Holiday Season is Fast Approaching, Compete with Amazon Without Free Shipping

If an organizational goal is to compete with Amazon at e-commerce you’re likely setting your company up for failure, it also underlines a business strategy that lacks an understanding in the power of their brand and market niche. However, this should not discourage any company or brand from striving to improve on their e-commerce metrics, operational or otherwise. In the past month we’ve seen Amazon force brand giant Nike to become part of their platform, after years of resistance. This is because Amazon is only as successful as the power, and quality, of the brands in which it transacts.

Nike, along with many other strong brands, have concerns about this partnership: counterfeit products, Amazon cannibalizing customers from the Nike web storefront platform, and eventually Amazon private label production of Nike style footwear. These are all valid concerns, and when a longstanding leader like Nike is reluctant, enterprise and SMB’s should all take notice. Amazon focuses on three main pillars of service: price- right price, not always the lowest; selection- all the selection; and convenience- best way for the customer to get to the products; however, they cannot control a brand’s connection to the customer and will never have the ability to build strong relationships across such a large and diverse network.

  1. Take Advantage of a Diverse Logistics Network

 

Amazon does logistics right; there’s no denying that the company has become a leader in supply chain optimization and operational efficiency. One reason Amazon is so successful is that they have mastered a flexible and wide logistics network; that the company primarily runs with its own employees. They also have numerous vendors who service them through Drop Ship programs therefore expanding their outreach. Various platforms exist that connect organizations that need warehousing space that have organizations with extra space in over 45 markets across North America. Using these types of shared space networks will empower businesses to proactively plan for peak times, better understand their marketplace and place the right assortment of product closer to the end consumer. By placing the product closer to the customer companies can offer free shipping without detrimental hits to their bottom line; but more importantly they can offer fast delivery and further delight the customer.

 

  1. Develop Deep, Collaborative Relationships with Suppliers

 

In total Amazon sells over 480 million products just in the USA, this is an 8% growth from December 2016; the company is also shipping a large portion of their assortment to 180 countries around the world. Their Achilles heel is forecasting! Brands know their product, assortment and suppliers better than Amazon. This creates increased risk in the Amazon supply chain which is why there is an increased effort to start sourcing most of their fast moving ASIN (Amazon Standard Identification Number) directly from vendor factories. Their ultimate desire, as we can see in the apparel industry, is to move their supply chain directly to the OEM (Original Equipment Manufacturer).

Build trust with suppliers, create collaborative forecasting program and share in raw materials risk. Provide manufacturers and factories with visibility into your sales and operations planning data and give them a stake in the game.

 

  1. Brand and Assortment

New product launches are the best opportunity for brands to connect or reconnect to customers, educate and listen to their feedback. With a vast and global supply chain Amazon cannot understand all nuances of their vendor’s supply planning and network risk. As such, the company is searching to increase the number of drop ship partners across the country. Unlike most retailers, Amazon does not accept a fee for this program, however they pitch the service as the brand’s opportunity to place the product in the customer’s hands faster as it does not have to circulate through the Amazon network.

For some legacy products this makes sense, but for newly released products brands should be very weary of placing these into the Amazon supply chain. The optimal approach for new products is to limit and control the supply chain as much as possible, and back this up with enough marketing dollars that the needed visibility exists and sales take off without Amazon.

  1. Shipping

Shipping does not have to be free, however it does have to be hassle free on the outbound as well as reverse logistics. Analyzing Amazon’s SEC filings for 2016, the company calculated a net landed cost for products at their customer’s doors of $7.2B.

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According to Amazon’s CFO, Brian Olsavsky, the total spent on shipping increased by 30% YoY driven by the fact that more than 50 milling items on their catalog are now eligible for free two day shipping, which has also increased over 70% from the previous year. As a percentage of the total company revenue the shipping costs were reported at 53.3% a the end of 2016; this would cripple most other businesses.

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Provide customers with realistic expectations, partner with the best last mile delivery providers and keep a pulse on the average rate in the market. Exceed expectations and impress the customer by anticipating post-delivery needs, do not put the business at risk to compete with Amazon’s free shipping policy.

The best thing about not being Amazon is that your customer service team can excel in understanding your brand and product and speak to the customer from experience.  Brands can listen, receive feedback, and act on their customer’s opinions. Amazon invests in improved customer service, but without the brand and product knowledge their service is lacking expertise and revolves around product delivery and directing the customer back to the original manufacturer.

Excellent customer service, coupled with strategic management of your supply chain will set you up for a successful holiday season and a strong brand in the future. Amazon will continue to grow. Being small, nimble, innovative and true to the customer will help true brands survive and strive.

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Why Companies Need a Supplier Relationship Management Strategy

Screen Shot 2015-08-10 at 16.43.12The business landscape is ever changing, numerous innovations have allowed companies to transcend borders and become global entities. While the opportunities are numerous so are the challenges; in this fiercely competitive global marketplace success requires companies to pay closer attention to supplier relations. Global leaders should retain suppliers with vested interest in the long-term success of the company. These partners should be willing to extend more value added services, flexibility and resources. To attain this level of trust with suppliers, companies should approach these relationships with the same care they use when approaching customers. A vigorous supplier relationship management (SRM) strategy can assist organizations in maximizing partnership value, minimize risk, and manage costs through the entire supplier relationship lifecycle.

