October 29, 2012
Column | outbound

Get ready to say goodbye to the supply chain as we know it

The supply chain of 2020 will look radically different from the one we know today. Why? E-commerce.

By Mitch Mac Donald

The giant sucking sound H. Ross Perot once warned us about is back. Only this time it's not Mexico siphoning off U.S. jobs in a post-NAFTA market. In fact, it has nothing to do with jobs or Mexico. Rather, it's the sound of end users—businesses and consumers—sucking away control from the producers and retailers that, for generations, called the shots on order fulfillment and shipping.

The shift to a "demand-pull" model has been the subject of much debate ever since the Internet became a sustainable commercial conduit. But as e-commerce explodes, the influence of tech-savvy end users is growing stronger. These folks have very definite expectations when it comes to how and when their items are delivered.

At forward-thinking companies, debate is giving way to action. Various news outlets, including DC Velocity, have reported that Amazon.com is poised to dramatically broaden its DC footprint so it can launch a same-day delivery service. Within a few days in mid-October, it was reported that Wal-Mart Stores and online auctioneer e-Bay were testing same-day deliveries. We wouldn't be surprised to see other retailers go the same route.

On the provider front, UPS Inc. 14 months ago unveiled a service called "My Choice" that gave consumers the flexibility to choose when and where they wanted the packages delivered.

The rollout was UPS's acknowledgement that for the first time in its 105-year history, control over its small-package supply chain had shifted. "Our customers had always been the shippers," Alan Amling, a UPS vice president, told us at the recent Council of Supply Chain Management Professionals (CSCMP) Annual Global Conference.

Wal-Mart, Amazon, and UPS are different kinds of companies following different paths. But their destinations are the same: the wallets of end users. Many of these end users are under the age of 35 who want their goods how, when, and where they want them, and, by the way, with free shipping.

In a presentation at the CSCMP conference, regional parcel carrier OnTrac used the phrase "My Way, Right Away, Why Pay?" to describe the attitude of the 18-34 age group. The mindset may smack of arrogance, but companies ignore it at their peril. Despite a sluggish economy, Generation Y-ers and Millennials increased their spending by 31 percent in the past year, according to data from Forrester Research cited in the OnTrac presentation.

As for what the future holds, Forrester predicts that online sales, which hit $200 billion in 2011, will grow 60 percent over the next five years. Business-to-consumer transactions already make up more than 40 percent of all parcel traffic, a ratio that's bound to increase.

Given these trends, it seems clear the supply chain of 2020 will look radically different than it does today. Truckload carriers will be running at less-than-truckload distances. Multiple air and ground hubs will spring up. Warehouses and DCs will be designed and located strictly with the direct-to-consumer model in mind, and they will operate in round-the-clock-mode with robots breaking down pallets into small shipments at a pace manual labor can't match. Regional parcel carriers who've long labored in the shadow of UPS and FedEx will thrive as demand spikes for the short-haul, flexible delivery services that are their specialty. And there will be new job opportunities as shippers, carriers, third parties, and warehouses create high-level positions dedicated to running e-commerce.

Most, if not all, of the strategy and execution will be aimed at satisfying a new class of power broker: the end user.

More articles by Mitch Mac Donald

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