Why supply chain collaboration is key to combating the ‘Amazon effect’
The supply chain industry has gone through a huge amount of change in recent years. Driven by digitalisation and widespread transformation in several overlapping sectors, these changes have been characterised by what has become not-so-affectionately known as ‘the Amazon effect.’
The term describes the colossal growth of Amazon.com, which has shaken the retail and e-commerce industries to their cores and redefined customer expectations. Naturally, this level of success has created issues for many competing businesses, particularly brick-and-mortar outlets. Amazon’s unparalleled product selection, rapid shipping and affordable prices have set the bar to which all other businesses must now aspire.
To put Amazon’s dominance in perspective, the company captured almost 50% of US e-commerce sales in 2018, up from 38% in 2016. Its nearest rivals, eBay and Apple, achieved only 10.5% market share combined. As of July 2019, Amazon’s market value had reached $993 billion.
In order to survive, smaller businesses have had to figure out how to compete with a monolithic entity that has the resources to single-handedly transform entire industries.
The answer? To future-proof their positions, supply chain businesses have no choice but to work together. Specifically, stakeholders must pool their resources and information to create a b2b data cooperative — or a ‘synthetic Amazon’.
The power of the shared economy
According to a Deloitte study of supply chain executives, organisations open to collaboration and information sharing are 38% more likely to achieve or surpass their expectations and have their initiatives result in cost reductions.
In the context of the Amazon effect, cross-business collaboration has become essential to meeting customer demands. Supply chain businesses have to work together to help partners across the value chain stay competitive and build a network for sustained success, capable of withstanding pressure from monolithic corporations.
There exists an opportunity to extract dormant value from trade data by forming a b2b data cooperative. By pooling information from across data silos and disparate organisations, and applying advanced analytical techniques to the resulting datasets, participating stakeholders can gain access to a wealth of insight to help them remain competitive without compromising data privacy. The larger the pool of data (i.e. the more extensive the collaboration), the greater the opportunity to uncover insights that can drive future growth and sustainable supply chains.
For example, Ford Motor Company recently shared 350 best practices with its strategic suppliers to drive sustainability in its manufacturing operations, while American office supplies retailer OfficeMax collaborated with one of its suppliers to increase revenue by 22%, decrease inventory by 34% and save more than $11 million in logistics costs.
The vast quantities of data that corporations like Amazon have access to means they’re privy to insight unavailable to their competitors in isolation. In order to uncover patterns and correlations that will allow them to compete, smaller supply chain stakeholders must be prepared to collaborate with partners and competitors. Only then can they hope to resist the metronomic advance of the Amazon monopoly.
Utilising the ocean of data
Sharing resources within a network of supply chain collaborators is only the first step. In order to compete with dominant industry players, this ocean of data needs to be organised, analysed and utilised. The key to doing so lies in the application of artificial intelligence (AI) and advanced big data analytics.
At the core of AI’s value proposition is the ability to unearth patterns in trade data that will allow businesses to achieve greater efficiency, minimise waste and cut costs. The AI-powered supply chain reduces operating expenses and delivers enhanced planning capabilities that allow businesses to more effectively respond to current and anticipated customer demand.
Critically, AI can allow supply chain stakeholders to better understand customer buying behaviour, to the same extent as corporations like Amazon. Businesses can better understand which products should populate retail shelves, and which stock keeping units (SKUs) may no longer be needed, or needed in the same volume. This leads to higher gross turnover at an improved margin, as inventory holding and distribution costs as a percentage of sales are reduced.
In the face of the threat posed by the Amazon effect, supply chain stakeholders need to look for creative ways to optimise processes, save costs and bolster revenues. The abundance of data now available means that the opportunity to unlock greater value is significant. By pooling this information within a shared data economy, supply chain businesses can uncover far more powerful data insights than a single company could ever deliver. With extensive data collaboration, it’s possible to achieve ecosystem dynamics that in turn release significant network value.
This is especially true in light of the growing pack of major retailers — including the likes of Nike, Birkenstock, Ralph Lauren and Rolex — that is moving away from Amazon. More and more brands are choosing to cut ties with the vast Amazon network and launch their own online stores instead, creating huge silos of data that could be leveraged to provide value as part of a wider cooperative.
Trade data sits on a spectrum, from closed to shared to open. According to the WEF, openness is an indispensable enabler of growth and opportunity. In mature data cooperatives, participating companies understand that the risk of losing competitive advantage is dwarfed by the positive network effect.
Ultimately, industry collaboration is the only real way for organisations to protect themselves against the ‘Amazon effect’ and future-proof their operations over the years to come.