The Internet has been hailed as a driver of growth, opening new sales opportunities to a multitude of industries that may have once been limited by geography. That, coupled with international supply chains and a global delivery network, has paved the way for a new economy, one that isn’t limited by borders, distance, or any other barrier that could hinder the growth of commerce. But this is not a one-way street paved with gold, because along with unprecedented opportunity has come unprecedented competition. Just as we can easily enter new markets, a new upstart anywhere in the world today can pose a significant competitive threat tomorrow.
This shift in the competitive environment has been particularly challenging for retailers. While e-commerce opened the door for extraordinary levels of growth for virtually any business that takes advantage of this incredible sales avenue, it also created new competitors and the need to develop new capabilities to serve new channels to market. Retailers that have been slow to respond have been left competing amongst themselves for a smaller and smaller share of consumer spending. But this is the order of evolution. As Darwin said, “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”
In the unique climate brought on by 2020 – one of social distancing, minimal store visits, and an increase in online shopping –with e-commerce, which was once berated by retailers for their downfall, has become a lifeline for businesses and an essential service for most of the world. The winners in the pandemic have been those that quickly shifted and adapted to the new realities; be it retailers that could satisfy the demand for click and collect or home deliveries. Or even the brands that could shift quickly to more direct-to-consumer (D2C) sales or the beverage suppliers that could shift their beer supply from kegs for bars to cans for home consumption. Agility and resilience are not new concepts and were in vogue prior to the pandemic, but for many, these supply chain capabilities are now a top strategic priority.
One of the big winners from the pandemic has been a company whose origins as an e-tailer which, while novel at the time, was not particularly earth-shattering as they offered an endless library of books that could be shipped almost anywhere. This retailer gradually increased the number of items that were offered and began to use data and algorithms to adjust product prices on-the-fly. The company eventually made it possible to sell products faster and more efficiently than anyone else. And on top of that, it slowly constructed a distribution network that was more agile, resilient, and far-reaching than anyone could have ever imagined.
Compete in the face of insurmountable odds
All of this begs an important question: How can any company expect to keep up with this retailer? If its attributes don’t sound immediately familiar, then its name certainly will: Amazon. Built on the growth of the Internet and an always-connected, on-demand world, Amazon became a stalwart unlike any other.
Amazon’s growth isn’t as complex as it sounds. The company has managed to successfully dominate a multitude of sectors – and continues to seek out new areas of growth, including groceries and pharmaceuticals – by using what could be described as a very simple process. In short, Amazon is very agile. But there is another element to the Amazon secret sauce, which was also mentioned by Darwin. Much of Amazon’s agility is driven by intelligence. Amazon has amassed a very significant amount of data. While the vast majority of data is not leveraged by most businesses that collect it –as much as 68 percent per as much as 68% per researchers at IDC – Amazon utilizes as much data as possible. This online retail leader uses its data to gain insights into the likes of price elasticities and demand shifts. If an item increases in overall popularity across all retailers, Amazon may very well be the first to know about it, providing a notable edge in reaching those who want it most.
The obvious success of Amazon’s intelligence has awoken many retailers and brands in the Consumer-Packaged Goods (CPG) industry. Companies such as Nike have shifted sales online during the pandemic, during which time Nike managed to increase the D2C channel to now account for 33 percent of total sales. This provides Nike with access to a lot of additional information about its own customers and demand patterns from which it can garner powerful insights. This ability to analyze Point of Sale (POS) data quickly and gain insights is the first part of the Amazon advantage. The second part is the ability to respond to this intelligence in close to real-time through empowered processes and an agile network.
Persevere even when challenges persist
Incumbents may not be terribly enthused by Amazon’s capabilities, but they are catching on. They recognize the fact that if they aren’t careful, the digital retail giant might do to them what it has already done to booksellers. But is the only solution for brands to embrace D2C and must retailers just accept their fate and take what they can get from a company that has revolutionized the way the world shops?
The surprising answer is that businesses are not at Amazon’s mercy. Yes, Amazon is a powerful force and it should not be taken lightly by any enterprise looking to sell products anywhere. But we have to look to Amazon for inspiration and take what Amazon does and improve it. The answer is not new either. It lies in virtual supply chains.
Don’t try to beat them – partner with them
Businesses that operate in the same supply chain often see each other as competitors and, consequently, relationships can be adversarial. This is a natural reaction – there are only so many dollars to share around, and only so many items that people are interested in acquiring. However, they need to realign that thinking and recognize that it is actually supply chains that compete, not companies. Martin Christopher, professor at Cranfield School of Management, famously said, “Individual businesses no longer compete as standalone entities, but rather as supply chains. We are now entering the era of ‘network competition’ where the prizes will go to those organizations who can better structure, coordinate and manage the relationships with their partners in a network committed to better, faster, and closer relationships with their final customers.”
Supply chains will always be physical – that will not change as long as there are physical goods that need to be manufactured, shipped, and acquired. What can change is the collaboration between businesses and the outcome of the process.
This enables Amazon to have a long tail of products while most businesses focus on rationalizing SKUs. The e-tail giant makes it possible for consumers to find whatever they want through its distribution system in which it can locally store the most frequently purchased items and rely on its massive network to deliver the rest within two days at viable costs.
