“Many manufacturers and wholesale distributors have been profoundly impacted by the Amazon Effect, even if they don’t compete directly with Amazon,” writes a new report by Oracle. The Amazon effect refers to Amazon’s influence, dramatically raising customer expectations for things like: (1) Frictionless commerce (epitomized by 1‐click checkout and Amazon Go); (2)Extremely fast, low cost, or free delivery, with precise real‐time tracking and easy returns; (3) Nearly infinite selection; breadth and depth of products; (4) Rich product search, filtering, and product information; and (5) Personalization.
In fact, the boundaries between retailers, manufacturers, and wholesale distributors have become ever more blurred. Manufacturers and distributors are increasingly selling directly to the end customer. And existing customers’ expectations have also changed. Customers, whether consumers or businesses, expect to be able to view in‐depth product information, configure, order, check status, and potentially request returns or report issues online 24/7—that is in addition to the traditional channels of interaction.
Now, many retailers are demanding that suppliers hold inventory and drop ship to the retailer’s customers, forcing manufacturers to become proficient at fulfilling a large number of smaller orders consisting of just a few items, in addition to continuing to fulfill a small number of large bulk orders as traditionally done. Those 2 different types of order flows require completely different models for order management, warehouse management, inventory management, material handling, pick, pack, ship, and logistic/transportation management.
In short, running a business the ‘old fashioned way,’ is becoming increasingly untenable. To adjust to these changing expectations, the report suggests a 2‐pronged strategy: 1) differentiate and 2) optimize. (1) It is impossible to ‘out‐Amazon’ Amazon. They have scale, technology, capital, and experience that is hard to compete with head on. So it is vital to provide value that Amazon is unable to. This can take many forms, such as unique customer experiences, products not available elsewhere, specialized technical expertise and advice, and personalized services. (2) Businesses must also optimize their execution. This means: Improved forecasting and Inventory optimization; Fulfillment optimization: and Compressed cycle times/digital supply chain.