Oracle CEO Mark Hurd has suggested that consumers won’t accept two-week delivery timeframes now that two-day delivery is a de facto standard for many ecommerce orders. The same speed that’s brought consumers lightning-fast shipping has also wreaked havoc on poorly-prepared supply chains worldwide. Modern supply chains should be fully digitized and connected to compete in a world where full connectivity is now a starting point, rather than an endpoint, for many retailers.
Computing first disrupted the modern supply chain decades ago; cloud computing is today’s disruptor. This transformation has extended all the way to the palms of consumers’ hands, as smartphones give people the power to research and purchase products at the exact moment they want them.
At Oracle Modern Supply Chain Experience 2018, Hurd noted, “consumer IT is growing about 20-percent-plus per year.” Hurd said that means “the older fixed supply chains can’t meet [the] demands” of increasingly connected consumers. Chances are if you sell anything online, your supply chain no longer simply connects your suppliers to your stores. It now runs from the suppliers all the way to consumers, who expect to be served rapidly and accommodated readily.
An effective supply chain, especially one operating at scale, requires more than an SCM system, even if it’s cloud-based. Hurd’s Modern Supply Chain Experience keynote in 2018 featured many insights on this point. Hurd observed, “it isn't good enough to have a best-of-breed application. You have to have a suite. The front office [and] the ecommerce systems have to talk to the supply chain system.”
To effectively serve today’s connected consumers, a company’s systems have to be even more connected. This requires core business operations (and their essential applications) to work seamlessly together to produce consistent, excellent results the consumer can feel when they interact with the business. Until recently, only the largest retailers had the resources to invest in such collaborative systems. Now smaller players have access to the technical resources they need to compete with their larger competitors.
Cloud software allows this formerly exclusive connectivity to benefit startups and small businesses as well as multinational enterprises. In fact, the benefits of the cloud extend past retailers with their own proprietary supply chains. Increasing worldwide connectivity gives even sole proprietors and small businesses access to pre-built supply chains, which has given rise to a massive global drop-shipping industry. In 2017, about 25% of all ecommerce sales, about $85 billion worth, were fulfilled via drop-shipping.
Drop-shipping allows a retailer to avoid carrying inventory by routing orders directly to a supplier, which then fulfills and ships the order. Because the retailer doesn’t carry inventory, its profit margin becomes the difference between the price they charge and what the supplier bills them for the sold item.
This wouldn’t be possible without a supply chain network in which one wholesale vendor effectively handles the inbound orders of hundreds (or even thousands) of retailers around the world, who in turn must each manage the expectations of hundreds, thousands, or millions of consumers that might be scattered thousands of miles apart. In this instance, it’s not just one ecommerce system talking to one supply chain, but thousands of ecommerce and customer experience systems all working together with the drop-shippers’ supply chain system.
These connected supply chain systems rapidly upended the retail landscape, and this disruption is ongoing. A notable example is the online footwear e-tailer Zappos. Zappos started by drop-shipping shoes to its customers and, within a decade, it grew into a billion-dollar-plus valuation.
Since Zappos was bought out in 2009, four major footwear retailers with significant brick-and-mortar footprints have gone bankrupt: Rockport, The Walking Company, Aerosoles, and Payless ShoeSource. Additionally, Nine West, which declared bankruptcy in the past year, divested its shoe division in an attempt to turn itself around. Several other once-popular footwear brands, including Cole Haan, Crocs, and Stride Rite, are also competing against footwear retailers with modernized supply chains.
Connected supply chains are a major contributor to the rise of dominant specialty e-tailers, such as Zappos, and the simultaneous collapse of their brick-and-mortar competitors. The fact that footwear has been so thoroughly disrupted should be evidence that no business is safe. Footwear and other fashion products are notoriously difficult to “try before you buy” online, but Zappos’ relentless focus on the customer experience helped speed that shift in consumer sentiment. This shift might not have been possible if the company had been forced to focus on building out its own supply chain infrastructure andimplementing its own dedicated supply chain management systems before shipping its first box of shoes.
Connected supply chains allowed the company to work with drop-shippers that already had these systems and could give retailers part of the same capability at virtually no cost. Zappos did eventually build its own supply chain but, by the time it was needed, cloud computing was well on its way to transforming even the most complex supply chain systems into adaptable parts of integrated business software suites. However, many of the company’s brick-and-mortar peers didn’t understand the advantages of a connected system until it negatively affected their bottom line.