Have you ever heard of the ‘Amazon effect’?
The increase in e-commerce results in a disruption of the retail market, both online and in physical outlets. Consequently, consumers are able to access any product or service they need from their smartphone. This is how the digital marketplace has an impact on the traditional business model in retail, since customers became dependant on a fast response and delivery. Also known as the ‘Amazon effect’ since Amazon is open 24/7, a ‘middle of the night’-order is a piece of cake to handle for Amazon.
This shows in Amazon’s subscription service: Amazon Prime, that delivers any order (almost) instantly and free of shipping costs. However, a recent study by SmarterHQ revealed that Amazon Prime customers aren’t as connected with the brand as it looks: when the advantages of Amazon Prime become reluctant in the eyes of the customer (such as the free shipping), they would quickly drop their subscription (82% of customers says to drop the subscription if the advantage of free shipping would fall out). Moreover, the study found that shoppers on Amazon wouldn’t be keen on spending more than 200 dollars on a product, which brings great possibilities for luxury brands. Interestingly, a significant amount of Amazon’s clients states to visit the website whilst already having in mind what to buy. In order to keep clients on your web shop, retailers should engage customers more by suggesting new products based on their previous shopping behaviour.
These are great opportunities for retailers to jump in. But behind the scenes, there’s a lot more going on than it seems. The Amazon effect is causing a major revolution in the supply chain across the globe. So what actions should be taken in the retailers’ supply chain?
- Continuous fulfilment schedule. To ensure fast deliveries, distribution centres operate on a continuous fulfilment schedule, which means orders are no longer processed in batches at the end of the day, but instantaneously. Processing happens immediately.
- Say goodbye to the traditional model of large lots that are composed according to schedule. This model will have to be adjusted to faster, smaller shipment demands.
- This implicates that manufacturers must learn to product in smaller lots with very fast machine change-over time to accommodate a faster demand schedule.
- Thus, machine tool and robotics makers must develop and redesign their products to accommodate fast changes and smaller-run capacity.
- Fast requisition release capability. Purchasing of raw materials should be adjusted to quickly respond to manufacturing needs.
- Ensure more consolidation centres in foreign locations to load containers and get them moving fast.
To conclude, the bond between Amazon Prime and its customers offers possibilities for other retailers (or e-tailers?). If they could handle this smartly, they could snoop customers away from Amazon. The big problem for other retailers is mainly because it is expensive to offer cheap shipping as well as cheap products. This cuts down the margins significantly. Thus, adjustments and optimization in the supply chain might just be the answer. Amazon is known to disrupt supply chains by disintermediation: eliminating the middle man, in combination with its huge fulfilment efficiency and geographic reach. But how can retailers compete with this? Well, they should acknowledge that collaboration might be the key. Be open to exploring forms of collaboration among each other to move inventory closer to the consumer and develop new, fast and low-cost delivery services.