Distributed Logistics for Digital Commerce Series, Article 1: A Change in Paradigm and Why It Matters

Distributed logistics is a new approach to managing and maximizing ROI from ecommerce inventory.

Distributed logistics is the capability to place, manage, fulfill and leverage inventory dispersed across owned warehouses, 3PLs, retail and other options to be physically close to potential customers. It can have a massive impact on brands’ or online sellers’ ability to win the buy box, drive top and bottom line results, and increase the yield and ROI of investments in inventory.  

In uncertain times, distributed logistics is an important tool is devising an online sales strategy focused on creating flexibility and options to meet an unpredictable future.

An important step in understanding the role of distributed logistics in creating business strategy is understand the shift from “ecommerce” to “digital commerce”.

Until recently, when marketing and operations leaders talked about “ecommerce”, they were mostly talking about selling on Amazon and perhaps selling on their brand’s own website.

Now, however, options for shopping online have exploded – and expanded the need for brands to be present wherever their customers shop.

Options include:

  • Major marketplaces such as Amazon along with retailer sites such as bestbuy.com or target.com that take ownership of inventory, then sell and ship it to their customers in what’s called a “1P” relationship;
  • Major marketplaces that provide visibility to products sold by brands, resellers and others. Rather than take on inventory, the marketplace forwards orders and takes a commission and listing fees. These “3P marketplaces” include the traditional giants such as Amazon, Walmart and eBay; newly emerging models such as Google Shopping, and niche sites such as Wayfair in home goods and Reverb in musical instruments;
  • Brand storefronts powered by shopping carts such as Shopify, Magento, WooCommerce and others;
  • Retailer sites, offering customers the opportunity to buy online but pick up in store.

And to make matters more confusing, often these models overlap: a brand selling to Target, for example, may find its fastest moving products carried by target.com with the option for Target to ship the product from a Target fulfillment center or from a Target store. Or Target may offer the option for the customer to order on target.com but pick up product at a Target store. The target.com site may also list some of the brand’s other products, but expect the brand to fulfill the order directly to the consumer. Plus the brand may offer its entire product line on their own website.

And let’s not even get started on what happens when you expand to international channels.

And it’s not just online purchases that add to the complexity. Forrester research indicates that 55% of all commerce – including in-store retail purchases – are affected by digital activities such as researching products on Amazon, online search or social media. In today’s hyper connected world, all commerce is digital commerce.

So the concept of “ecommerce” just doesn’t seem to be broad enough to truly encompass the rapidly evolving, increasing complex world of selling online.

The term “digital commerce” originally applied to software products sold directly to consumers and fulfilled by downloading the product online. But we are seeing more ecommerce thought leaders using “digital commerce” in a broader sense in order to better capture the complexity involved in how online commerce is evolving.

The complexity of “digital commerce” encompasses:

  • Selling in multiple ways (1P, 3P, resellers and direct) across multiple sales channels – each with its own requirements, policies and technology interfaces;
  • Fulfilling orders in multiple ways including direct to consumer, single parcel shipments, wholesale and retail drop shipping, and retail or dark store fulfillment;
  • Meeting fast-changing customer expectations such as 1-or-2-day delivery. And recognizing that the marketplaces are favoring sellers who can support these programs – so participating in them really isn’t optional if you want to succeed in capturing the buy box;
  • Recognizing the operational challenges involved in dealing with all this complexity – and avoiding both customer disappointment and marketplace penalties involved in failing to perform.

The key to success in addressing the complexity of digital commerce comes in changing the paradigm of how we manage inventory.

In the past, inventory meant cases or pallets stored in a warehouse or fulfillment center. The new paradigm manages all the channels you sell on, all of their requirements, and all sources of inventory to fill a specific customer’s order as a single, dynamic, integrated network.

This new distributed logistics paradigm is driven by several shifts in our mindset regarding inventory management:

  • You have to move from a train of thought of shipping pallets to warehouses to now shipping eaches directly to consumer;
  • You have to shift from rigorous demand planning and forecasting to being able to understand signals across a network in order to be able to accurately forecast and promise that inventory across many different channels;
  • You have to look at moving from the focusing on optimization to trying to keep your options open. You can’t optimize what you can’t predict; and ecommerce is evolving and changing in unpredictable ways as the current COVID crisis changes consumer behavior, accelerates adoption of online buying, and alters the retail landscape across the board.

So let's bring this all the way back around to how distributed logistics can make a big difference for you.

The biggest shift here is to recognize that digital commerce is really all about yield management rather than the more historical approach of predicting, planning and forecasting. Yield management involves strategic control of inventory to sell the right product to the right customer at the right time for the right price. And that's what distributive logistics for digital commerce is all about.  

This is the first in an eight-part series of videos and articles focusing on distributed logistics and how it can create options for succeeding in the unpredictable world of online selling. If you’d like to learn more, check out the accompanying video. Or learn more at our website www.etailsolutions.com.

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