Monday, March 30, 2015

IS PHYSICAL RETAIL A THREAT TO AMAZON?

Amazon
KarenWebster220x120
CEO, Market Platform Dynamics
7:15 AM EDT March 30th, 2015
Today is the day that it’s reported Amazon will launch version 2.0 of its local services play. Branded Amazon Home Services, this hyper-local marketplace will match local service providers – plumbers, fitness instructors, dog walkers and appliance repair people, for example – with Amazon customers. Earlier versions of Amazon Local Services served up a notice of available providers when relevant purchases were made on Amazon.com. For instance, the purchase of a car stereo would prompt a list of local car stereo installers. Services providers will pay a cut of what they charge to Amazon for the convenience of being able to market to a pool of customers and the ability to use Amazon checkout to pay for their services.
Those living in Atlanta, Austin, Boston, Charlotte, Chicago, Cincinnati, Dallas, Denver, Detroit, Houston, Miami, Minneapolis, Nashville, New York,  Orlando, Philadelphia, Pittsburgh, Phoenix, Portland, Riverside, Tampa, Sacramento, San Diego, San Francisco, San Jose, Seattle, St. Louis, and Washington, D.C., will be able to see for themselves what v.2 will bring.
This announcement comes on the heels of rumors last week of Amazon’s intent to purchase luxury e-tailer Net-a-Porter and the acquisition of Internet of Things technology company 2lemetry a couple of weeks before that. The former, if consummated, would break Amazon’s “no acquisition over $1 billion rule” since Net-a-Porter is said to be worth $2+ billion. The latter is said to give Amazon the capability to leverage real-time data analytics from merchant beacons and even facial recognition to serve offers and relevant promotions to consumers.
And, of course, this all comes in between announcements of Amazon’s same day delivery rollouts, foray into groceries with Amazon Fresh, the set-up of a physical location in New York, the growth in the number of Amazon customers (which is said to top 270 million consumers with cards on file with the retail giant) and the growing spending power of Amazon Prime customers – those 40 to 60 million consumers who spend twice as much annually as non-Prime customers.
Those of us who live and breathe payments tend to analyze Amazon and its potential for success on the pressure it has placed on existing physical and online retailers and its ability to extend its payments brand outside of its own marketplace. That seems perfectly logical since, let’s just say Amazon hasn’t exactly built its business by being all warm and cuddly to traditional retailers.
And Amazon’s investment in payments and commerce over the years earned it the third spot in the list of 100 payments innovators, right behind Apple and Visa. It did, after all, pioneer one-click checkout and holds the patent on it.
Amazon’s commerce pillars are delivering convenience, selection and low prices because that’s what they believe consumers want. That mantra has placed Amazon squarely in the crosshairs of most retailers who’ve since observed the dent that Amazon’s relentless focus on low prices and a growing selection of products made easy to find and buy has made on the traditional retail landscape. As a result, Amazon has found it hard to recruit many brand name merchants to participate in its marketplace.
And, perhaps not surprisingly, from a pure payments perspective, the chances of finding a Pay With Amazon bug on an e-tailer’s storefront have run from slim to slimmer, despite the many consumers that have Amazon payments credentials and are in the habit of using them a lot on Amazon.
What’s less talked about, however, is the extent to which physical retail –and its intense interest in achieving success now in an omnichannel world – is a potential threat to Amazon’s business and even perhaps a driver in many of the things they now seem focused on.
Pshaw, I can hear all of you saying. But humor me.
Let’s start with understanding of how Amazon has built its eCommerce business to this point.
The central character in Amazon’s story is the consumer.
Yes, the consumer is what everyone says is the in center of everything they do. Yet the payments and retail landscape is littered with the roadkill of those motivated by an intense desire to one-up the competition, under the guise of saying that they want to do better by the consumer.
Isis/Softcard is a great example of that — a mobile payments scheme motivated by telcos to capture revenue from payments made with mobile phones, not how consumers could benefit from such an application.
Ditto to MCX which is driven, in the first instance, by a desire on the part of merchants to reduce their cost of acceptance rather than on giving consumers a good reason to ditch what they do today for an MCX-enabled commerce scheme.
And, double ditto to most of the banks that insist on developing bank-branded mobile wallets out of a fear of being made invisible in a digital world and not on why a consumer would want and use one.
You get the point.
Those of you at The Innovation Project 2015 also heard Amazon’s head of external payments articulate this “consumer at the center of everything” theme. More than anyone else, this executive has to live and breathe the reality of convincing merchants that enabling Amazon Payments on their sites isn’t like letting the fox in the hen house to both eat all of their hens and then blowing the hen house to smithereens so that they can never have any more hens, ever. And judging from the dearth of Amazon Payments check out buttons on websites, that appears to be the prevailing merchant sentiment today.
But maybe that’s not really the endgame.
It doesn’t really seem that Amazon is in hot pursuit of payments acceptance in quite the same way all other digital payments providers are – getting merchant acceptance on their sites. Instead, Amazon seems to be following a payments’ roadmap linked more to its retail credo of convenience, selection and price.
A roadmap that might also be in response to – and maybe even to shore up its defenses against– the burning platform that omnichannel has become for the more traditional retail players.
Take convenience.
Amazon is largely correct that consumers are driven by convenience, selection and price. But in a connected device world, those words now mean different things. And the combination of smart devices and technology is helping retailers large and small and on and offline respond to how consumers now interpret what it means to deliver “convenience.”
Today, convenience isn’t just about making it easy to find the things that consumers might like to buy and then checking out in one-click. It’s now about getting that stuff delivered immediately. It’s why Amazon is building warehouses all over the place to make two-day shipping a retail relic. Same day, even same hour, is the goal and if they have any say, soon the new retail standard. Products delivered quickly that are, of course, bought and paid for on Amazon.
But that’s also why the No. 1 feature that retailers are investing in is the ability for consumers to buy online and pick up in store.
It’s reported that the No. 1 reason that consumers still prefer physical stores to online shops is the ability to walk in and get what they need the day/hour/minute they need it and not have to pay or wait for the retailer to ship it. PwC published a report earlier this year that suggested that physical stores remain the primary stop for shopping even though online browsing is off the charts. I know, it sounds implausible in a world in which foot traffic is down, eCommerce growth is up and malls are stagnating, but the data suggests otherwise. The physical retailers that can use technology to capture an order and enable the delivery of a product the same day in store can do something that Amazon can’t – offer the opportunity to see, feel, try on and otherwise kick the tires on a product and walk out with it (and maybe with even more stuff, too). Order online and pick up in store removes the friction of delay, and the uncertainty associated with not knowing exactly what the item looks like or how it fits.
Perhaps that explains Amazon’s interest in grocery.
