The shift to online retail has happened at a breakneck pace which has left some retailers spinning and upended their supply chains.
This is a space that Amazon had come to dominate, but now everyone is having to catch up. Wanting to know more about this phenomenon, I turned to Prof Sanchoy Das, who literally wrote the book on the topic - his book is called Fast Fulfillment- -The Machine That Changed Retailing.
We had a fascinating conversation around how online order fulfillment differs radically from traditional store retail, how Amazon is the T-rex of online retail, and how with the right approach traditional retailers can compete with and supercede Amazon. As usual, I learned loads, and I hope you do too...
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The online order is like an emergency room. Every day is different. And the customer profile today is different. The delivery profile is completely different. The order profile is completely different. So what worked yesterday may not work today.Tom Raftery:
Good morning, good afternoon or good evening wherever you are in the world. This is the digital supply chain podcast, the number one podcast focusing on the digitization of supply chain. And I'm your host, global vice president of SAP. Tom Raftery. Hi, everyone. Welcome to the digital supply chain podcast. My name is Tom Raftery, SAP. And with me on the show today, I have my special guests Sanchoy. Sanchoy, would you like to introduce yourself?Sanchoy Das:
First of all, thank you, Tom, for having me on your show. I'm so excited to be here and participating with you on this wonderful show that you have. I am a professor of Industrial Engineering and supply chain at the New Jersey Institute of Technology. And in the recent years, my passion has been these sort of online supply chains, how we are pivoting, to delivering goods from some factory somewhere in the world, to everybody's doorstep. And in the process, we are sort of disintermediating the traditional or classical retail store. And so that's what I've been researching. And that's what I've written a book about. And that's what I'm going to talk about today.Tom Raftery:
Fantastic. And let me let me start off by saying this whole direct to consumer movement has, you know, been going for a while now, but it got a real boost if we want to put it that way from the lockdowns and the COVID pandemic, how it's hard to put a number on this, I guess, but how far ahead are we you know, compared to had there not been a pandemic.Sanchoy Das:
The The main advantage of the pandemic is that as you said this thing was occurring, and to some extent it was occurring quietly. But it was not occurring slowly, it was occurring quite rapidly. And that enabled companies like Amazon to dominate it, they were dominating it quietly. But what the pandemic and during that period, other retailers were doing things also online. But they were doing it piggybacking on their existing infrastructure. And that was good enough. When the pandemic came, suddenly they realize that we need to do something now. And that's why a lot of them rushed in. And they tried to sort of get into this bandwagon and in different ways and different ways that they started to do that. Just to put things in perspective, Walmart, which is the largest retailer in the world, doesn't have an E commerce fulfillment center till about 2013, which is quite late in that evolution history of online retail.Tom Raftery:
Well, okay, yeah, if I think of what happened here, I'm based in Spain. Here in Spain, when the lockdown came, I was I was already doing my grocery shopping online from you know, eeper car, which is a local large retailer here. And you know, you would put in your order, and they would tell you when they would send it in two or three days time. And, you know, it worked. It wasn't rapid, but you know, as long as you plan ahead, it was no problem. And, you know, you could do the shopping in 1015 minutes on the computer as as opposed to, you know, driving 15 minutes to the shop, spending an hour walking around filling a cart, go into the checkout queuing and then coming home again, you know, so it's real time saver, really handy that way. But when the lockdown came to your point, wow, the website collapsed because everyone had to use it because no one had a choice. And it really took them a month, six weeks before things started to you know, get right again. But now, now you go onto their site and you can choose the hour, you want the delivery to arrive the next day or the next week, you know, it's not that it's going to be sometime in the next two or three days. You actually can book the time that it's coming so they've they've had a huge upgrade to what they're doing. What how is the whole supply chain and logistics? How's it different for online versus retail? What are the big differences between the two kinds of supply chain?Sanchoy Das:
