Guest Blog By Jeremy Hanks
Have you ever wondered how Amazon ascended to and maintains its dominant position? The company puts retailers left and right out of business, and consistently outperforms the rest of the e-commerce market, often reporting growth more than twice the overall market’s growth. Yes, there is Amazon Prime and Kindle Fire and the world’s largest bookstore, but the secret to Amazon’s success is not as sexy as you might expect.
Amazon is at the top of the food chain because of its supply chain. The real revolution we’re seeing is Amazon’s unprecedented ability to manage logistics so effectively that the company can see, virtually, billions of dollars of product supply. After all, services like Amazon Prime with vast inventory and two-day shipping options wouldn’t have any value without a robust supply chain network powering it.
Amazon’s dominance has led to increasing market pressures for retailers, and many are crumbling under the weight. As a result, more than $800 billion is lost annually in global retail inventory distortion (out-of-stocks and overstocks), according to research firm IHL Group.
While the B2C world has witnessed disruption after disruption – from one-click checkouts to mobile device purchases – the B2B supply chain has failed to keep pace with such rapid innovation. Today, even with distribution centers popping up everywhere, there are still signiﬁcant geographic constraints on the logistics and fulﬁllment of supply.
In the e-commerce age, the future of mid-market retailers hinges on a supply chain revolution that leads to total visibility of distributed, virtual inventory. Any revolution requires upheaval, and here that has to come in inventory flow from a product push to a product pull. No longer should retailers dictate what consumers want – consumers should be the ones in control, and retailers must be able to respond rapidly and effectively to meet their demands.
To empower consumers, many mid-market retailers are turning to what has made Amazon so successful – third-party distributed inventory, also known as drop shipping. Better known as Amazon Marketplace, this strategic approach enables the company to sell more products with an almost non-existent effect on cost structure. In Q4 2012, Amazon’s third-party sales contributed significant revenue, making up 39 percent of all units purchased.
While the promise of expanded assortment is an important marketing tool for retailers, it then becomes even more important that the promise is backed up with strong supply chain execution. Here are three key benefits to implementing a distributed supply chain:
- Less Inventory Risk – An expanded assortment strategy increases selling opportunities while simultaneously reducing supply chain costs associated with transportation and storage.
- More Competitive Pricing – One of many reasons consumers prefer Amazon is its favorable prices. Increasing visibility of products also brings down prices by reducing overhead and fulfillment costs.
- Endless Aisle Capabilities– The promise of an expanded or unlimited assortment of inventory is an enticing prospect for extending the reach of a retailer’s brand to new customers and keeping existing customers who otherwise shop elsewhere due to a stockout or limited assortment.
The state of retail and supply chain strategy is at a tipping point where providing expanded product assortment through distributed inventory is essential. At DropShip Commerce, we have been developing major innovations to level the playing field for retailers in every category. As retailers learn to navigate the e-commerce age, those that can react quickly and adapt their supply chain strategy accordingly will realize greater opportunities for growing sales and remaining relevant – even in the face of Amazon – for years to come.
Jeremy Hanks is Founder & CEO of DropShip Commerce