Whole Foods and the lively music track that plays in the background notwithstanding, most people find going to the grocery store to be a real pain. It takes time and most people buy the same stuff week after week. Where it’s available, Amazon Fresh makes it simple for consumers to build shopping lists, buy what they need, and have it delivered to their homes the same day or even within the same hour. Consumers, in a post-recession frame of mind, also don’t seem to be as invested in buying branded grocery products the way they once did – so are happy to outsource the purpose of private label products to someone else to assemble, bag and have delivered to them.
Peapod and Instacart, of course, are capitalizing on this trend, too, as enabling platforms to move online an experience that was only ever possible offline. In the grocery category, Amazon might even be a little late to the omnichannel party but also perhaps why we also see it experimenting with a whole new category of connected device like Dash (the wand that scans bar codes of products and builds a shopping list). And why Amazon Fresh also builds on another post-recession trend – eating in – by aggregating lists of neighborhood restaurants and carry out places so that entire meals can also be ordered and delivered. And all paid for, of course, using those registered Amazon accounts.
Amazon also wants to corner the market on selection. And perhaps it’s also why Amazon is focused on becoming the platform for matching local service providers with the 270 million people who have Amazon accounts and practiced one-click checkout fingers ready to pick and click.
Through Amazon Home Services, Amazon is expanding its selection with businesses that feel no sense of competition with it. Rather than competing with them, Amazon is the enabling platform that will help local services businesses grow.
In a move that will likely be the finishing blow to Angie’s List and perhaps even blunt Yelp’s intentions to monetize its services portal, Amazon Home Services will remove the friction from discovering local services providers and then paying them. Amazon Home Services also doesn’t come with the baggage of requiring a consumer membership fee either, like Angie’s List does, and won’t need to spend millions to acquire customers for those services providers who want to be part of it.
Last quarter, Angie’s List spent $52 to acquire a single customer, 30 percent more than it did the quarter before, but grew its membership base by only 3 percent. Angie’s List has been in the business almost as long as Amazon has – it was founded in 1995 – and has been losing money ever since. (You might want to pay attention to those Angie’s List commercials over the next few months since, if Amazon Home Services gets any traction, it may be the last time you ever see them.)
Amazon’s selection has been greatly fortified over the years by a growing roster of third-party sellers.
Now, it’s probably the case that some of those sellers probably also hold their breath and pray for the best in trading off the chance to get visibility in front of the 168 million consumers who visit Amazon.com at least three times every month with the risk that they’ll be steamrolled by them if they drive too much volume and get too big.
But those third-party sellers are becoming a bigger part of Amazon’s volume.
In 2014, Amazon reported that 40 percent of its volume came by way of these third-party sellers. That certainly makes for an attractive selling proposition for small merchants to hop on the Amazon retail platform  – small merchants that would otherwise be invisible to even a fraction of those consumers.
So, could Amazon’s physical storefront in New York create an omnichannel experience for these third-party sellers? Or a place for Amazon to put on display and sell the growing number of private label products that it produces? Or a place for consumers who are ordering online to pick up those items “in the Amazon store?”
Perhaps all of the above and then some, including adding a physical retail experience to the high end Net-a-Porter customer.
Price, Amazon’s third retail pillar, has been the retail litmus test ever since the financial crisis and remains a dominant deciding factor even though the economy in the U.S. and elsewhere is improving.
Of course, as Amazon knows this well. And it also understands the ease with which mobile phones allow consumers to assess the tradeoff between price and value by putting both pricing information and product reviews right at their fingertips. The Federal Reserve recently published a report that describes how consumers use their mobile phones, suggesting that nearly half (47 percent) do so to compare prices, and a third have scanned a bar code in a store to check a price. Forty-two percent use their phones to check prices throughout their physical retail shopping journey and two-thirds of consumers have used both price and product reviews to change their minds about what to buy.
But, what’s also important is the degree to which the showrooming concept that Amazon literally gave birth to five years ago has diminished. Sure, PwC attests that nearly 70 percent of consumers do check product pricing and reviews in store, but nearly three quarters of those customers do end up buying those products in the store in which they are standing and checking those prices. While we don’t know how many of the remaining 25 percent simply don’t buy at all, return and buy later or buy from a competitor, retailers have taken the showrooming bull by the throat and adjusted their sales training, product inventory, supply chain, store operations and pricing strategies to blunt its impact.
Now, none of what I’ve just said is to diminish Amazon’s power and prowess as a massive retail game changer. It would be silly to think otherwise. The PwC report I referenced earlier and that was published just last month (February 2015), ranked Amazon as the consumers’ No. 1 most favorite merchant, beating out Walmart and Target and a slew of other physical retailers.
But what’s interesting about Amazon’s latest moves is the extent to which it seems to be responding to the consumers’ new expectations of convenience, selection and price – and itself embracing an omnichannel consumer credo. Which, of course includes sizing up instances in which friction exists in retail and commerce that its platform assets can eliminate – grocery and local services, for example.
What’s interesting to observe is the degree to which mobile, technology and connected devices can level the retail playing field. In combination, they are helping traditional retailers hone their competitive advantage  – and establish a closer relationship with a consumer that they can reach out and touch and serve in ways that online retailers cannot. And there are many enabling commerce platforms that are available for these retailers to tap into that are helping them keep pace with the changing requirements of their connected consumers.
What retailers increasingly understand is that but for the products that consumers know and buy on a regular basis – groceries, sundries, dog food, shampoo, even some beauty products and apparel – the ability to touch and feel and see products is a unique starting point for creating an omnichannel strategy that can help them blunt the “Amazon effect.”
For Amazon, the omnichannel challenge is a bit of a role reversal. They were, in many ways, the wake-up call for retailers who didn’t quite internalize the degree to which the “Amazon effect” would change the relationship they had with their customer. Amazon has observed that retailers aren’t willing to go down without a fight, and are using their assets to reimagine and reengineer their customer experience and trying to sort out the extent to which Amazon is either a help or a hindrance.
And Amazon, perhaps underestimating a little bit the importance of having a physical retail asset in serving a consumer, may now be forced to think a little differently about how to execute convenience, selection and price with a consumer that now wants and expects an omnichannel experience from all of the retailers they interact with – Amazon included.

