It’s fitting that Amazon’s Jeff Bezos is Fortune’s 2012 Businessperson of the Year. Even more fitting is that the article’s title calls him “The ultimate disruptor.” Regardless of whether that is true of Bezos, the internet has proved to be the market disruptor across industries; and retail is its poster child.
Amazon’s vision of being the place where people can find and discover anything they want to buy online is the ultimate long-tail strategy. While once thought ambitious, Amazon is now considered a threat not only to retailers but to anyone seeking to sell something.
A key to Bezos’s and Amazon’s success is their propensity to “break the rules.” They take calculated risks. Bezos didn’t come from retail, so he didn’t realize he was breaking with tradition when he envisioned the internet as a disruptive/innovative platform to drive retail sales across all product categories. And, he was less concerned with profit margin than profit growth. Like Sam Walton before him, he included offering customers the lowest possible price in his vision. Drive revenue first and profit, regardless of margin, will grow with it. Leverage scope, scale and service from supply chain capability to continue to offer lower prices and revenue and profit will continue to grow.
While the Amazon threat is certainly real (though vulnerable), it is also driving retailers to rethink their own internet and market strategies in light of responding to Amazon and other competitive threats. Rethinking retail strategy has led to the convergence of traditional retailing with e-commerce and the emergence of omni-channel retailing or, as we like to call it, omnitailing – the strategy of leveraging all channels to provide the “connected consumer” with what they need, when they want, anytime and anywhere.
We believe the keys to competitive omnitailing will be consumer/customer obsession, fulfillment/supply chain leverage, and technology innovation.
• First and foremost, success will emerge from consumer delight. The power is with the consumer, e.g. “showrooming.” Mobile devices, location based services, and Automatic Identification (AutoID) place the power of choice and the power to say no in the hands (literally) of the consumer.
Omnitailing requires in-depth knowledge of your consumer, their behaviors, your target segments, and their contribution to your business. You don’t have to be Amazon and sell to everyone or anyone, but you have to be intimate with the consumers that you want to sell to. Creating the most compelling consumer experience to build loyalty and sales is a must.
• Consumer segmentation will determine your fulfillment/supply chain strategies and capabilities. Not all consumer segments are alike. Defining your different supply chains based on different consumer segments and product requirements is critical. The omnitailer has a combination of fulfillment options and omnitailing’s market growth can often be tracked by the growth in online search to offline purchase (O2O) sales.
The omnitailer leverages bricks and mortar and fulfillment centers to convert the connected consumer by providing the lowest cost, most convenient option. Same-day delivery from fulfillment centers is still a challenge… and will continue to be… remember direct store delivery? Leveraging store locations and inventory for same-day delivery strikes at the heart of the internet retailer’s vulnerability.
• Finally, technology innovation may be the real secret sauce to Amazon’s ability to execute its strategies. By necessity, they built their IT architecture and applications based on their business strategies and requirements. And they built it on low-cost platforms. Amazon customer relationship management is built around sophisticated business intelligence and analytics that provide unparalleled insight into the consumer’s demographics and behavior enabling predictive buying recommendations and exceptional convenience and service.
Similarly, the fulfillment applications have embedded optimization algorithms that enable them to optimize order fulfillment and delivery options in real time and re-optimize aggregate orders throughout the day to determine the lowest-cost way to respond to demand.
By focusing on segmented exemplary service and optimal margin per box, per mode, per lane, the omnitailer can architect IT to meet its business objectives.
In 2013, is Amazon the 800-pound gorilla or Humpty Dumpty sitting on the wall? Amazon has executed a brilliant strategy by breaking the rules with superior vision, with superior customer intelligence and service, and with strategic investments in fulfillment infrastructure and technology. Can it respond to omni-channel retailers that leverage their store infrastructure to offer more convenience and service while matching the price? If Humpty Dumpty falls, will anyone put him back together again?
Keywords: retail supply chain, supply chain management, supply chain management IT, value chain, value chain IT, supply chain systems, retail fulfillment systems