How Can Supply Chain Planners Fight the Amazon Effect?
Brian Hoey - July 09, 2020
For a long time, it made sense that B2B and B2C buying experiences looked very different. If you were a consumer trying to purchase a small quantity of goods, you didn’t expect there to be much of a negotiation—you just wanted the list price and the product information so that you could make a quick choice. For businesses, the process could be a little more involved, meaning that it was often seen as less important to provide the kind of speed and intuitive UX for which B2C commerce has become known. Now, however, those days are most certainly behind us.
To wit, studies show that businesses increasingly want their buying process to be more like the B2C experience—more specifically, two-thirds of business buyers now want an “Amazon like” buying experience. Those same studies show that buyers will actually switch vendors because of the buying experience, whether that’s due to a lack of personalized engagement on the part of the vendor or poor user experience.
When supply chain managers talk about the Amazon Effect, this is, in part, what they mean. Not only do buyers of all stripes expect faster turnarounds on shipments than ever before—they also expect vendors to match the level of sophistication that Amazon offers throughout the end-to-end buying experience. As you can imagine, this puts a lot of pressure on manufacturers, logistics providers, and other supply chain players. That said, it is possible to fight the Amazon Effect and gain a competitive advantage. How? Digitization.
What Is the Amazon Effect?
Before we dive into the strategies that supply chain managers can adopt to keep pace in an ever-changing digital marketplace, let’s quickly sketch out exactly what we mean by the Amazon Effect. Investopedia describes it as the “impact created by the online, e-commerce or digital marketplace on the traditional brick and mortar business model due to the change in shopping patterns, customer expectations, and a new competitive landscape.” And what are the most crucial ways in which customer expectations are changing?
- Customers increasingly expect not just quick shipping turnaround (e.g. 2 days as “standard"), but full transparency into the shipping process, including tracking where possible.
- Likewise, they want an easy return process that centers their needs. This may not apply to all B2B interactions, but for businesses where it’s relevant the pressure on reverse logistics can be magnified considerably.
- People also expect more product customization, algorithmic suggestions for purchases, and in general a more individually-tailored buying experience. This is the kind of thing that can only be accomplished with Big Data integration and real-time analyses of buyer behavior.
Like we alluded to above, this began as a trend in B2C expectations, but it’s now becoming increasingly common for buyers in B2B processes to expect improved performance in this way. This puts most manufacturers, shippers, and freight forwarders in a challenging position. Why? Because meeting these expectations isn’t as simple as designing a fancy new ordering interface or making promises first and figuring out how to keep them later. On the contrary, you’ll need to radically increase transparency within your own supply chain to really keep up with buyer expectations.
How Digitization Powers Performance Tracking
Let’s take shipping turnaround time and transparency as our first hurdle when it comes to dealing with the Amazon Effect. In order to give buyers an accurate estimate of when their orders are going to arrive, you need to gain visibility into your own supply chain. To do this, you’ll need to start by setting up key performance metrics about on-time deliveries. From there, you’ll need to gather the data that’s available throughout SCMS to calculate those KPIs. For some operations, this is a significant stumbling block in and of itself. For instance, at this stage you might find that you can’t actually measure your Perfect Order Performance, because data about on-time deliveries is either stuck in a spreadsheet somewhere that you can’t access it, or it’s not being tracked at all. By the same token, you might find that you have no way to reliably collect customer feedback in any digital format, meaning that you not only can’t track an important KPI, you also can’t use that data to improve your demand forecasts (and thus reduce stockouts that cause irritating delays for your buyers).
This is where digitization comes into play. A digitally mature organization will be able to collect and track this increasingly mission critical data via, whether that’s through IT integration or via IoT and RFID tracking devices along on trucks, in containers and pallets, and elsewhere throughout the logistics chain. Likewise for customer data—and as this data is collected and centralized, it becomes possible both to establish KPI baselines (meaning that you have a benchmark for future improvements) and to use advanced analytics algorithms and other digital processes to improve your demand forecasts, production planning, and logistics planning.
Industry 4.0 and Customization
For an operation that boasts the level of digitization we’ve been describing in this article, it’s possible to speed up shipping times by way of improved performance tracking, logistics chain analyses, and ultimately reduced disruptions and more optimal processes. Since this process requires a high degree of visibility and transparency up and downstream in the supply chain, it’s also easy enough to pass on that transparency to your buyers, thereby giving them a big part of the “Amazon experience” right off the bat. From there, you can begin to think not just about shipping times, but about the sophistication of your entire end-to-end purchasing experience.
Here, Industry 4.0 technologies can be a big help. Not only do AI and Big Data-powered advanced analytics processes help you better anticipate the needs of your customers, they can also help you to power increased product customization. And because Industry 4.0 systems are constantly responding to new data and market conditions and parameters to creating ongoing planning optimizations, you can extend some of that responsiveness to your customers via a smart UX. If you can give live pricing and shipping estimates, for instance, based on up-to-the-minute market data, you can create an experience that will delight buyers and keep them coming back for future purchasing cycles.
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