Brazilian Delivery Startups, Uber-Style

Loggi is an urban logistics company bringing instant delivery within anyone's reach. Founded in São Paulo, Brazil, Loggi uses the massive network of motor an bike curriers to form a logistics network that's fast and reliable.

As Ti’s second report of the year, Latin America Logistics and Transport, gets set for publication later this week, curiosity of the region’s logistics’ startups got the best of me so I decided to see what was up. What I found was that Uber-like delivery start-ups are popping up in this region and in particular in Brazil.
Indeed, there is a good article on this subject posted on the website, Nearshore Americas. In its article, “In Latin America’s Booming e-Commerce Sector, Start-ups Aim to Improve on Logistics”, the website highlights Brazilian start-up Loggi. Based in Sao Paulo, about 35% of Loggi’s sales come from e-commerce. It has been operating since 2013 and provides motorcycle and bicycle courier express services via an app – place an order and the closest messenger will be notified to make the delivery. Customers are also able to monitor the delivery in real time as well.
In 2014, the company introduced a digital delivery service in which after delivery, the customer can view the digital signature of the person responsible for receiving.
While the main customer base of the company is corporate, Loggi is working towards attracting more consumers. According to the Istoe Dinheiro website, the startup has about 500 couriers and 2,000 registered customers. On an average day, it registers a thousand deliveries with sales of R $500,000 per month (about USD $154,000/month).
Yes, there is some resemblance to the Uber app, and in fact one of the original investors of Loggi was Kees Koolen, a former director of the Uber application and former president of Booking.com. However, Loggi is quick to note that there are differences between them and Uber. Most importantly, Loggi works with a biker base licensed by the Government of São Paulo.
While it sounds promising, Loggi faces growing competition from the likes of other similar start-ups such as Rapiddo and MovMov.it. How will each of these businesses differentiate themselves? Is this business model sustainable? Lots of questions and fun to watch as it plays out. Traditional couriers such as US-based companies FedEx and UPS offer domestic services within parts of Brazil as well and you can bet each one is closely following this trend of “Uber-style courier services” in not only Brazil but around the world as more of these start-ups pop up elsewhere. Will it impact FedEx and UPS negatively? probably not but the technology/ease of requesting delivery may create changes in how one request such services.

