Many small online sellers lack the capabilities of larger retailers in terms of warehousing, material handling systems and logistics. On the flipside, companies that possess these supply chain strengths can benefit from fully utilized warehouse shelves and fuller delivery trucks, as empty space is wasted expense.
Retailers with a cloud-first mindset are discovering an opportunity to align their skillsets with cross-functions such as IT and operations, bringing innovative supply-chain-as-a-service (SCaaS) strategies to life and turning supply chain strengths into revenue-generating mechanisms.
A recent study shows that the North American SCaaS market is projected to reach nearly $8 billion in size by 2025, growing at a CAGR of 7.5%. Companies in multiple industries are taking advantage of this trend: Amazon.com Inc. through its Fulfillment by Amazon offering, Australia’s Woolworths by sharing access to its supply chain through its Primary Connect services, and Cardinal Health by providing services through its OptiFreight Logistics arm. By enhancing their strengths in warehousing and logistics, companies can optimize operations and create additional revenue without sacrificing flexibility and resilience.
As warehouse and production facilities become more connected, retailers are discovering many opportunities to adopt Industry 4.0 technologies such as radio frequency identification, GPS, the internet of things and artificial intelligence. By relying on real-time analytics of metrics such as warehouse space, production-line speed and system accuracy, companies can reduce costs, improve order accuracy and minimize transit times. These metrics can then be deployed to open excess capacity to other companies. For the “host” company, this becomes an additional stream of revenue. Yet it must be closely monitored in real time, to ensure against disruptions in operations due to overselling capacity to SCaaS clients.
Inventory blurring is another enabler of SCaaS for retailers. As one might expect, larger companies with expanded supply chain networks would be the ideal candidates to use shared warehousing to drive their own supply chain monetization. These companies have the capacity and access to technology needed to support alternative operating models.
Modern warehouse management systems can help to balance open capacity with customer needs. Micro-fulfillment centers are a particular area of promise for both small and larger companies looking to become SCaaS providers. The model suits those with localized capabilities, especially in rural or hard-to-reach geographic locations, as well as providers with national or multinational networks. All stand to increase profitability by allowing companies to piggyback off their excess supply chain resources. E-commerce operations benefit in the form of optimized distribution, speed of service, and ease of returns.
Regardless of the SCaaS route that a company chooses to take, continuous and real-time customer visibility is a necessity. For an SCaaS provider, it’s important to consider customers’ questions such as “How do I know what capacity is available to me?” or “Where can I access my products’ location or inventory levels at a given time?” Considering customers’ varying perspectives is an important step toward building on these partnerships. Consistent communication, collaboration and transparency are key. They can be enabled through a third-party technology provider or a real-time data-powered platform. By ensuring a single source of truth for data, companies can experience greater trust, client retention and transparency in relationship management. This heightened level of communication needs to be handled carefully to maintain a focus on protecting the provider’s own intellectual property, process confidentiality and competitive advantage.
Effective change management and a shift in cultural mindset are necessary steps to removing obstacles to adoption. Some view new technologies as leading to a loss of operational control. Instead, companies need to frame the issue as a means of freeing up resources and focusing on more human-centric decision-making. Any adoption of new technologies or processes must be carefully tracked and monitored to ensure against disruptions in the host company’s own operations. As supply chains evolve into an ecosystem, companies are finding that sharing capabilities leads to streamlined operations, reduced expenses and additional profitability.
Mayank Dubey is principal consultant with NTT DATA Services.
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