So this is an excellent question. See most of us only see sort of what I call the the the web portion of online sales we see this catalog and as you said you can choose when you want the delivery and you want to read tomatoes you want half ripe tomatoes you can choose that. So most of us can see the catalog part of the online business. I am focused on winning You hit that button on that keyboard, Submit Order, something happens is happening somewhere in the world. And at the end of the, your specified period, something shows up in your door. And the vast majority of people have no idea what is actually going on. And so that is the big structural change in these supply chains physically. So if you look at it for decades, we have been developing these super efficient supply chains. And they all ended in the store. So they came to the store and the index, Walmart has fleets of trucks, cross docking operations, wonderful thing that brought it to the store. And then one morning, you decided, hey, I'm not going to the store anymore. So now all this stuff is sitting in stores, but you suddenly become spoiled and refusing to go to the store. So now this entire supply chain has to be rejiggered and we need to change the kinds of trucks we operate the kinds of warehouses. So online fulfillment warehouse doesn't look anything like a traditional warehouse, it looks actually quite different. If you just think about it, when we move goods, we move them in pallets. And these pallets go through the supply chain, they reach the store, then we open up the pallet, we start taking product out. Now this pallet is being dismantled, maybe 20% into the supply chain, it goes into boxes, then it goes into unit pieces, the supply chain has all these forklift trucks and stuff like that they can handle these things. So we have these huge structural changes which are occurring, the labor skills which are required, the computer skills, which are required, are all quite different. Many of the retailers are using their most valuable asset, which is the store. That's why you hear all this buy online, pick up from store, buy online fulfill from store, because that's the asset that they have. Yeah. Unfortunately, that asset is an expensive asset. Okay, so like, a grocery? Yes. It drives cost up here.Tom Raftery:
Yeah, yeah. And I mean, I gotta think, when you get people to come online as a as opposed to going to the store, it's actually a better experience for you as a retailer as well, potentially, because to get them to come to your online store, you got to get them to registers, so they have a login, you got to get them to put in their address, you got to get them to put in their credit card details. So you start to get quite a bit of data about your customers that you would never have if they just walk in, pick up something off the shelf, pay for it with cash and walk out again.Sanchoy Das:
You're absolutely right. Every retailer basically becomes a Facebook, they know everything about you. They know what you eat, when you eat in what quantities you eat, what are your preferences are to drink, you're getting profiles, whether you like it or not, you're getting profile? Yes. So that obviously opens up a tremendous amount of marketing opportunities. It also opens up analytics. So in the book, I talk about how data correlations, data analysis becomes so important, I the retailer is able to predict, to good degree of certainty what is going to happen in the immediate future based on the types of customers they have. And they can really do wonderful things. And actually companies like Amazon are actually laughing because they have already done it. And they're they're using it every day to to market and manage their systems.Tom Raftery:
And speaking of Amazon, I mean, they're the real kind of juggernaut in this in this space. How did they get what what did they do? Right? That, you know, they they dominated the space so quickly.Sanchoy Das:
Okay, again, a very good question. In the book, I talk about Amazon as a T Rex, okay, because they are, they're not a competitor. For many retailers. They're actually a predator. If you are not careful, they're just going to eat you up because they can sell so much of stuff so efficiently. But a couple of things really drove Amazon is that early on, they recognized that this kind of retailing model is actually orthogonally different from traditional retail. So they were not bogged down by existing infrastructure, in the existing paradigms, they developed a whole new things and what are some of those new things? They use a lot of technology. So the new there was, the Internet was everywhere. computing power was everywhere. They leveraged it in every single action that they were doing. And then they started using very advanced computer modeling and decision making. So anything which happens in an Amazon fulfillment center doesn't occur by accident, or somebody just does Look, I'm going to do it this way. Everything is planned, calculated. They have systems in there, which tell you what to do in the next half an hour, sometimes next 15 minutes. So that allows them to achieve the speed of getting it. You remember, it's quite a remarkable thing that if I order something at two o'clock in the afternoon today, it is at my doorstep 10 o'clock tomorrow morning. It's quite a remarkable supply chain feed here.Tom Raftery:
Yeah, I mean, I got a suspect that, you know, they're using lots of machine learning mathematical models, etc. Is that kind of thing? vital for other organizations as well?Sanchoy Das:
Absolutely. If you look at the history of AWS, or Amazon Web Services, it is basically what they developed for their own facilities that they started to make available to this some other customers, etc. The other thing, which is so important that in the book that I mentioned it, very emphatically there is supply chain subscription, in 2018 is a very seminal year for Amazon, because that is the year when half of the stuff which was sold on Amazon came from a third party seller, right? So these were people this was inventory not owned by Amazon. But it it traveled through the Amazon supply chain. So these are third party sellers. And what happened is these people basically subscribed to this wonderful supply chain overnight. So I give the example of instant pot, I don't know whether you're familiar with Instant Pot in Europe, is this pressure cooker calm rice cooker kind of device. Okay, so this guy invented this thing, very nice device, he was having difficulty selling it to the traditional retailers. One night, he just became an Amazon seller and sales just took off, because he just got this wonderful supply chain. So, so fast. So some big companies are adopting on their own and some are just subscribing to this service.Tom Raftery:
Okay. And for organizations who are not Amazon, who, you know, wants to succeed in this new online world of direct to consumer, what should they do, but what are their best strategies?Sanchoy Das:
I would say the number one strategy is talent acquisition, you need people who are, you know, knowledgeable about the most available technologies, the methods that are possible, you get that talent acquisition, and then you start really looking innovatively relooking, at all your business processes, you know, that at the core of all our ERP systems, we have this multitude of business processes. And sometimes these business processes get ingrained sort of in our system, they become more and more resistant to change, a lot of them have to be changed. So you need the talent, first of all, and then you need the ability, the innovative ability to go investigate. And third, of course, you need capital at the top management view to make those pivots. And the good news is in the pandemic, many retailers who are sort of having very difficult times here in the US, they pivoted very fast, they got the talent, they got the capital. And the good news is they're doing well. They're doing well in this period here. But talent and knowledge are very critical.Tom Raftery:
Yeah, because I mean, I've seen lots of articles about how shopping malls in the US have become completely deserted and even that was before the pandemic and the lockdowns it was a trend that was happening, right?Sanchoy Das:
Absolutely. And sometimes the people in rather disparagingly refer to these as retail deserts, because the whole mall is abandoned. So actually, you raise an interesting it's an interesting phenomenon has occurred. So we have shopping malls, which are what we call a great shopping malls. So they have a much more higher customer experience, the retail experience. And then we have B and C great shopping malls, which are more convenience oriented. So it was near my home I went there, I picked up a couple of things. And I came home that see great shopping malls are the ones which are really hemorrhaging and many of them because the convenience that they provided got transferred to online retail. So their basic sort of reason for existence was taken away from them and so those malls are the ones which are are changing that retail scenario and the bigger prime malls what we call, they're doing actually quite well they have this customer experiences there are fine dining available. You eat some good food, you shop a little bit you browse, those are doing much better, currently.Tom Raftery:
Okay, for organizations who are embracing online they have to They have to stand up a new organization themselves, because you know, they have to put in last mile delivery, which is something they haven't had to do typically before. What kind of challenges is that present?Sanchoy Das:
Last Mile is actually one of the biggest challenges in the near future for the online retail world. So much is going into online that if you went back 20 years ago, we had two companies and the Postal Service, which did last month delivered to your house. In this period, the demand for last mile has gone up connects, these companies have only been able to increase their capacity maybe to x. So just the simple math tells you, it's not going to happen. I mean, there is just too much of demand for this particular service. Amazon, of course, is now a big player, I don't know how it is in Europe. But right now the probability that I will see a UPS or FedEx truck, or Amazon delivery trucks is about the same, they're almost at the same level of volume. So that has increased capacity, then you add in this food, retail, you know, people are ordering from restaurants, and then the grocery, all hell breaks loose, there's so much of demand for last mile fulfillment. So couple of things are going to occur. The current solution is everybody is trying to use what we call Cloud Source delivery. So these are your Uber kind of models, you know, a lot of the stuff which is coming to your doorstep, when you're ordering grocery, the person who's delivering is probably a contract worker who just working for an hour. So we are using that to meet the capacity right now. But that even that is coming to sort of drying up, we reach max in that. So in the future, we're gonna see more sort of modeling to optimize routing, automation services, some more delivery rebates so that they'll say, Okay, if you delay your delivery by one day, we'll give you 2% off or something like that. So more of that is going to occur to to sort of take care of that sort of capacity load, it is currently the most capacity constrained part of the supply chain.Tom Raftery:
Yeah, I can imagine. I can imagine because it like I said, it's a whole new branch of the business, which needs to be stood up. And you can't do that. Overnight, obviously, you've titled The book, fast fulfillment. And I'm just curious, why, what, why, why that term? What does that term mean to you?Sanchoy Das:
