Before the e-commerce segment rose to mainstream relevance, the retail industry’s logistics part had seen little disruption over decades preceding it, sandwiched between opaque workflows and stifling inefficiencies. That said, the consequential impact that e-commerce has on the workings of the supply chain today would not have been possible without the online retail behemoth Amazon and the ‘Amazon effect’ that lies in its wake.
In essence, Amazon obsessed over its customers.
Put simply, the Amazon effect is the evolution of supply chains from looking at end consumers as ‘yet another’ part of the value chain to putting them at the center of their operations. In essence, Amazon obsessed over its customers, aligning its product offerings and services to ensure the highest standards in parcel delivery experiences.
Subsequently, the consistent efforts of Amazon to provide impeccable delivery fulfillment to its customers snowballed to create an environment where expedited shipping became a parameter that set businesses apart from their market competitors. Eventually, this led businesses to start looking at delivering faster and keeping their customers in the loop on last-mile parcel movement.
While the need for visibility and expedited shipping have long been an expectation within the supply chain industry, they are not possible without digitalization.
While the need for visibility and expedited shipping have long been an expectation within the supply chain industry, they are not possible without digitalization. In many ways, digitalization within the freight industry can be inferred as the direct consequence of e-commerce. Data in supply chains remains frozen within siloed operations, as companies continue to cut off their data streams and not gain insights by feeding them to data-driven algorithms.
Meanwhile, consumer expectations within e-commerce have overflown from its business to consumer (B2C) segment to the business to business (B2B) segment of freight logistics, where shippers are increasingly expecting better experiences while moving freight. Shippers often rationalize their visibility requirements, contending that when Amazon could show them precision location status of individual parcels, fleets could afford to track entire containers.
Amazon effect’s impact on inventory levels
The e-commerce segment differs from the traditional retail industry in the way the former reduces the number of intermediary nodes within supply chains connecting the manufacturer with the end consumer.
Traditional retail moves products through several nodes in the supply chain, including manufacturers, distribution centers, and retail inventories, before selling to end consumers in retail outlets. E-commerce compresses this value chain, cutting out the retail inventories and storefronts, and replacing it with a multitude of last-mile delivery models.
As e-commerce bites into the physical retail market, there is a steady shift in the size of inventories and the way they are held. The depth in e-commerce offerings has translated into an increase in the variety of products stocked in inventories, inevitably showing up as an expansion in overall inventory volumes.
However, the inventory volume increase is not proportional to the expected increase. Shortening of lead times can be one of the reasons for the inventory volumes to not increase to expected levels. That apart, while logistics stakeholders look to stock products that are in demand, they also opt to stock limited quantities and not worry about overstocking due to short lead times. This way, companies also reduce the risk of stocking product lines that have become obsolete. Obsolete product lines are a real possibility as product demand is an extension of consumer interest in a said offering, which can abruptly change in a matter of days.
This is especially true of electronics, where older versions witness a rapid fall in demand as improved versions hit the market. The ease of e-commerce makes it easier for manufacturers to approach the market without intermediaries, increasing the chances of entire product lines being trashed due to a better alternative mushrooming in the market.
Last-mile delivery disrupted by the Amazon effect
Amazon’s customer obsession has ensured that the last-mile segment is one of the primary differentiators for delivery fulfillment within the e-commerce market. The last-mile is expected to be nimble, with the gravity of consumer expectations making it one of the crucial parts of freight movement.
Retailers are reevaluating their supply chains, attempting to consistently improve their customers’ delivery experiences. Technology has come to the rescue, with several additions being made to the way the last-mile is handled, including automated delivery bots and VTOL drones. Dynamic route optimization is part of a last-mile delivery company’s arsenal, with delivery vans given routing instructions based on parameters like location, parcel specification, and delivery time windows.
or logistics at large, there are two main operational costs – inventory and freight.
For logistics at large, there are two main operational costs – inventory and freight. While expenses on inventory and freight are comparable, the Amazon effect has successfully pushed scales towards freight costs – courtesy, an inordinate increase in air freight movement due to expedited shipping options. However, with the last-mile almost exclusively fulfilled over the road, the trucking industry would inevitably continue being impacted by the ubiquitous Amazon Effect.
