Written by Russel Beron June 19, 2018
Retail supply chains and global retail sourcing continue to be impacted by the rapid growth of e-commerce. The internet has enabled greater visibility into the global supply chain, as buyers and sellers are much closer and more easily connected. Today, anyone can buy almost any product directly from a manufacturer in China with no minimum order quantity and have it delivered in a few weeks anywhere in the world. This reality is opening new opportunities and challenging traditional business models.
Growth of eCommerce Communities
One growing trend that is evident across industries is the way that large numbers of buyers and sellers have come together on dedicated online platforms. These include the largest marketplaces such as Amazon and eBay, but also newer players such as Etsy which brings together niche vendors of creative products to reach an audience looking for unique products.
Most of the biggest retailers such as Walmart and Best Buy now have e-marketplaces where third party vendors can list and sell their products while newer niche marketplaces are disrupting almost every retail category from eyeglasses to razors, cosmetics and mattresses. These marketplaces allow vendors to sell direct to their customers without the need of traditional marketing and distribution channels.
Direct-to-Consumer and Direct-to-Store Deliver
The internet and e-commerce has enabled ongoing disruption of traditional business models where manufacturers would sell to wholesalers, retailers and brands or other intermediaries, who then sell to the consumer or end-user.
Even without online marketplaces, today, many manufacturers are building direct-to-consumer channels which bypass the middleman, creating additional revenue and profitability for these companies and also passing on savings through a leaner and faster retail supply chain. One example is Nike, which has opted to bypass their traditional retailers and sell through their own stores and their website.
Another trend is Direct-to-Store Delivery (DSD), where manufacturers skip traditional distribution networks and deliver direct to the store, enabling greater companies to be more responsive to the customer.
The Rise of B2B e-Commerce
More recently e-commerce is also impacting the B2B space, as evident in the rapid growth of Amazon business, which launched in 2015 and now has over a million business customers and close to 100,000 sellers of business supplies. B2B wholesale and distribution is an $8 trillion market in the United States and much larger figure globally.
Amazon is taking on the inefficiency that exists in purchasing organizations by making it easier for employees to buy products and experience a similar level of service and buying experience that B2C customers expect. The result will be vast numbers of B2B suppliers making their products available on the Amazon channel with service and systems managed by Amazon. Essentially Amazon will act as a broker for extensive B2B sales channels, from wholesale products to government, health care and beyond. Forrester Research forecasts that up to one million US B2B salespeople will lose their jobs to self-service eCommerce by the year 2020.
Multi-channel Retail
Since companies are still figuring out how to provide a seamless retail experience, omnichannel retail is less of a buzzword than it was a few years ago but, multi-channel retail is very much alive and well. As traditional retailers and brands expand through online and social channels, online retailers are growing their physical presence in the current trend of “click and mortar.”
As an example, Walmart recently purchased a 77% stake in Indian e-commerce company, Flipkart for $16 Billion. This should ramp up Walmart’s global sourcing from India, at the same time giving Walmart access to India’s massive retail market and helping them take on Amazon which is also vying for growth in India.
This growth in multichannel retail creates greater complexity through the retail supply chain as companies need to create infrastructure to responsively support all their channels at the same time as maintaining lean supply chains inventory levels.
What does this mean for Global Sourcing?
e-Commerce growth brings different challenges to the global sourcing function. The biggest change is that consumers are now used to vastly improved service, quality, delivery times, product availability and price. Trends change quickly online, which means faster cycle times and greater need for effective supplier management to bring products to market faster. Companies also have more complexity to manage in the form of returns and greater competition.
Managing the transition from a physical to an online channel is one of the biggest issues on the mind of sourcing executives who need to manage and streamline inventory and transportation to adapt to the online environment. As an example, a US Fashion Industry Association (USFICA) 2017 study rated competition from e-Commerce as one of the biggest challenges for the fashion industry.
What this means for retailers and brands is that they need a more sophisticated supply chain management process, greater supplier collaboration and more sophisticated technology to enable visibility, efficiency and speed in their increasingly complex supply chains.
Some Statistics
- Digital commerce accounts for only 10% of the $5 trillion in total annual retail sales
- e-Commerce is predicted to grow to 12% in 2018 and to 17.5% by 2021 (of total retail)
- B2C ecommerce sales are expected to grow from $2.3 trillion, to $4.5 trillion by 2021 – Shopify
- B2B market to exceed $7.7 trillion in 2018 (3 x the size of B2C) – Shopify
- B2B e-commerce to reach $1 trillion by 2020, 12% of all U.S. B2B Sales.
- Amazon has close to 37% of the ecommerce market, with estimates that it will own half of all online sales within 3 years
Written by Russel Beron June 19, 2018
