GAME CHANGER: AMAZON'S MOVE TO 1-DAY DELIVERY

AMAZON MOVES TO 1-DAY ORDER DELIVERY

--Game Changer from Retail to Logistics—

Amazon redefined retailing, e-commerce, and boosted omnichannel with free, two-day order delivery.  They did it by transforming supply chain management (SCM) into being the strategic execution and driver to accomplishing it.  With this, Amazon generated chaos and disruption in retail and to CPG and FMCG manufacturers and suppliers.  The term "retail apocalypse" was used to describe store closings and the growth of online selling. 

E-commerce is about convenience.   And power has shifted to the customer.  Before, stores had the power once the person walked in.  Now that person can source his needs with searches and apps—and delivery—while staying home.

What Amazon did was to develop a new reality and how to sell and service it.  Customers have the power now. This contrasts to the prior where retailers had power because customers went to their stores. Not now. Customers can source what they want and buy when they want to have it delivered.

To do the customer delivery that separated them from the online competition, Amazon developed a new supply chain management with end-to-end velocity to drive inventory velocity that is required for order delivery velocity.  They weaponized SCM and integrated into their overall strategy.

Gaining speed included setting up their own forwarding service in China, leasing planes to move products quickly, buying trucks for deliveries, and more.  This meant reverse outsourcing, bringing activities in-house. They have sown seeds of disruption in how supply chains are designed and operate and how logistics can be incorporated as more than separate activities.

Now they planning to spend $800 million to be able to provide 1-day order delivery.  This is a game changer for retailers, e-commerce firms, CPG/FMCG manufacturers and suppliers, supply chain management, and logistics providers and 3PL companies.  Across the gamut, customer expectations are being raised.  Customer service has new meaning. 

What Now? 

If what Amazon did before was considered disruption, this action reconceptualizes selling, customer focus, supply chain management, and logistics.  The challenge then is what is next for retail, e-commerce, CPG/FMCG manufacturers and suppliers.  This test is also with logistics providers and 3PLs as Amazon implements its strategy, as its competitors work to transform, and what is expected with logistics changes to provide velocity.

            Retailers and CPG Manufacturers and Suppliers.  A few retailers have been aggressive in competing with Amazon.  For various reasons, some retailers and FMCG companies do not have an e-commerce omnichannel with using updated supply chain management.  As a result, they have not been aggressive in establishing a robust e-commerce omnichannel capability and have not transformed their supply chains to drive success for the two-day order delivery standard.  This includes manufacturers and suppliers who have not adapted their supply chains to meet the requirements of active retailers and e-commerce firms nor have developed their own strong e-commerce activity.  This group has significant work ahead.

Some of those slow to adapt also define supply chain performance by logistics costs.  They also lamented last mile cost.  These are misdirection.  Logistics costs have little to do with performance.  It should be measured by measures that are company related.  Perhaps the best metric is the Perfect Order, an order/restock that is delivered complete, accurate, and on-time.  It is the ultimate customer-focused result.

First, to develop the needed total supply chain, companies should:

1)     Recognize and understand the complexity and length.

2)     Assess using performance metrics.

3)     Map it.

4)     Segment

5)     Prioritize.

6)     Design, test, and implement the new supply chain.

A little recognized challenge to improving velocity is the presence of logistics providers. Some are placed there with outsourcing. Others are there because of their position--such as ports. All should be evaluated as to need, role, risk and impact on inventory speed.

The above analyses give a picture of where the company is—the starting point for change.  Different views—assess, map, segment, prioritize-- and the insights they provide are important for the design.

Transforming the supply chain raises competitive position and mitigates risk of falling behind for customer sales. In designing, the new end-to-end, omnichannel supply chain with velocity should include these essentials:

·       Integrated Structure—process, technology, organization

·       Time compression.  Excess time both delays inventory movement and creates the need for additional inventory as a buffer—and more working capital

·       Focused on both upstream where supply of supply chain begins and downstream where restocking and fulfillment get attention

·       Network aligned to the channels being aggressively serviced for success

Remember that a dynamic supply chain in constant flux. Data analytics and predictive analytics are good to position, reposition, restock, stock, inventory at the proper location in the end-to-end Supply Chain.  That is good for inventory velocity.

            Logistics Firms.

Amazon has brought in-house, or reverse outsourced, different logistics activities—freight forwarding, planes, trucks, and more.  Removing middle parties can improve velocity.

These actions have had some call Amazon a logistics company and raised discussions on their offering their services to other companies. This concern has validity.

Given the internal benefit of what is being done, they are establishing an end-to-end supply chain service, not a logistics service,  Think of it as a single-source, integrated 3PSCM (3^rd Party Supply Chain Management) or a SCMaaS (Supply Chain Management as a Service) and the potential it brings to the market.  This would be a new service and opportunity.  And, given Amazon's supply chain success, it would be an interesting service offering to firms. 

Conclusion

What Amazon has and is doing will go beyond e-commerce and its Direct-to-Customer.  It will cross industries, markets, channels, and countries.  Customers will raise their requirements on order delivery and perfect orders. The thinking is—"If it works for Amazon, then it should work for any firm."  Few will be immune from the extended disruption and its transformation.