Thursday, January 22, 2015

AMAZON

Will Amazon's anticipatory shipping concept disrupt logistics management?

A white paper by TMS provider GTG Technology delves into how the e-commerce giant's anticipatory shipping patent might affect logistics for small and medium retailers.

Knowing what a customer wants before the customer even knows he or she wants is every retailer’s dream.
North America’s biggest e-tailer, Amazon, has been taking steps toward that goal in recent years, most notably by acquiring a patent for a technology that underlies what it calls anticipatory shipping.
The anticipatory shipping model, according to a white paper released by the transportation management software provider GTG Technology, is essentially an extension of the company’s existing technology designed to generate more packages to be delivered within 24 hours.
“Anticipatory shipping is built on big data and predictive analysis – two aspects that Amazon is exceptionally good at,” GTG said in the white paper, Will Anticipatory Shipping Throw a Wrench in Logistics Management. “The ecommerce giant has long been known for its ability to predict what customers want to purchase in the future based on previous browsing behaviors and buying decisions. Now it wants to use those same insights to predict what consumers will buy before they actually buy it.
“In theory, items would be shipped to an Amazon hub in the geographical area near where the company thinks the items will soon sell. As a result, the standard process of receiving an order, labeling the package at a central warehouse, loading it, sending it via UPS or USPS, and then delivering could be a thing of the past.”
The white paper said inaccuracies inherent in a system that tries to guess what consumers will buy could be the biggest hurdle to overcome for anticipatory shipping.
“When it comes to logistics, the biggest problem Amazon – and eventually other companies that follow – will have is dealing with inaccuracies in the system, costly returns, and the reactions from UPS and FedEx,” the white paper said. “It is impossible for an algorithm or data-driven system to predict what a customer wants with 100 percent accuracy. In reality, it will probably be difficult to get anywhere near 80 or 85 percent accurate. These inaccuracies will likely lead to logistical nightmares and costly returns. While Amazon claims it has a plan in place for when the predictive model fails, it’s unlikely that this plan will solve every issue that may arise.”
GTG also said it’s unclear how FedEx and UPS would react to a system that does not include full shipping addresses or labels when the shipment is generated.
“According to information found in the patent, Amazon would initially only place zip codes and city names on a package – updating it with more descriptive information as it is en route,” the white paper said. “Would rates go up? Would these companies even allow this process? Both answers to these questions are unknown.”
However, GTG said it expects that other online retailers will quickly follow Amazon’s lead if anticipatory shipping proves successful.
“If anticipatory shipping is successful, it will likely take off with all the online giants – Amazon, Alibaba, Walmart,” the white paper said. “As a result, the gap between (small and medium enterprises) and major e-commerce sites will continue to widen. At first it will be alarming, but soon multichannel retailers and pure players will find their opportunities.”
To compete with such a model, multichannel SMEs need to “blend their online and offline businesses – something Amazon and Alibaba cannot do. It will be important for these SMEs to combine the ‘touch and feel’ advantage of their brick and mortar stores with fast, local shipping.”
The white paper also said SMEs might be forced to expand warehouses and focus on convenience when choosing locations, as the need to be closer to consumers will be more important than ever.