A Supply Network For the Amazon Age
The biggest companies by market capitalization 15 years ago were deeply rooted in the physical world. No. 3 Exxon sold you the gasoline to drive to no. 5 Walmart back in 2001. Even Microsoft, the no. 2 company, dealt largely in the OS and software for your notebook or desktop PC.
Financial markets today favor the virtual. Today's leaders by market capitalization — Apple, Alphabet, Microsoft, Amazon and Facebook — are all tech companies, mostly operating in the online world where you search Google on your iPhone or PC for product information, and buy it on Amazon or Facebook.
These are also the primal forces at play in a new dynamic of supply chains. Young suppliers, particularly in apparel, can now use the globalized, connected world to work with contract manufacturing and logistics providers, and tap online marketplaces, which allow them to grow from nothing to multi-million dollar competitors in a matter of months, not years.
They could not grow exponentially (or even exist) under the old world order that required building a supply chain largely from scratch. Sourcing material and manufacturers was more difficult than today's connected B2B ecommerce world. Developing markets meant clawing their way into retail chains and siloed sales channels.
A new kind of supply
Technology has created something that might be deemed a supply network, as opposed to a supply chain. A supply network includes multiple channels and multiple ways to distribute. It's the obviation of the need to run one's own system of warehouses, and the ability to sell beyond one or two channels. The supply network is holding stock not just in warehouses but with 3PL partners, including whatever you sell through Amazon.
This is why managing a supply network is actually can be more complicated than managing a supply chain. But technology and globalization have created the tools, connections and integrations that make it possible for companies to bring products from widespread manufacturers to far-flung markets without the need for building a supply chain from scratch.
The new kind of company
I've met with a number of these companies myself in the last year. These companies are typically looking to connect to as many marketplaces as possible. They are selling through their own websites, and through Shopify, eBay or Pinterest, and they are looking to sell through Walmart.com and Amazon as well. Which is to say that ecommerce isn't the entire story, but it's a big part of it.
These companies, in short, are typically seeking to integrate their inventory with three or four marketplaces at once, while coordinating with overseas manufacturers and 3PLs for warehousing and shipping.
The common denominator among these companies is that, thanks to supply networks, they can afford to focus most of their resources on their brand and their products. They usually aren't very concerned about the logistics because there is always somebody else with the expertise, the technology and systems, and the price competitiveness to turn aspects of their supply chains into an operating expense.
I met with one particular company that didn't exist two years ago, but today is a $30-million concern. The bulk of the company's sales is through Amazon, but knowing that a single-channel supply chain is risky, they are now seeking to sell through multiple ecommerce channels, to expand to overseas markets, and to sell with big name brick-and-mortar chains as well.
Smart strategic moves, but the company's rapid growth underscores why this feels like the Amazon Age.
Amazon: a marketplace and logistics provider
The advantage today's companies have over suppliers of 15 years ago is most prominently illustrated by Amazon. This isn't just because of Amazon's early lead in ecommerce but more due to the way it has leveraged its investment in warehouses, shipping and fulfilment operations to become so price competitive.
Amazon doesn't just have the faith of the markets — it connects more than 6 million vendors and sellers to 300 million customers. Amazon's continued growth (hiring 1,500 new staff a month on my recent trip to Seattle) is making it one of the biggest threats to brick-and-mortar suppliers who in response are rethinking how their supply chains work.
And now, according to a recent report, Amazon is poised to surpass its brick-and-mortar cousins as the biggest apparel seller in America. Its apparel sales are expected to reach $28 billion in 2017, overshadowing Macy's apparel sales, which analysts predict will come in at $22 billion at the same time (a 4 percent drop from this year's sales).
Amazon isn't just growing, it has arrived, and has embedded itself into the normal business landscape. Manufacturers and suppliers that want their supply networks to reach as many customers as possible must give Amazon extra attention in developing their overall sales strategy.
The vast majority of those 6 million sellers and vendors will not achieve the sales success that the emerging leaders will enjoy. But even the success stories have problems managing inventory through their supply networks as they're taking off.
This has to do with what one of our business partners calls "entrepreneurial ADD." His company provides cloud accounting services to a lot of companies selling through Amazon, and many of them are on their way to become successful businesses in a short period of time. The leaders of these companies tend to be so focused on getting up and running quickly that they often do everything themselves. They wear every hat in the business, which tends to "silo" their activity.
Some of these entrepreneurs come to realize that if they want to continue growing, they have to invest in tools and services for managing inventory, fulfilling orders and distribution across all their channels.
But many of the tools on the market today are optimized for a single purpose, a single silo. Many software solutions, for example, continue to market themselves within their specialty. A POS solution will market itself as only a POS solution. Likewise with most inventory management solutions, and EDI/VAN providers.
These siloed tools miss the point of the next generation of silo-less companies. They can't take advantage of the fast-growth opportunities of marketplaces like Amazon if they have to manage an increasing number of tools and solutions simply to do business and grow. They need to move and track their inventory from one part of their supply network (their suppliers and outsourced warehouses) to all the other nodes in their network at once.
This can include Amazon's combination of marketplace and fulfillment channels, and marketplaces such as eBay and Walmart.com, and brick-and-mortar retail partners. There are many companies that also start off in ecommerce but find growth opportunities to expand in their own retail outlets, and thus need a way to track and manage inventory to their POS.
More companies will tap into the rapid growth opportunities on offer in this Amazon Age. But just as their businesses must be focused on building a great product — not bogged down in siloed business processes — so will the solution they adopt focus on managing inventory in a supply network without silos.
Danny Ing is founder and CTO of Cin7, a provider of connected inventory solutions for retail.