The Perfect Order and the Smart Invoice

A perfect order is an order that arrives at a customer’s site on time, complete and undamaged, and is billed correctly.  From a logistics perspective, we know that by getting the order there on time, in full, and undamaged the chance that it will billed correctly greatly increases. Doing the logistics pieces right also means that an expensive billing reconciliation process is less likely to have to kick in place.
Having a public cloud solution (or B2B network, industry marketplace, or platform as a service, whatever phrase resonates with you) sit in the middle can be very helpful.  So for example, public cloud transportation management systems (TMS) – from suppliers like TransplaceMercuryGate, and LeanLogistics – allow shippers to procure transportation from carriers in such a way that there is much less room for billing disputes.  The shipper tenders, the carrier accepts, and the rates of record by lane are in the public cloud.  Any debate is centered on destination events:  Did the carrier show up on time?  Is there a penalty for that?  Did the shipper make the carrier wait in the yard?  Is their demurrage that results from that?
To the extent that a TMS becomes able to integrate GPS, digital pictures, and RF scans into the digital invoice, even these disputes disappear.  GPS helps to resolve on time and demurrage issues.  Digital pictures help to speed product damage disputes.  And scans of pallets off the truck help to prove the right quantity was delivered.
In short, an electronic super invoice containing the complete set of pertinent Industrial Internet of Things (IIoT) data, could speed payments, make resolving billing disputes less likely and less costly, and insure compliance with Green initiatives.
IIoT logo
In other cases, the invoice would need to contain other forms of IIoT data.  For example, prescription drugs should contain sensor data related to heat, temperature, and light to prove the potency was not adversely affected by poor logistics.  Or a shipper that wants to use green carriers might want to append the trip’s fuel consumption and cargo weight to the electronic invoice.
In other industries, a more dynamic ordering and fulfillment process is the norm.  So imagine a food distributor delivering produce to restaurants.  The store manager might say, “I know I only ordered three cases of lettuce, but is there any chance you can give me four?”
In these types of situations, what happens at the stop is where the complexity shows up.  The distributor needs to show up with a pro forma invoice, but then needs to produce new invoices on the fly complete with discounts that apply to that specific customer.  Mobile resource management (MRM) solutions, like Airclic (which was acquired by Descartes), have become more industry specific to handle this last mile, industry specific complexity.  MRM also generates a form of IIoT data.
In conclusion, I’d like to thank Sean Riley, the Global Manufacturing and Supply Chain Solutions Director, at Software AG for introducing me to the idea of smart invoices based on the Industrial Internet of Things.  Enhancing an invoice based on adding new supply chain data is a very interesting use case for IIoT.

US and Mexico – Manufacturing Friends or Foes?

US and Mexico – Manufacturing Friends or Foes?

In the ongoing debate within manufacturing about offshoring and reshoring, one statistic speaks volumes. According to a 2011 study from the National Bureau of Economic Research, for every Mexican good exported to the U.S., 40% is of American content compared with 25% for Canadian goods and just 4% for Chinese goods.
That ratio may surprise a lot of people. But it’s essential to remember that the composition of value added to goods exported to the U.S. – whether components, raw materials or engineering know-how – varies tremendously, as this difference between Mexican, Chinese and Canadian production illustrates.
Furthermore, when a U.S-.based company moves production from, for example, China to Mexico, in the vast majority of cases the engineering work is not reshored to Mexico, it’s transferred to the U.S. In this way, the U.S. and Mexico are complementary as manufacturing neighbors.
“The U.S. is unambiguously better off with work coming back from Asia to Mexico than it is with the work staying in Asia,” says Harry Moser, president of The Reshoring Initiative, an organization striving to bring back manufacturing production, and jobs, to U.S. soil. “And there’s some work that is so labor intense that no matter how well you automate, how well you train your team, you cannot justify bringing it back to the U.S. because our wage rates are so much higher.”
What’s in a Number?
Even the experts aren’t fully in agreement about the scope of reshoring. Moser pegs the number of companies that have shifted production to the U.S. from overseas over the last decade at about 500 companies. Meanwhile, Jim Rice and Francesco Stefanelli, of the MIT Center for Transportation & Logistics, recently wrote in an IndustryWeekarticle that the number is closer to about 50 companies over the last five to seven years.
There is greater consensus around one aspect of the offshoring debate: rising costs in China are causing firms to contemplate a transition to manufacturing in other locations. Fast-growing wage levels, unpredictable transport costs, the rising value of the Chinese currency and an extended supply chain are all factors making Asian-based production less attractive. But if production is leaving China, where is it going?

