Executive Briefings

Competing with Amazon - and Other Views on the Future of E-commerce

When it comes to e-commerce, competing with Amazon is the name of the game, says Ian Hobkirk, managing director of Commonwealth Supply Chain Advisors. Here, he shares his views on the degree of the difficulty of taking on the e-tailing giant and on the future of online commerce in general.

Competing with Amazon – and Other Views on the Future of E-commerce

Most companies will find it difficult, if not impossible to replicate Amazon's strategy of saturating the country with distribution centers to place inventory as close as possible to the point of consumer demand. The inventory costs alone of this decentralized model will be prohibitive to all but the largest companies.

While Hobkirk doesn't believe that "same day shipping" will ever become mainstream, it seems very likely that by 2025 e-commerce distributors will have to be able to offer next-day or two-day ground service to most of the country to be competitive.

Operating three to five distribution centers will be cost prohibitive to many companies who do not have the sheer outbound volume to justify so much brick-and-mortar at the DC level.

Enter the new, re-imagined e-commerce 3PL. The shared facility and labor costs of a 3PL network will be the only way for mid-sized distributors to gain the economies of scale to replicate Amazon-like service, says Hobkirk. But the nature of the 3PL relationship must change. The short-term, competitive contracts which are so common today discourage investment in automation. Longer contracts and more true partnering between 3PLs and clients must occur to make these relationships viable. Additionally, the distributors (the clients of the 3PL) must be willing to do more standardization in order management protocols, labeling, and other areas which will allow 3PLs to handle multiple small companies under the same roof efficiently. Pulling costs out of the operation in these areas will help to offset the costs of more decentralized inventory.

Source: Commonwealth Supply Chain Advisors


Keywords: retail supply chain, future of online commerce, competing against Amazon, value chain, value chain IT, supply chain solutions, supply chain management IT

Most companies will find it difficult, if not impossible to replicate Amazon's strategy of saturating the country with distribution centers to place inventory as close as possible to the point of consumer demand. The inventory costs alone of this decentralized model will be prohibitive to all but the largest companies.

While Hobkirk doesn't believe that "same day shipping" will ever become mainstream, it seems very likely that by 2025 e-commerce distributors will have to be able to offer next-day or two-day ground service to most of the country to be competitive.

Operating three to five distribution centers will be cost prohibitive to many companies who do not have the sheer outbound volume to justify so much brick-and-mortar at the DC level.

Enter the new, re-imagined e-commerce 3PL. The shared facility and labor costs of a 3PL network will be the only way for mid-sized distributors to gain the economies of scale to replicate Amazon-like service, says Hobkirk. But the nature of the 3PL relationship must change. The short-term, competitive contracts which are so common today discourage investment in automation. Longer contracts and more true partnering between 3PLs and clients must occur to make these relationships viable. Additionally, the distributors (the clients of the 3PL) must be willing to do more standardization in order management protocols, labeling, and other areas which will allow 3PLs to handle multiple small companies under the same roof efficiently. Pulling costs out of the operation in these areas will help to offset the costs of more decentralized inventory.

Source: Commonwealth Supply Chain Advisors


Keywords: retail supply chain, future of online commerce, competing against Amazon, value chain, value chain IT, supply chain solutions, supply chain management IT

Competing with Amazon – and Other Views on the Future of E-commerce