The term Amazon Effect is emerging as a new buzzword in business circles as the e-commerce giant disrupts the global economy on multiple levels.
For example, a Logistics Viewpoints story guest written by industry expert Karen Sage explained that consumers increasingly expect free shipping within a day or two, one small response to Amazon's business models. Forbes takes a deeper look at the issue, exploring macroeconomic trends rising alongside Amazon's growth. Issues such as changing employment dynamics, excess physical retail space around the world and diminishing taxes - both land and sales varieties - are a few key areas of concern. But one area of concern noted by Forbes really stands out: a domino effect taking place across the consumer goods sector.
How the Amazon Effect Impacts Consumer Goods
As people expect great deals on products online and take advantage of the low costs offered through supply chain and workforce optimization, traditional retailers are being forced to compensate. Where Amazon creates value by eliminating the need for extensive in-store staff and retail real estate, brands such as Wal-Mart must reduce costs in their supply chain, Forbes explained. When major retailers are forced to reduce costs, the manufacturers that provide goods end up carrying those expenses.
According to Forbes, the pressure on consumer goods manufacturers gets pushed onto the raw materials suppliers that those manufacturers depend on. All told, everybody in the supply chain is being pressured to reduce costs, something that depends on efficiency gains.
While Amazon has disrupted the economy to make these changes necessary, it has also set an example for how organizations can create efficiencies by taking advantage of modern technologies. Sure, not every business can afford to dabble in state-of-the-art drones and fully automated retail locations, but that doesn't mean companies can't learn from Amazon. Here are three lessons warehouse managers can take from the e-commerce giant:
1. Use Automation to Maximize Human Workers
Amazon has a reputation for relying heavily on warehouse automation technologies and similar solutions to streamline operations. While this reduces the number of workers needed to run some day-to-day operations in the warehouse, it frees human resources for more value-focused tasks across the supply chain. As the e-commerce giant has grown, it has dramatically increased hiring. As of the third quarter of 2015, the company employed 222,400 workers in full-time and part-time positions. That figure rose to 341,400 employees by the fourth quarter of 2016. Furthermore, the corporate announcement containing those details stated that the company plans to create 100,000 new jobs in the U.S. during the next 18 months. The release was published in February 2017.
Automation isn't necessarily about cutting the workforce. Instead, it is about eliminating the tedious, menial labor that reduces the value of workers. Warehouse managers can use automated data collection and integration tools to save their employees from repetitive data entry and clunky manual processes that don't fit well alongside workflows. This enables companies to reduce the time employees spend on tasks that may be necessary but don't create value. From there, employers can devote human resources to the processes that fuel revenue creation and drive growth.
2. Ensure Transparency Across the Supply Chain
When somebody purchases an item from Amazon, the individual gets an almost immediate confirmation and can track the status of the package all the way from order processing to delivery. This type of customer-facing visibility is the byproduct of complete data integration across the entire e-commerce ecosystem. The website communicates with the enterprise resource planning system which, in turn, can interact with the warehouse management software.
The visibility offered through integration doesn't just inform shipping and order processing. Online retailers can easily update inventory levels for in-demand products when the ERP software pulls data from the WMS, then communicate that information to the website. Manufacturers can optimize part and equipment inventories alongside maintenance workflows when they understand when and where different supplies will be necessary. As the Amazon Effect puts pressure on every phase of the supply chain, warehouse managers can use greater visibility into their inventory assets and work patterns to optimize operations. Amazon may be changing expectations around transparency with customers, but organizations can leverage warehouse management tools to create similar transparency for both internal and external stakeholders in the supply chain.
3. Handle Distributed Operations With Ease
Shipping products rapidly is easier when those goods don't have to travel far. When Amazon began running its drone delivery pilot in the United Kingdom, it made sure the distribution center supporting the initiative was within a short distance of customers involved. The Amazon Lockers and Amazon Book locations that serve as remote fulfillment centers let the retailer get products close to customers quickly. Geographic distribution across the business has fueled value creation by shortening the distance traveled within the supply chain.
The problem, at least for most businesses, is that the added complexity of coordinating activities across locations erodes the value of distributing warehouse and fulfillment centers. Mobile data collection tools and warehouse management software systems are helping companies avoid this pitfall by making it easier to view disparate facilities under a central inventory management umbrella. This allows for greater asset management coordination and shipping optimization between locations, something that can fuel value creation throughout the supply chain by taking advantage of incremental cost savings at various phases of operations.
Making the Amazon Effect Work for Your Business
It is somewhat difficult to fully anticipate what Amazon will do next. Few businesses have the fiscal and technological resources to drive innovation like the e-commerce giant. However, businesses can learn from the underlying philosophies of what Amazon has already done. Being on the blistering edge of warehouse innovation isn't always necessary to gain competitive and cost advantages. Instead, making solid, incremental upgrades to warehouse management systems and data collection capabilities can be invaluable in helping companies keep up with the Amazon Effect.
Don't let the seemingly science-fiction nature of Amazon's attention-grabbing projects intimidate you. Consider the three underlying principles discussed here and look at what your organization can do to foster value creation in its own right.