Of the record $17.8 billion in sales generated by independent US retailers and restaurants on “Small Business Saturday” earlier this holiday shopping season, 41% came from online buyers, a 17% increase over last year. But the dark side of these ecommerce surges is that many small and midsize businesses aren’t equipped to handle them.
“A lot of companies selling online are actually losing money,” notes Diego Pantoja-Navajas, Oracle vice president of product development. That’s because those companies are incurring “net shipping losses”—they’re paying more money to ship customer orders than they receive in shipping revenue, Pantoja-Navajas says.
Even the biggest of the big are concerned. For example, Amazon.com, which spent $21.7 billion on shipping last year, warned in its 2017 annual report that if it doesn’t get its fulfillment operations right, its business could be harmed.
While most SMBs won’t spend billions of dollars on logistics, “even a tiny fraction of those costs could ruin a small business, especially if it’s not managing those operations with the right technology,” notes Oracle senior product strategist Bob Meixner.
To ring in the New Year on a more positive note, small and midsize merchants should consider cloud-based commerce and supply chain platforms that help with these three critical logistics capabilities, according to the Oracle executives:
1. Build the cost of free/discount and fast shipping services into their pricing models.
Consumer and business customers, especially retail buyers, expect to buy from anywhere and return anywhere. But if a company’s so-called omnichannel commerce platform can’t see what inventory is available at a store, warehouse, or delivery locker, or it’s unable to determine which of those locations is closest to a customer, then shipping costs can get out of control.
To protect their profit margins, “SMBs need a single, global view of their inventory, and they must also know exactly what it’s going to cost—and how long it’s going to take—to ship that inventory from a fulfillment center to a customer’s doorstep,” Meixner says.
For example, if a customer in Kansas orders a pair of women’s farm boots online, an ecommerce platform linked to the merchant’s supply chain applications should recommend that the customer pay a premium if she wants the boots shipped the next day from a warehouse in Pennsylvania. The system could also offer the customer same-day pickup without having to pay any shipping fees, if she agrees to pick up the boots at a store near her home that carries the inventory.
2. Make every mile matter.
“Too many companies center their logistics operations on the last mile of delivery,” Pantoja-Navajas says, describing the final leg of transporting a finished product from a courier to a customer. But having the right technology to recommend how products should get from a retailer or manufacturer to a courier—what is known as “first-mile” logistics—can be a huge cost advantage in the long run, he says.
To build low-cost, first-mile capabilities, Pantoja-Navajas suggests SMBs first analyze their customer and supply chain data to understand which combination of products, prices, services, and demographics are going to help them grow their businesses the most. SMBs then need to set up their warehouses, as well as partner with logistics companies, with the locations of those customers in mind. By doing so, “SMBs will be able to offer faster shipping speeds and lower prices than their competitors,” he says.
3. Combine the Internet of Things and artificial intelligence to predict the best course of action.
The Internet of Things, with its wireless sensors, beacons, tags, and mobile devices, can help companies of all sizes not only monitor in-transit vehicles, on-hand inventories, and warehouse capacity, but also use that insight to plan deliveries, prevent spoilage of perishable goods, and locate hard-to-find items.
And by pairing IoT devices with artificial intelligence algorithms, companies can analyze supply chain events, model desired fulfillment scenarios—and then predict the best courses of action.
For example, if a supplier can’t deliver enough raw materials in time to fulfill a customer’s order, an AI algorithm can recommend other suppliers with that capacity.
Or say a driver is heading cross-state with a truckload of premium cotton sheets for a hotel chain, but he gets stuck in gridlock traffic 500 miles from the destination. To meet the company’s same-day delivery promise, “an algorithm can immediately scan all of the company’s inventory locations, rerun a fulfillment model for the customer, and then reroute a new truck from another warehouse that stocks those sheets and can deliver the order on time,” Pantoja-Navajas says.
“Artificial intelligence is what makes that possible,” he says. “IoT without artificial intelligence is like having a Ferrari that only goes into second gear.”
While most big retailers have invested huge sums of money in such sophisticated fulfillment systems, even the smallest companies now have access to those capabilities in the form of cloud applications. “Future growth won’t come from big fish eating little fish,” Pantoja-Navajas says. “It’ll come from fast fish using the right technology to help them define, capture, and expand their own markets.”