Logistics management is undergoing a disruptive transformation that has implications for decision-makers in manufacturing and other industries. Amazon is a herald of these changes, which the Journal of Commerce says are reshaping logistics as we know it.
Over the past year, the e-commerce giant has purchased thousands of trailers, leased 20 domestic cargo planes and registered as a non-vessel-operating common carrier to optimize handling of goods from China. Meanwhile, Amazon’s order fulfillment network is expanding into more fulfillment and sorting centers that support Amazon Prime hubs and Amazon Fresh grocery centers. These centers enable Amazon Prime to now offer two-hour delivery to select locations.
Additionally, ShipBob, which integrates with Amazon and delivers Amazon-scale logistic services to small businesses, expanded from New York and Chicago into Los Angeles in July. The Journal of Commerce explains that such moves threaten to disrupt the dominance of services such as FedEx, UPS, and DHL in the logistics industry.
This disruption will affect the logistics and supply chain management of manufacturers and other industries that rely heavily on shipping performance, creating a mandate for increased efficiency to stay competitive. Here are a few reasons decision-makers need to prioritize efficiency in light of the changes currently transforming logistics management.
Rising Customer Expectations
Amazon’s second annual Prime Day was like a Christmas in July event. It pulled in sales that were comparable to the Sunday before last year’s Cyber Monday and surpassed last year’s Prime Day by 50 percent domestically and 60 percent globally, according to eMarketer. The fanfare around Prime Day put Amazon’s competitors on the defensive and forced them to step up to the challenge.
For instance, Walmart ran a month-long rollbacks, limited-time discount promotion in July, with free shipping for all online orders for part of the month. This mid-summer sales frenzy effectively pushed the beginning of back-to-school sales back into July.
One consequence of this rolling holiday sales availability is that consumers have higher expectations, including higher expectations when it comes to order fulfillment. With the rise of two-day shipping and same-day shipping, over a third of consumers no longer consider shipping within 3 to 4 days as fast delivery, according to a Deloitte survey. Moreover, 87 percent of consumers now prioritize free shipping over fast shipping, and nearly half no longer rely on Black Friday but shop more on non-holidays.
This puts enormous pressure on companies to deliver superlative logistics performance to satisfy buyer expectations. Sellers in the manufacturing industry can expect these consumer retail trends to reshape buyer expectations in all segments of the economy, making efficient logistics imperative to stay competitive.
Demand for fast shipping is further complicated by rising demand for mass customized products. For instance, Nike now offers the ability to order customized shoes online. At the beginning of 2015, 60 percent of manufacturers were either planning to implement mass customization or looking into it, an SCM World survey found. This means that logistics must not be merely fast, but efficient enough to deliver customized products at scale.
Solving Inventory Challenges
High expectations create formidable challenges for keeping inventory stocked. To meet consumers’ high expectations, vendors are turning toward the just-in-time inventory management methods used by companies like Walmart. This method relies heavily on accurate monitoring of inventory levels and buying patterns to anticipate when inventory levels will need to be restocked.
Another way companies are keeping up with inventory challenges is using more efficient production methods. For instance, o-ring and seal supplier Apple Rubber mass produces large quantities of products that are customized to buyer specifications. The company uses 3-D printing methods to turn out large quantities rapidly enough to meet demand.
Apple Rubber also streamlines its inventory management by using the enterprise resource planning (ERP) software solution from IQMS. IQMS integrates the company’s inventory data with the databases for its other business function software, including warehouse management software, quality control, manufacturing execution systems, material requirements planning, customer relationship management, order management and financials.
IQMS has improved Apple Rubber’s efficiency in multiple ways, such as enabling all important information to be accessed from a single database and eliminating the need to track down multiple pieces of paper. These benefits give the company the ability to instantly share relevant information with all members of the quality chain and enable customers to audit one system from a single interface.
Online Order Fulfillment Complications
Another dimension to the challenges posed by current logistics trends is the fact that online orders now compete with in-store shelves for inventory. Target recently hired supply chain experts from Amazon and Apple to deal with inventory issues stemming from online orders. Target had been using in-store supplies to fulfill online orders, which was clearing out store shelves faster than normal and slowing down replenishment rates.
The resulting high levels of out-of-stock inventory were disappointing customers and cutting into revenue. To address this, Target is simplifying its supply chain by removing items from sales floors that aren’t in demand by in-store customers to focus shelf space on high-priority items.
Recommendations to Improve Logistics Management Efficiency
Manufacturers who seek to keep pace with competitors must improve their logistics efficiency to meet rising customer expectations for fast delivery, handle the demands of just-in-time inventory and manage the inventory challenges posed by e-commerce.
Business owners should start by reviewing their current logistics processes, both from a logistics management perspective and in terms of how they relate to their other business functions, such as inventory and accounting.
After mapping out their processes, they can begin researching what software solutions are available to automate their processes and improve their efficiency. They should develop a transitional plan for adopting new systems and implement them on a small scale to test the new processes. This way they can make small adjustments to make sure the new solution is operating at optimal efficiency.