Mexico as China Alternative
There is a growing willingness on the part of American and Canadian (as well as European) companies to consider Mexico as a manufacturing location from which to export to the Western Hemisphere. The U.S. and Mexico were the only countries to qualify as “Rising Global Stars” in Boston Consulting Group’s (BCG) most recent Global Manufacturing Cost-Competitiveness IndexProximity to key American and Canadian markets, a young labor force, high productivity per hour, competitive wages and the world’s greatest number of free trade agreements are all key factors in Mexico’s favor, according to BCG.
Similarly, Entrada Group’s own 2014 study revealed that midsize companies that manufacture products for the North American market prefer Mexico or the U.S. as a cost-competitive production location over China by four to one.
Complementary Skill Sets
There are a couple reasons that goods manufactured in Mexico for export to the U.S. have a higher percent of U.S. content than their Chinese counterparts. For starters, skill sets found in American versus Mexican manufacturing are not identical, though there are certainly overlaps. In the U.S., “there are severe shortages [of] toolmakers, precision machinists, welders and [in] other areas,” said Moser. “The various surveys show anywhere from 300,000 to 600,000 openings in manufacturing. [These are] job openings not filled because companies can’t find the people and a lot of it is due to the skill shortage.” Experts like Moser say that while American community colleges, high schools and companies are working to address this gap through education, training and apprentice programs, it will take some time to create enough qualified workers to meet increasing demand.
Second, due to Mexico’s proximity to the U.S., it is usually easier to transport a component to Mexico as part of the production process or even ship a damaged/broken part back to the US for repair than it is to handle such work locally in Mexico. In many cases, the required skill sets in Mexico for mold repair work, for example, just don’t exist. A supplier can have a part shipped back to the U.S., repaired and returned to Mexico within a week. With China, this wouldn’t be possible.
These factors, combined with the equally significant trend of regional production, point to a growing acceptance of Mexico as an alternative to China manufacturing. In the big picture, that is a scenario far more beneficial to the U.S. As Harry Moser puts it: “if you can’t get the work back to the U.S. from China or India and you can get, say, part of it to Mexico and part of it to the U.S., it’s better for the U.S. to be part of the winning team then all of the losing team.”
There are many ways that manufacturers in Mexico and the U.S. are working together, including foreign direct investment (on both sides), joint ventures, new sales and distribution offices, and research and development centers sharing information between the two countries. While it’s evident that the modern manufacturing environment and globalization has forever changed the industry as it operated for decades, it’s ultimately important to not lose sight of the fact that global production, on the whole, continues to rise and create opportunities for companies seeking entry to new markets.  

A New Ecommerce Business ModelGoogle vs. Amazon in the battle for the end user:

Google is increasingly losing customers to Amazon; Amazon has repositioned itself as the leading mediator platform for sales of goods and services. In the battle for last mile delivery, user profiles and preferences are shifting to the core of future ecommerce business models.

Google’s acquisition of the Canadian start-up BufferBox™ has brought excitement to the analogue community of parcel distribution services.
Few believed that a digital multinational such as Google would be interested in a start-up calling itself a “parcel pick-up kiosk operator”.

Ecommerce business model makes takeover strategy clear

It is clear that Google recognises Amazon as a potentially fierce competitor.
Amazon has understood how to enhance and develop its position as a mediator. Google’s own data shows that a decreasing number of users are using its own platform to search for goods and services; instead they search directly at Amazon.  
Google is losing out in its area of core competence – optimized search. Meanwhile Amazon is expanding its own ecommerce business model to include the search for goods and services available on its own sites.
Consumer data remains with Amazon
Consumers search Amazon directly for goods and services which they then buy from Amazon. The consumer data this search generates now stays with Amazon.
Amazon has little or no interest in selling its user data - a core asset - to third parties for marketing purposes.
On the contrary; Amazon uses this data - in most cases with the explicit knowledge and consent of the user - to target them with new offers.
Amazon’s ability to predict interests and preferences relating to the goods and services it offers is a growing part of its ecommerce business model - placing it in direct competition with Google.
Google’s strategy behind the purchase of Buffer-Box™ now becomes clear: it is a means of retaining access to the profiles of end customers whose stated delivery preference (on platforms including Amazon) is their local Buffer-Box™ station.
Other factors are also gaining importance.
Amazon's ecommerce business model includes pricing according to preferences & customer profiles,  end-user delivery preferences, last mile, national, regional and international (including different tariffs for delivery, landed costs – such as tax and customs fees) delivery costs, and payment options (paypal, Credit Cards and (remittance-like) escrow services.
It is interesting to see how Amazon’s own product and services portfolio has become a minor share of all the products and services offered via Amazon’s platforms/ecosystems.
In other words, with its ecommerce business model Amazon has understood how to position itself as the new mediator for products and services in a 24/7, global digital environment.
This ecommerce business model can easily be extended to other sectors currently still dominated by “old fashioned” analogue retail structures.