So how can other businesses compete? Consider the network that many of them already have in place. Brands like Hugo Boss and Nike are doing more D2C sales, which is one component of the virtual supply chain, providing the company with end-to-end control of its relationship with and delivery to the consumer. By selling directly to those who wish to purchase their products, brands will ultimately gain Amazon-like benefits, including in-depth insights from the data it gathers as a result of those sales.
But these brands – and the retailers and suppliers that service them – could all further benefit by joining forces in a virtual supply chain.
Integrate with suppliers to improve agility
Businesses can begin by understanding that while the need to control their supply chains is valid, they don’t necessarily need to own them. Instead, brands should consider the effects of Amazon’s dominance – the e-tail leader is forcing collaboration to create these virtual supply chains. Brands must partner with retailers in order to compete and they must be willing to sell directly to consumers. And retailers must embrace omnichannel and collaborate with brands if they are to improve the viability of the “‘virtual supply chains”’ that they find themselves within.
Brands found that they could foster new relationships, create stronger bonds, and more intimately reach their customers by going directly to them. This has led to distinct advantages in the form of POS data that would normally be relinquished to a retailer. By attaining this information through direct sales, businesses can learn more about who’s buying their products and make smarter, more targeted decisions going forward.
The question is then what to do with the information and insights. The winner is not the most intelligent supply chain but the most intelligent and suitably agile supply chain from end to end that wins. Yet most businesses continue to struggle with traditional planning strategies just within their own four walls, particularly S&OP. Survey after survey reports that approximately 50 percent% of companies consider that their S&OP process are not fit for purpose. This is both because of cumbersome processes and also the lack of network transparency and visibility.
In an increasingly volatile world, the winner will operate and compete from within virtual supply chains that are truly connected from end to end with real-time information, rapid decisions, and orchestrated network response. This requires the virtual supply chain to be global – powered by information and empowered by collaboration.
Virtual supply chains are required for smooth global trade
In addition to shifting competition due to globalization, demand and supply-side shocks are inevitable and have increased in frequency. This is not necessarily because the world is more volatile, which may or may not be the case, but certainly, because supply chains are now truly global and so a shock anywhere in the world can immediately disrupt these fragile networks. That is not likely to change even when the world feels normal again, so the pandemic should be thought of as a “stress test” for planning systems. Case in point: what hasn’t worked well in this situation is not working well with smaller day-to-day challenges.
Enabling virtual supply chains also requires a new way of supply chain planning – a strategy that is focused on real-time, event-based scenario planning that will enable businesses to quickly and effectively respond to changing scenarios. It’s a strategy that makes it possible to evaluate feasible options and determine the best decision for optimal results.
But good scenario planning is hard to achieve when the underlying processes are not designed for managing events. However, with planning processes that focus on managing events – such as promotions, product launches or capacity changes and how they might impact operations – businesses will be better equipped to withstand or entirely avoid future challenges and disruptions. Only then will it be possible to create a truly virtual, real-time supply chain that can ebb and flow with real-world demands and disruptions and persevere through the most difficult scenarios.
Anticipated events are just the beginning
The aftershocks of COVID-19 were once considered to be an anomaly – an unanticipated event that few could have predicted. Now that businesses have been living with the pandemic for roughly a year, they may feel that they are more prepared for another event of this magnitude. It wasn’t easy to get to this point and the challenges brought on by the pandemic are still challenging many. But after months of stay-at-home orders and supply and demand fluctuations, enterprises have learned to cope. Now the focus is switching to how businesses can learn to be more prepared for the next unforeseen challenge.
New and unexpected events will occur, that is a given, and supply chains must react accordingly. Whether dealing with political coups, trade wars, or even the threat of another pandemic or comparable world event, supply chain agility and resiliency are the keys to ensuring businesses can keep up. Whatever these events are, scenario planning, scenario planning, driven by data and the insights they provide, empowers people to make rapid decisions while making it possible to share info with suppliers and orchestrate the network for outstanding success.
It is absolutely vital that supply chains become and remain agile and resilient beyond these trying times, knowing full well that the world can turn upside down at any moment. Businesses and supply chain networks that are prepared for sudden changes – whatever they may be, and in whatever shape they may come – will be the ones that are capable of not only surviving but thriving in the face of adversity.
Amazon demonstrated the power of data – now others can use it to their advantage
If the rise of Amazon has taught us anything, it’s that businesses must evolve in order to compete. Likewise, if the pandemic has taught us anything, it’s that agility and resiliency are essential to building the very best supply chains. Both challenges are critically linked: if a business fails to survive one – the current climate or a dot-com retailer that took the world by storm – it will be difficult to survive the other.
Amazon is, in a sense, more predictable than the pandemic in that we already know the company’s next move: continued growth by dominating an ever-growing portfolio of industries. On the other hand, we don’t know every challenge the pandemic could bring, nor could anyone predict the next disruptive, Amazon-sized empire. As new technologies and new forms of commerce are introduced, who knows what’s possible?
No one does – and that’s precisely why agility, resiliency and event-based real-time scenario planning are needed. By developing a strategy with all of those components front and center, businesses will have what they need to create supply chains that can endure the worst and persevere with superior, more reliable results.
_______________________________________________________________
Antony Lovell is vice president, Applications, at Vuealta, a Global Anaplan Partner that helps organizations around the world solve complex planning challenges, through the delivery of a suite of applications powered by the Anaplan Connected Planning Platform. Founded in London, Vuealta has its U.S. headquarters in New York City as well as offices throughout Europe and Asia.