When formulating a supplier relationship management strategy organizations must consider the following implications to be successful:

  1. Become the Customer of Choice

In May, 2014 Raytheon gathered a group of its largest suppliers in Boston, MA to discuss the launch of the company’s Supplier Advisory Council. This advisory board is to serve as the first step towards a more comprehensive supplier policy and the building block for Raytheon’s new SRM strategy. As stated by Michel Shaughnessy, Vice President of Integrated Supply Chain for the company “In order to reach a level of earned preferential treatment, Raytheon has to build stronger bonds and greater trust into supplier relationships.”

By working closely with its suppliers to receive the best sales terms, fluctuating manufacturing capacity when needed and first access to the latest innovations, Raytheon secured its status as a leader in the defense systems market. The company also realized a 10% increase in stock price since the summer of 2014, in a highly competitive and regulated market.

  1. Connect your supply chain

Supply chain concepts are generally understood in a linear pattern of consecutive planning in the form of plan-source-make-distribute-return/dispose. What happens when a company plans to bring a product to market and outsources all of the steps in between to suppliers that do not communicate? Take for example lithium batteries, which are intermediate parts destined to be incorporated into finished goods such as laptops, cameras or cell-phones. The transportation of lithium batteries is dangerous, as they overheat, which can cause significant damage. In electronics supply chains, transparency and visibility is key to ensuring that products get to market as promised. To do this, the production and transportation of all component parts must be closely monitored and coordinated.

  1. Foster partnerships based on trust

In 2013 B2C e-commerce sales accounted for more than 1.2 trillion US dollars. Omni-channel shopping has given customers a wider selection of goods and a platform for price comparison. Because of this, businesses are finding it challenging to forecast demand and therefore they risk escalating inventory costs or stock outs. Organizations need more flexibility in their supply chains and should seek stronger partnerships with their suppliers, moving away from transactional relationships based on costs and delivery times, and focus more on long-term mutually beneficial relationships.

SRM software, much like a CRM system allows supply chain personnel to keep track of supplier interactions and address concerns early. This type of system can also help organizations understand when their suppliers are undergoing change or hardship, and offer them an opportunity to step in and help, or provide them with enough time to source from different suppliers.

  1. Manage working capital

To establish and maintain leadership, organizations must innovate. Most often capital is tied up in paying suppliers with few funds invested in R&D. Some companies choose to extend accounts payable as long as possible to free up capital that can be invested into R&D and innovation. This requires strong supplier relations, built on trust as most times delaying payment can erode partnerships, affect terms of payment, and cause less willingness for collaboration. These strategies are even more beneficial in the retail space where suppliers consider special arrangements on payments in exchange for better shelf space and product visibility.

  1. Set clear expectations and KPIs

Suppliers are not mind readers; their success relies on communicating with their customers, understanding their demand needs, and receiving honest feedback. Organizations that rely on hundreds, maybe thousands, of suppliers to fill demand find themselves reacting to supplier behavior rather than anticipating concerns and preparing ahead of time. A comprehensive supplier management strategy helps organizations arrange suppliers based on different tiers of importance and reliability.

Suppliers should be held accountable for their promises; all communications, formal and informal should be properly logged and followed up with. It is unwise to trust a supplier with more work or a better project, if they have repeatedly failed to meet deadlines in the past.

Organizations should keep detailed information on supplier communications, contracts, and improvement based on their internal key performance indicators. While all businesses appreciate a supplier’s ability to deliver high quality goods on time, organizations should also have individual characteristics they value from their suppliers. It is important that these characteristics are shared with suppliers and used to measure their ability to improve on these indicators.

  1. Screen Shot 2015-08-10 at 16.43.40Find opportunities and improve supply chain sustainability

Consumers are becoming increasingly more concerned with how their products are manufactured and sourced. According to The Nielsen Company: 55% of global online consumers in over 60 countries assert that they are willing to pay more for products and services provided by companies that are committed to positive social change and environmental protection. In the past we have seen numerous examples of global leaders fail consumer expectations. These organizations depend on a vast network of global suppliers to bring their products to market, but in the eyes of consumers it is their responsibility to ensure that their practices have minimal impact.

To meet the growing demands of customers, organizations must work closely with suppliers, conduct regular audits, and analyze findings. Managing supplier relationships strategically allows global companies to set standards and utilize existing assessments such as the Higg Index. To reach sustainability best practices, communication with suppliers must be collaborative and transparent with stated common goals and clear ability to measure efforts.

According to the Council for Supply Chain Management Professionals (CSCMP), supplier relationship management is a comprehensive approach to planning and managing an organization’s interactions with providers of goods and services. This practice is supported by a dynamic SRM strategy that retains information that can be used for analysis. The overall objective of SRM is to streamline transactions and manage communications. As supply chains become more diverse and exposed to various global risks, these practices help organizations become market leaders, mitigate risk, hold suppliers accountable and measure their supply chain footprint.

This blog first appeared on the Cerasis Transportation Company Blog visit them for more information on logistics, 3PL and supply chain management thought leadership.