2020 was a year of massive, unprecedented disruption. And now it’s time to prepare for the next phase of disruption: Adjusting to the new normal.
We recently produced a webinar to discuss the domino effect of 2020; where the supply chain broke down, how consumer behaviors shifted, and what the future holds for logistics.
Dr. Yossi Sheffi, Director of MIT Center of Transportation and Logistics and author of The New (Ab)Normal: Reshaping Business and Supply Chain Strategy Beyond Covid-19
Harshad Kanvinde - Leader of Slalom's Global Supply Chain Practice
Moderated by Karl Siebrecht, Co-Founder and CEO at FLEXE
The 60-minute webinar consists of three parts:
- Part 1 - The domino effect of 2020
- Part 2 - Insights on current consumer behaviors
- Part 3 - The future of logistics
The following transcript has been edited for clarity and readability.
We’ve done some research, surveying consumers and retailers. We asked consumers about how they plan on continuing to spend as much on eCommerce and what their opinions were on buy-online-pick-up-in-store (BOPIS).
The macro point is that there’s still a lot of uncertainty. But one thing is very clear that resonates to the research on both the consumer side and the retailer side: This uptick we've seen in eCommerce is not going to reset and go down. eCommerce will continue to go up.
In fact, 80% of retailers that we surveyed said that in the next 12 months, eCommerce is going to continue to grow. And two-thirds of retailers said that they expect eCommerce to grow 20% or more in the next 12 months. On average, this growth is higher than how eComm was growing before COVID.
Two-thirds of retailers said that they expect eCommerce to grow 20% or more in the next 12 months.Karl Siebrecht Co-Founder & CEO, FLEXE
Consumers' demands are becoming more demanding as their behaviors change. Early on in the pandemic, the sentiment was: "Hey, if it doesn't come in two days, that's okay." That no longer is the case from what we found from our research. Consumers are now back to demanding things to be delivered fast and fors free.
We asked a number of questions in our survey about free shipping and fast shipping. One thing we learned was that when consumers are in the checkout process, 93% report that if they're not happy with the shipping rate that is shown, they will go search for that product somewhere else. Similarly, when consumers are in the checkout process, 85% say that if they're not happy with the delivery promise, they will go search for the product somewhere else.
We asked merchants in retailer organizations, “What are the top reasons for shopping cart abandonment?” The number one reason was that the consumer found the product for a cheaper price somewhere else. But the number two reason is that the delivery promise was too slow.
The other data point we have that is very powerful is that Amazon continues to understand that faster shipping is driving upticks in sales. Fifty-eight percent of consumers that identified as Amazon Prime customers say that faster delivery promises like same-day delivery have increased how much they spend on the platform.
What’s more important? Free delivery or fast delivery?
Dr. Yossi Sheffi:
The answer is yes—both free and fast are important. You need to have both in order to be competitive, as Amazon is proving every day. You need to find a way to do both in order to not lose the customer. If a customer goes to your website, they click on something that they like and then choose to go away, that should be a sinking feeling for every retailer.
Is offering fast and free delivery economically viable and sustainable?
Yes. If I can take a step back, Jeff Bezos says this all the time. Looking at the constants of retail—convenience, selection, and price—people are always going to ask for more selection, better price, and better convenience.
You can define convenience, in this particular case, as faster and faster shipping. The way I think about fulfillment strategy is that it fits squarely under the convenience bucket. So how can a business continue to push the envelope on convenience by offering faster shipping without going broke?
How can a business continue to push the envelope on convenience by offering faster shipping without going broke?Harshad Kanvinde Head of Global Supply Chain Practice, Slalom
The goal is to offer two-day, one-day, and same day, but the counter to that is many cannot do that economically or viably if you apply that blanketly to everything that you do. A laundry basket, for example, is a product that might not need to be delivered in one day. It goes back to how well you know your business and how well you know your customers. Get granular in your understanding of your different customer segments and consumer needs, as well as what your capabilities are and if you’re able to match what customers are asking for.
Imagine if you don't have any eCommerce now and that you're in the business of delivering countertops, or some kind of construction material. You probably don't need that on the same day. Or maybe you do. It’s important to understand when your product is needed so that you can orchestrate the interplay between price and convenience and selection to some extent. That's the key. Unless you do that, it's never going to be economically viable. But if you understand your business and the micro segments that have different situations, you’re able to operate really well. And it's always going to be economically viable.
One additional point is that it is not the sole responsibility of supply chain to make free shipping or fast shipping economically viable. Setting the right consumer expectations and having the right marketing on the commercial side, while working with supply chain functions, will make the whole enterprise economically viable. If those don’t all work together, you’ll be worried about how to profit off of every single transaction. But no one makes a profit on every single transaction. It’s about an interplay between the three pillars of selection, price, and convenience.
Get granular in your understanding of your different customer segments and consumer needs, as well as what your capabilities are and if you’re able to match what customers are asking for.Harshad Kanvinde
Let me, for the fun of it, offer a little bit of a different view on this.
When you come to Amazon to buy something that you want in a day, and you see a laundry basket that can be delivered at the same time, you may buy the laundry basket rather than go somewhere else. So the problem of competing with such a behemoth that has the scale and that has the choice and that level of service is just hard.