Unified ecosystems

As users of platforms/ecosystems start to purchase goods and services via Google, Amazon or third parties, the focus on customer retention increasingly shifts to physical delivery systems.
In addition to turnover and the fees earned through facilitating goods, services and payment, selling delivery and supplemental services (e.g. cash-on-delivery, alternative delivery methods or locations) is becoming an increasingly important source of additional revenue and methods of generating customer loyalty in the ecommerce business model.
Mediator role is key
Companies such as Google and Amazon are aware of their role as mediators between supply and demand in an increasingly consumer-driven environment.
This development is being accelerated by the unprecedented growth in the digital economy.
The traditional outlet-based model, driven by suppliers, will be replaced by a demand-driven model, where the user/customer takes well-informed decisions.
Success in this field depends upon integrating all the necessary processes into a single ecosystem.
The better one succeeds in binding the user to a platform/ecosystem (with their full knowledge and agreement) right through from the initial search for goods and services to final delivery according to the user’s preferences, the higher the value of the platform and thus the greater and more sustainable the profit it generates per user.

Ecommerce business model: recipient-driven

A key part of the purchasing decision is quick and timely delivery according to the user’s own preferences.
Therefore it is increasingly important that any ecommerce business model allow the platform user to determine the method and timing of delivery.


Figure  1:  Many parcel operators deposit items at locations not chosen by addressees / recipients                       (Illustration courtesy of InternetPost AG)

Failed delivery attempts (such as Austria’s “yellow notifications”) create additional effort and cost for the recipient who must collect the parcel in person from a postal outlet or a delivery service depot. This is reflected in customer purchasing behaviour.
In continental Europe the physical delivery location (post box, etc.) is the property of the recipient.
The recipient is entitled to determine the delivery location by issuing formal delivery instructions, e.g. PO box; alternative delivery address, deposit, re-direction, authorisation to receive mail.
This information forms part of the postal infrastructure and must be shared with all postal service providers on an equal cost and access basis.

Figure 2: Model for delivery based on recipient instructions 
(Illustration courtesy of InternetPost AG)

The delivery address itself is increasingly becoming a delivery identity, one that can be displayed digitally, is maintained by the user and applied according to their individual and mobile needs.  As a result, delivery increasingly reflects the interests of the users. 
It is clear that there will soon be offers from user interest organisations to protect the interests of digital users.
Continued integration, growth of the digital economy and the arrival of more ecosystems for distributing, selling and acquiring goods and services - especially the forward integration of sales channels traditionally serviced by physical sales outlets onto online platforms – all lead to a fundamental redesign of the delivery infrastructure.

The recipient, not the sender, determines last mile delivery

A delivery infrastructure driven by the recipient, one which supports both traditional parcel delivery and alternative delivery instructions, would be open to all parcel services on an equal cost basis.
In the digital economy, this offers a further means of integrating the entire delivery process according to the preferences of the user of the platform / ecosystem.
Increasing mobility and individual preferences are increasingly important factors in retaining consumers.

Figure 3:  A delivery model following recipients’ stated preferences encourages new business models
(Illustration courtesy of InternetPost AG)


Supplementing outlet infrastructure with digital, customer care-supporting deposit systems

When an online platform / ecosystem can support the full purchase process – from initial search for goods and services through to recorded delivery & including returns - then additional customer service functions can also be directly integrated.
These include customer information and advisory functionalities.
They also include identity and age checks, or the inclusion of samples for marketing purposes (reflecting the user’s preferences and in accordance with data protection legislation). 


Ecommerce business models with delivery and collection systems help sustainably develop economically underdeveloped regions

Integrated platforms /ecosystems help connect anyone who is structurally and regionally disadvantaged in the physical / analogue world.
Existing platforms and ecosystems such as Amazon and eBay, etc. can automate the process of directing delivery instructions, notifying receipt and dispatch, and integrating networks of pick-up and drop-off stations.
As a result, they make it possible to integrate economically and structurally underdeveloped regions with no additional effort and on an equal basis, providing universal coverage and meeting the specific demands of users everywhere.


Figure 4:  Stakeholders in a sustainable, user interest-focused, ecommerce-based service culture
(Illustration courtesy of InternetPost AG)


All deliveries within the postal infrastructure must comply with sector-specific data protection regulations

Confidentiality, protection and the security of personal data are the cornerstones of the postal service provision. They focus on the postal user. 
They clearly and specifically declare that a postal service user’s personal data may be employed only for the purposes for which it was gathered, i.e. for delivering a mail piece. 
Any list privileges, list brokerage, or the reselling of address data which enables third parties to directly or indirectly identify postal services users is, by definition, prohibited. This is referred to as "purpose limitation".

Retail outlet network providers face a fundamental change to their business model

Retail networks maintaining large locations, and particularly those outlets and stores in assumed “ecommerce distant” areas, are facing a dramatic, disruptive change to their business model.
Wal-Mart, and its UK-based subsidiary ASDA, demonstrate the necessary response: their core business is food and non-food items in daily demand. Their ecommerce business model, involving online platforms/ecosystems (including social media platforms) will enable users to decide how goods and services are delivered.
Integrated customer information and interactive care services, based on individual preferences and supporting electronic identities, will quickly gain in importance.
The physical address will be connected to the user’s electronic identity, seamlessly unifying the digital and physical environments as demanded in a mobile and ICT-supported society.

