Monday, September 29, 2014

Digitally Empowered Consumers and Online Retail

In an increasingly digitized retail marketplace, consumers have access to much more information, and supply chains have to act in accordance with consumer expectations to stay ahead of competitors.  The growth of the internet has spawned a large online marketplace for consumers to quickly and directly order products.  Online retailers are growing in number of outlets and products sold, and their business operations have to be able to support these orders.  The supply chains have to support the retailers in such a way that they can deliver large volumes of products within a short time frame.

The age of the internet in online retail has also given consumers more of an easy opportunity to compare prices and shop around between different retailers.  They are easily able to research a product, find price and shipping delivery and cost variations, and choose their vendor according to what best fits their immediate needs.  Never before has a price-sensitive consumer been able to so easily choose between different sources of products.

Price sensitive consumers should be a huge focus of online retailers.  People who shop online tend to do so because prices online are generally cheaper than in a physical store.  For instance, electronics are for the most part available for a lower cost through Amazon rather than a retailer like Best Buy.  Since retailers' operating margins depend heavily on selling in quantity, offering a product at a lower cost could mean the difference of thousands of dollars on a larger scale operation.  Retailers, both online and physical, need to therefore appeal to the price-sensitive consumer in order to sell the volumes needed for mass profit.  To offer products for a lower price, the cost of operations, especially shipping and distribution, needs to be minimal.

Retailers can achieve this through closer proximity of distribution centers.  By keeping distribution centers closer together, shipping costs can be minimized.  The time it takes to get the products to consumers is also going to be severely shortened.  Closer distance of hubs will give consumers an incentive to use a specific retailer because they will be able to offer a lower price and a shorter time to receive their orders.

Online ordering for consumers also enables them access to customization.  For instance, when ordering a new Dell computer, customization options are given on a widespread scale, to a point where very few customized systems are alike.  This forces the retailer to keep very good stock of inventory.  Just as consumers are becoming more technology-based, so too are retailers.  They have to have the capability of keeping stock of inventory, tracking orders, and making sure customized orders are being put together as specified by the customer.  Retailers are upgrading their computer systems to optimize locations and inventory parts, track customized orders, and make sure that the final product meets consumer expectations.  Supply chain computer systems have never made it easier for suppliers to track customer orders and give consumers their products in a short amount of time.

Questions for further consideration:

How do consumer expectations influence what retailers they choose?
What role does social media play in perceptions of consumer retailer choices?
How does a "price-matching" strategy for physical stores affect supply and demand in their supply chains?
What is the best way for a supply chain to plan for growth?
Should consumers have transparency for inventory management systems?


Works consulted:
http://www.arabiansupplychain.com/article-10429-is-the-digital-boom-driving-supply-chain-changes/

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