Another way that retailers were successful is to look at how to make money elsewhere, similar to what Amazon and Tesla are doing. Amazon makes money via its cloud service. Or you can create a belief in the stock market that you are just unstoppable and going to the moon like Tesla. These are companies who worked with losses and negative profit for decades. But they were able to convince the market and move the business.
Otherwise, businesses have to build the infrastructure for agility and flexibility. That can be done. Some of it is about understanding your customer. That is particularly good for specialty shops. For example, if you need a faucet for your bathroom, you’ll go to a specialty shop that has a specific customer in mind. Or when you want a granite countertop—companies usually don't compete with Amazon there. But it’s tough for the majority of retailers to compete with Amazon. So if you cannot easily compete with Amazon, you have to find a way to create flexibility. A lot of it is about technology infrastructure. A lot of it is about collaboration and working with others. And a lot of it is about company culture and moving quickly.
If you cannot easily compete with Amazon, you have to create flexibility. A lot of it is about technology infrastructure. A lot of it is about collaboration and working with others. And a lot of it is about company culture and moving quickly.Dr. Yossi Sheffi Director, MIT Center for Transportation & Logistics
I agree with that. The point that I wanted to make earlier is that companies must make continuous improvements in convenience and fulfillment. Convenience is the key. You may not get there tomorrow, but understanding your particular context of what kind of business you're running and what your customers want is important. But you’re trying to find degrees of freedom. You may not need to invest everything into one particular thing. You might have some leeway and room to get there. It’s not a one or zero or black and white kind of thing.
I'll give you an example. A place we buy a lot from—Costco—they have not optimized for one-day or same-day delivery. As a consumer, I’m willing to ignore that because of the great price, the great quality, and the trust that I’ve built in the brand. Unless you have all of those dimensions and continuously improve, then flexibility and agility need to be built into your foundation. You need to be thoughtful about it over the years on how you think about your business.
But a lot of it is in changing the nature of your business. Think about a store like Germany’s Aldi and how they might choose to compete with Amazon). They decided they were not going to be like Amazon. They were going to give a restrictive offering and that everything is on the shelf. If people didn’t like the selection, then they don’t have to go to Aldi. Because of this mentality, they are able to compete on price.
Decide on what you want to compete on. And one way to compete with Amazon is to compete on price. But you may have to give up the selection that Amazon offers. Knowing your customers and reorienting your business towards a certain customer segment will allow your ideas to work.
One-day and same-day are becoming the norm and there is no going back. Two-day used to be the norm. But on Amazon Prime, everything is one-day or same-day in some cases. And the bar is set high. So you cannot sell the same things that you can find on Amazon and say, "Hey, by the way, you're going to get it in 10 days." That's not going to work.
We have one question from the Q&A related to CPG. The context that is given says that cost increases and capacity constraints from UPS and FedEx, like what we saw in Q4 2020, can impact eCommerce growth. For many CPGs, the margin is significantly eroded with parcel rate increases.
If a company wants to provide one or two-day shipping, how will the shipping and delivery landscape change with carriers like FedEx, UPS, and others?
One of the types of companies that thrived in the current disruption is the gig economy and last-mile service delivery companies. Many companies like this who might be relatively early in their maturation cycle have networks that are built for fast delivery. Whereas some of the traditional delivery companies have built an optimized network for two-day, one-day, three-to-five-day delivery.
But a gig economy worker who delivers fast-food and can put one, two, three, or four eCommerce orders in the same route. Those economics can actually be much better. Companies like DoorDash and Uber can get enough demand density to build good routes.
It’s important to work with your commercial teams. It’s not just the responsibility of supply chain to make sure there is an incentive for the customer to increase the order size.Harshad Kanvinde
It’s important to work with your commercial teams. It’s not just the responsibility of supply chain to make sure there is an incentive for the customer to increase the order size. It's not just about what a consumer buys and how they buy. Those can be completely different businesses with different economic challenges. Supply chain isn’t going to provide all the answers, and it’s not solely responsible for making a company profitable.
There are other constraints like carrier capacity that are real. That's not going to go away in short order. Amazon is in a different position to build their own network and they’ve strategically done that over the last few years. But the challenges with the third-party-logistics networks are very real.
We hope you enjoyed Part 2 of Hindsight is 2020 and the Future of Logistics.
In Part 3, learn about what’s next for logistics in 2021 and beyond.
MEET THE PANELISTS:
Dr. Yossi Sheffi - Director, MIT Center for Transportation & Logistics
Dr. Sheffi is an expert in systems optimization, risk analysis, & supply chain management and the author of five award-winning books. He founded LogiCorp, Logistics.com, e-Chemicals, PTCG, and Syncra Systems—which were acquired between 1994-2004.
Don’t miss Dr. Sheffi’s latest book, The New (Ab)Normal: Reshaping Business and Supply Chain Strategy Beyond Covid-19, (October 2020).
Harshad Kanvinde - Head of Global Supply Chain Practice, Slalom
Harshad helps clients in several industry sectors, including CPG, Aerospace, Automotive, and Technology, address their thorniest Supply Chain problems through strategy development, business model innovation, and digital transformation.
Karl Siebrecht - Co-Founder and CEO FLEXE
Karl is a seasoned technology executive with leadership experience in both startups and large, global corporations. His previous roles include the CEO of AdReady, which pioneered adtech, the President of Atlas at aQuantive before its $6B acquisition by Microsoft, and earlier in his career, he was a Manager at Bain & Company in Boston.