to have a single integrated system that includes ecommerce, fulfillment functions, core financials, product information management, order management, logistics (warehouse and transportation), and unified billing.
Innovators such as Amazon continue to set new heights for customer expectations. No matter the size of a company, businesses can thrive in this competitive environment, provided they relentlessly differentiate and optimize. Having an integrated system, with full omnichannel capabilities, is key to support the competitive differentiation and optimization needed for success.
2018 Chainlink Research