Sunday, August 31, 2014
We all are well aware of the next generation, fulfillment research and test areas of the two best companies, Amazon and Google. Yes, I am talking about Amazon's Prime Air and Google's Project X.
Even before the legal permissions are in place Amazon officially announces the cutting edge news: 'The goal of this new delivery system is to get packages into customers' hands in 30 minutes or less using unmanned aerial vehicles.Putting Prime Air into service will take some time, but we will be ready as soon as the FAA grants permission.'
However, Google is taking its rivalry against Amazon to the skies.The search giant’s X laboratory division is developing drones that can handle deliveries, a move that would be in direct competition with the e-commerce company that is testing its own shipment service using self-flying machines. Google’s initiative, called Project Wing, aims to use drones to drop off goods quickly.
The company said it’s been exploring the use of unmanned aircraft for about two years. Its disclosure of the project pits it in a race with Amazon, which announced late last year its own plans to test drones to deliver goods. The two companies are increasingly competing with each other as they target companies as well as consumers to sustain growth.
The hyper-fast delivery space is already crowded. Google recently launched Shopping Express for same-day deliveries in New York and Los Angeles. eBay Now started making local deliveries nearly two years ago. Walmart To Go will deliver your groceries right to your door. Smaller startups — like Instacart, Postmates, and WunWun — give customers the option of getting anything instantly.
Once the giants receive a green signal from the Federal Aviation Administration, the birds will be out racing for deliveries. Since it is the next big thing in fulfillment sector, the first company to make it happen will have an edge over the other.
However, what are the opportunities and chances that the company realizing the breakthrough will maintain that edge? Where would the companies go next after drones, for efficient fulfilment options without reaching a saturation or stagnation point?
No one can predict the future, but if one wants to manufacture right, sell the right products and be profitable, the formula to success is to forecast accurately. With increasing global competition, demand is no longer certain. The environment today is dynamic which has led the firms to realize the importance of understanding demand and linking the supply with demand. If the supply chain forecasts are wrong, the effects can be felt throughout the process. Forecasting is the key to reduce costs, however despite the developments in the field of forecasting methods, IT, machine learning etc most firms do a poor job of incorporating demand uncertainty in their planning process.
During the holidays, supply chains are under tremendous pressure to fulfil the extraordinary demand and volume of shoppers. Last year the average consumer spent $243 on Black Friday and Amazon saw 7.7 milllion unique visitors. The holiday season always puts a crunch on supply chain planning and strategy but with only 27 days between Black Friday and Christmas to coordinate all the activity happening between manufacturers, suppliers and logistics providers, a short season leaves little room for error. Even one or two fewer selling days during the holiday season can have a negative financial impact in retail if not prepared, so it's necessary for retailers to open early, clear lines of communication with manufacturers and logistics providers for demand forecasting, inventory needs and delivery dates. Timely communication and information flow is absolutely critical.
Companies should have a dedicated holiday supply chain strategy in place at least 6 months before the holidays. Firms use the idea of using the supply chain as a competitive differentiator. A flexible supply chain will allow the retailer to adapt to the swings in consumer demand and guarantee faster delivery. The reverse supply chain to handle returns should also be in place as it will improve customer experience, customer loyalty and satisfaction. This will also help to increase the value from returned products by processing them quickly and channeling them back into retail or alternate sales channels.
However holiday supply chain disruptions are inevitable and one cannot plan for every possible scenario. One cannot predict severe weather disrupting shipments or massive swings in demand but there are certain factors which are within a retailer’s control. Rigid supply chains do not allow companies to react to unexpected events and pose a risk of losing out on sales and damaging the firm’s reputation. Last year, Nordstorm had to tell about 1000 customers they would not be able to deliver their packages on Christmas day. UPS estimated it will handle 4 percent more U.S. packages over the holidays thanks to an expected 15 percent increase in online retail orders. They also estimate they will pick up 34 million packages on peak days. However they were victims of not forecasting properly and integrating the uncertainty in demand in their supply chain process. In UPS' case, the bottleneck was the number of aircraft it had in its service, which was not enough to meet the last minute volume spike. UPS had been forecasting an 8% average rise in its daily shipping volumes during the holidays versus 2012. However, ecommerce sales in the last weekend before Christmas jumped by 37% from the year before, according to data from IBM Digital Analytics.
I feel that today, with retailers training their customers to wait until the last minute to get the best deals, retailers offering convenient online shopping and same day deliveries, they must pay special attention to the forecasting techniques they choose and identify firm level variables which cause variability in the supply chain. Big data and analytics tools can help but equal importance should be given to an adaptable supply chain strategy.
Are the supply chains ready to deal with the wide range of convenience shopping options, increased volume of shoppers and increased consumer demand during the holiday season?
Attributed to global competition, demand is no longer certain in any business. Over the years forecasting has gained tremendous role in supply chain management. Managers are increasingly looking at forecasting models to reduce costs. Despite advancements in the field of technology, machine learning and predictive modelling most of the organizations do a relative poor job in incorporating uncertainty in their production and sales forecasting process. Abercrombie and Fitch was a victim of this error. Like several others, the analysts failed to incorporate uncertainty in demand while forecasting their sales model.
Over the past four quarters, sales have declined by an average of 9% every year. The decline in sales is responsible for the decrease in the company’s stock price too. In the second quarter the stock’s declined by 6%, worse than what the analysts were fearing. The analyst’s prediction were off by 0.6% and the same store sales declined by 10%.
Abercrombie and Fitch once the most famous brand among teenagers is now struggling to stay in the market. Teens who once sought out for brand names and logos are now moving towards their more individualized styles. This is one of the major changes and has undermined Abercrombie’s pricing power and hurt its sales. Could this be avoided had Abercrombie and Fitch taken into account the change in consumer demand will forecasting their sales? Abercrombie is having a hard time keeping up with their competitors such as H & M, Forvever21 and Aeropostale etc. who are selling similar items at lower prices. A dress on average costs 58$ at Abercrombie and Fitch whereas a similar dress sells at 15$ at H & M. Abercrombie is trying to speed up its supply chains to keep up with the latest trends. Due to increased proliferation of smartphones and tablets, the ease of shopping on the internet has increased and consumers are visiting store less frequently. This is a concern for major retailers including the already struggling Abercrombie. This is impacting sales at Abercrombie, which earns close to 80% of its revenues from store sales.
A precise and efficiently laid out growth demand forecasting system is the key to keeping one’s business afloat in times of massive fluctuations in market demand for products. The ability to identify market trends that may lead to changes in future demand is a fantastic asset to help businesses avoid any wasteful sales commitments. Keeping a close eye on the trends and hiring experts who can accurately forecast demand is the key to long term success.
This raises a question, are companies relying too heavily on forecasting techniques and failing to incorporate changing consumer demands in the forecasting model?