IN BRIEF
The battle between Google & Amazon shows how user retention mechanisms and ecommerce business models are entering a new dimension.
Ecommerce ecosystems are starting to integrate stated user delivery preferences before and after their purchasing decisions. All the processes involved in the delivery of goods and services are becoming connected. The address is being supplemented by electronic and mobile identities, becoming increasingly dynamic and reflecting the demands of a mobile society.
Retail stores and physical outlets are being forced to follow this development, decoupling from their physical infrastructure and enabling users to digitally determine delivery preferences. This leads to fundamental changes in the business model behind stores and outlets, and fundamental changes to the nature of distribution networks.

Traceability: What influences consumers?

Does traceability matter to consumers? It seems this is a question that constantly vexes food companies and other stakeholders. Even NGOs want to better understand what motivates consumer choice and how traceability influences it.
A recent yearlong international seafood study by the Global Food Traceability Center provides helpful insight that consumers do care about traceability.
The research revealed that traceability is more highly valued by businesses, regardless of their size, if they engage more often in highly collaborative activities with their suppliers and customers. This was useful knowledge for businesses; but they would really like to know what causes a consumer to choose one product over another?
In the same project, the GFTC conducted surveys in 5 nations to look into consumer perceptions about seafood and the key factors influencing their purchasing decisions. For example, while consumers may not know very much about how seafood is caught or produced, they sure expect that those who sell it will know. What do they think? The data suggest that at least seafood consumers think the industry can do better when it comes to transparency about specific attributes like product quality, freshness, and sustainability.
Based on its study, the GFTC incorporated survey findings from Canada, China, Germany, The Netherlands, and the United States into a Seafood Consumer Preference Tool that can be used to compare and contrast the consumer preferences in these countries. The tool provides a simple means to better see what traceability factors impact buying decisions consumers make about seafood. The tool (and the entire project report) can be accessed via the GFTC website (www.globalfoodtraceability.org).
The results are remarkable. One finding is that consumers value proof that the seafood they buy is actually what is advertised on the label or on the sign in the store or restaurant. Not a big surprise there. However, what is intriguing is consumers value more the proof that verifies their purchase was sustainably caught or farmed. For seafood companies that are considering the usefulness of traceability, it is clear that there is an opportunity that companies may be missing.
The surveys show that if consumers can trust the verification of sustainability claims (through traceability), seafood companies, retailers, and food service firms may capture additional market share or higher margins. The specific results vary from country to country and species to species; but the response is consistent.
Another insight from the surveys is that freshness is one of the top values sought by seafood consumers . And yet without knowing when it was harvested, or caught, or packaged, consumers are left to wonder if their fish is fresh. And how fresh is it? Again, verification of catch or packaging dates (using traceability) was shown to have a substantial influence on consumer decisions.
Perhaps average seafood consumers may not know much about traceability. But they are influenced by factors that are directly connected to having traceability in place all the way back to the source. It is the potential for better business results that will cause traceability to truly catch-on with companies.
So the question for food businesses is NOT whether consumers care about traceability, but how can a company convert a clear opportunity into sharper sustainability, quality and freshness claims and so drive up sales and profit?
Charlotte, N.C., March 25, 2015—Traditional supply chains will radically change over the next five to 10 years as a result of new technologies, competition and customer demands, according to a new study by MHI and Deloitte. On average, companies surveyed expect to invest heavily in new supply chain technologies over the next two years, with the top 17 percent spending over $10 million.
According to the 2015 MHI Annual Industry Report titled “Supply Chain Innovation—Making the impossible possible,” firms should embrace this transformation today and focus on investing in new technologies in order to compete and thrive as their supply chains continue to face constant pressure to do more with less.
“The speed at which supply chain innovation is being adopted–coupled with rising consumer expectations for anytime, anywhere service–is stressing traditional supply chains to near-breaking points,” said George Prest, CEO of MHI, an international trade association that represents the material handling, logistics and supply chain industry. “Companies that continue to use traditional supply chain models will struggle to remain competitive and deliver orders that are accurate and on-time.”
The second MHI Annual Industry Report identifies the realities many companies face and the disrupters that are likely to drive even more change over the next 10 years. The report will be launched at MHI’s ProMat expo March 23-26 at McCormick Place South in Chicago. “Through this report, we aim to help companies identify these disruptive factors, find the best options, and make the right investments to manage their global supply chains,” said Prest.
Eight technologies that are reshaping the supply chain landscape
The survey focused on eight technologies that are driving next-generation supply chains:
  • Inventory and network optimization tools
  • Sensors and automatic identification
  • Cloud computing and storage
  • Robotics and automation
  • Predictive analytics
  • Wearable and mobile technology
  • 3D printing
  • Driverless vehicles and drones
“I believe that we are at the dawn of an innovation wave that will soon hit the material handling industry," says Scott Sopher, principal, Deloitte Consulting LLP. "The convergence of big data, faster and cheaper computer power, and the increasing demands of customers will likely accelerate the adoption of innovative products and services in the material handling industry.”
The report groups these innovations into three categories – maturing, growing and emerging – based on current adoption levels and anticipated adoption over the next five years.