So when I started this work, and I started to visit these fulfillment centers, I realized very early on, but something was different in there. The most of the time, you know, I had been researching and studying these systems for quite a while now, what I realized is that the dimension of speed was very important to them. Okay. So in the old war, we were in more of a planning board, I planned what I'm going to do this month, so we are going to do the shipping. So but these people were very much interested in speed. And then if you go into consumer behavior, you realize that what is the main reason or one of the main reasons that we pivot from going to a store to online is speed. Remember, the mail order catalogs have been there for decades. So you ordered something in the mail, and it showed up three weeks later in your mailbox. Now, the moment I was able to order something, and it appeared within 48 hours, 24 hours, and now six to eight hours, I am convinced that I can order the stuff online with reliability. That was the force which switched people from retail to to online. And all these systems that they developed was speed. That is why the name, fast fulfillment. So if you have a fulfillment system, and it's not fast, it's useless, because it's not going to be able to pivot anybody. So even now, like myself, anybody who orders and I can order from many online retailers, the moment he tells me expected delivery, next week, Sunday, rejected I'm looking for another retailer. So that speed is the driving force in all of this and that's why the name.Tom Raftery:
Fair enough. Fair enough. And if Amazon are the T Rex, does that mean they're unassailable? Ah,Sanchoy Das:
so very good news that if you had asked me this question 24 months ago, I will say I'm really worried that the roadmap by 24 months ago half of all US online retail sales is Amazon. But that is a remarkable statistic. That is a remarkable statistics that one retailer 50 cents of every dollar spent in online was going to one retailer that the good news is today, I can say happily, that many retailers have figured it out. They're, they're doing stuff internally, maybe not fast enough, but definitely on the right path. And now we're seeing a leveling. And if you look at the most recent, sort of a quarterly report from Amazon, you can see there is some slowing down, and you're seeing positive news from you know, retailers like Macy's, Walmart, they're seeing their online sales go up, they're seeing higher customer satisfaction. So we are seeing a natural leveling out, if you will, of the competitive landscape. And a lot of our logistics operations and all in the background, which are not that visible to the consumer, a lot of evolution is occurring there. Many companies are coming in, pitching in and giving technology and letters to these retailers.Tom Raftery:
Very good. Very good. Century, we're coming towards the end of the podcast. Now, is there any question I have not asked that you wish I had? Or any topic that we've not addressed that you think it's important for people to be aware of?Sanchoy Das:
Okay, well, one of the questions is, you know, you asked me why I call it fast fulfillments not parallel to that there is a nother question of fast decision making, okay. So, this is a very important that not only we need speed in the in the physical flow of products, we need speed in how we make decisions. And most large organizations in particular, are designed under an enterprise planning view, that we decide we make plans, and we this is what we are going to do. And this is how the system is going to operate, etc. Now, what happens in an online world, things are changing rapidly, the online world is like an emergency rule, every day is different, the customer profile today is different, the delivery profile is completely different. The order profile is completely different. So what worked yesterday, may not work today. So a lot of it is you need also systems, IT systems etc, which make instant optimal decisions fast for you. And in the book, I talk about data latency. That means how old is the data you're using, you made a decision based on data, which is maybe two weeks or so it's useless, or decision latency, you're making decisions too early or too late. You need to make it at the at the right time, to fast decision making, is what the future is going to be. And that's why you have this AI machine learning good humans after a while, we are not fast enough. We need some computer to do it for us here.Tom Raftery:
Hopefully making the right decisions fast because making the wrong decisions really fast. Could be tragic. Yes. Century that's been great. If people want to know more about yourself, or about fast fulfillment, your book or any of the topics we discussed today, where would you have me direct them?Sanchoy Das:
Okay. The best way for them to reach me is through email. And my email, of course, is Das email@example.com. That's my university email very easy to reach me. The book Fast fulfillment is, of course is available at my favorite retailer, Amazon. You can buy it there. Then I also have a website or to back up some of my thoughts and it's just called fast fulfill.org. And I want to make a spelling correction over here. Here in the US when we spell a spell the word fulfill or fulfillment. The first is a single L I know in Europe, it's a double L in the beginning also.Tom Raftery:
Yeah, I'll put a link to it in the show notes. Anyway, St. Joseph, super century that's been really interesting. Thanks a million for coming on the podcast today.Sanchoy Das:
Thank you, Tom. It was a great pleasure to be with you.Tom Raftery:
Okay, we've come to the end of the show. Thanks, everyone for listening. If you'd like to know more about digital supply chains, head on over to sa p.com/digital supply chain or, or simply drop me an email to Tom Raftery at sa p.com. If you'd like to show, please don't forget to subscribe to it in your podcast application of choice to get new episodes as soon as they're published. Also, please don't forget to rate and review the podcast. It really does help new people to find the show. Thanks. catch you all next time.