Supply chain innovations by lifecycle phase

Supply chain innovations by lifecycle phase

Maturing technologies
“Maturing technologies can create dramatic improvements in efficiency and service. For instance, inventory and network optimization tools can reduce supply chain costs by 10 percent or more, with larger potential reduction in total inventory costs,” Sopher said, referencing the study. “Current adoption levels are significant, with 35 percent or more of companies using these maturing technologies.”
  • Adoption levels of these maturing technologies are expected to reach 80-90 percent by 2019.
Growth technologies
Adoption levels for technologies such as predictive analytics and wearable and mobile technologies are only at about 20 percent, but are expected to grow significantly over the next three to five years, according to the study.
  • The current adoption level of 24 percent for predictive analytics is expected to reach 70 percent in three-to-five years and 77 percent after six years.
  • Adoption levels for mobile and wearable technology–including smartphones, wireless devices and smart glass–sits at 23 percent, but is expected to reach 64 percent in the next three-to-five years.
Emerging technologies
Emerging technologies include driverless vehicles and drones, as well as 3D printing.
“Although current adoption hovers around 10 percent, company leaders should understand the current and near-term uses of technologies like drones and 3D printing and prepare for significant industry disruption over the next six or more years,” Sopher said.
Driverless vehicles and drones
“In reality, this idea is not new to the supply chain. Autonomous vehicles have been used in material handling applications for years, and many related systems are already in use today within the trucking industry,” said Prest. Examples include electronic stability control (ESC), collision avoidance technology and rear- and forward-view camera systems.
  • By 2017, the survey states that 20 percent of logistics organizations are likely to exploit drones as part of their monitoring, searching and event management activities.
  • By 2030, vehicles capable of driving autonomously are expected to represent approximately 25 percent of the passenger vehicle population in mature markets.
3D printing
“Today, we are seeing the most significant applications of 3D printing in aerospace and defense, automotive, healthcare, consumer products and retail,” noted Sopher.
Top uses from companies surveyed include:
  • New product prototyping (19 percent)
  • Small runs of high-value replacement parts (10 percent)
  • Complex personalized products (6 percent)
Barriers to adopting new technologies
Leaders surveyed in the study identified two key barriers to adopting these new technologies:
  • Thirty six percent cited “the lack of a business case to invest.”
  • Thirty one percent said there is “lack of adequate talent to utilize the technology effectively.”
Four important considerations for next generation supply chains
The study makes several recommendations for companies looking to remain competitive in the supply chain space.
“Companies that are early adopters of the innovations and technologies identified in this report can improve both their cost and service creating a strategic advantage,” said Prest. “Our industry makes supply chains work, and MHI pledges to be at the forefront of these developments to help our members and their customers boost efficiency, performance and business results.”
Make smart decisions about where to invest
According to the study, deciding where and when to invest in technologies is crucial to survival over the next decade. This year’s survey found that 46 percent of respondents are developing partnerships with vendors, analysts, consultants and trade groups to help them understand evolving technologies and develop business cases for where to invest.
Align with customer needs
As many companies expand their global footprints, adjust their trade flows, and try to meet their customers' ever-rising expectations for faster response times, they should invest in forward- looking technologies and capabilities that can help them assess and redesign their complex supply chain networks to satisfy the demands of a constantly changing marketplace.
Collaborate across blurring boundaries
With cloud computing, predictive analytics and other advances, there are significant opportunities for companies to collaborate with value chain partners. Companies should invest where these collaborations can yield the best returns.
“Some of the best companies in the world use collaboration to create high-performing, customer-oriented supply chains. This collaboration not only provides visibility into the customer experience, but drives innovation by producing a more complete view of their products and supply chain,” Prest said.
Invest in workforce hiring and training
According to the survey data, 31 percent of respondents cited the lack of adequate talent to implement and deploy new technologies as a significant barrier to their implementation.
The supply chain workforce crisis is likely to only accelerate as new technologies demand a labor pool with increasingly advanced skill sets.
“Multiple factors are contributing to the talent shortage, including an aging workforce,” said Prest. “But the changing skill sets needed for jobs in the supply chain is the biggest factor. Our industry needs a sophisticated and well-trained workforce to operate leading-edge equipment and systems.”
According to the U.S. Roadmap for Material Handling & Logistics, an estimated 600,000 manufacturing positions in the U.S. are unfilled for a lack of qualified workers. In addition, the Roadmap predicted that, between 2014 and 2018, there will be 1.4 million new jobs in the logistics and supply chain field.
“MHI has focused on the talent shortage for years and works with universities and other trade associations to address this critical issue,” said Prest. “Together with the Material Handling Education Foundation Inc. we have developed curriculum and text book materials for training programs at the high school, vocational-technical school and community college levels. MHI pledges to continue to lead the way in addressing the workforce crisis.”