First…there was one DC
One of the significant benefits of an eCommerce business model was eliminating the significant challenge of tons of Inventory brick and mortar locations had to carry. In the early days, it seemed like a doomsday scenario for retailers, as Amazon leveraged its benefits of providing anything you want, without having to store everything in 1000 different locations. Many retailers could not survive the onslaught (and many are still dying from those early wounds).
And then there were many
However, as Amazon’s business became the massive behemoth it is today, and as they strived for next day delivery capabilities, simple laws of logistics meant that they needed to be in many more locations (in terms of DCs) in order to be closer to the customers. The footprint grew rapidly but with increasing demand, Amazon realizes that it needs to have a much much larger footprint than it has now.
A company like Amazon that does not hesitate in investing everything today, with no regards to profits, in order to build capabilities for the future, can invest to grow the footprint massively.
And that is where it runs into a dilemma- how much to grow so that it meets its objectives, but not get so heavy in terms of physical presence that it loses its war with likes of Walmart.
And Walmart realizes that it now has a lever it can use
Likes of Walmart realized a while ago that their massive retail footprint, can be leveraged against Amazon. They could see that as Amazon grew exponentially, it was feeling the need for a massive footprint. So Walmart realized the benefits of its retail footprint and launched several intiatives to harness that lever.
But Walmart’s problem is obviously just the opposite of Amazon….it has much more footprint than required.
So who will win the Omnichannel war?
The One that finds the right balance of retail locations/ mini fulfillment centers, Omnichannel DCs and dedicated eCommerce DCs, will win the war.
Amazon, long known for its sophisticated use of algorithms, has probably already modeled the scenarios. Its hunt for mall locations, in all probability, is the result of that analysis.
Walmart, as they communicated last month, seeks to consolidate its brick and mortar footprint, to be a true Omnichannel company.
And here is the scary part- (and the reason I say that in the Digital world- the analytics capabilities you develop will decide your fate)- the result of the war will be decided by Algorithms. The company that will be able to leverage a better model to determine that optimal combination of locations, soonerthan the rival, will have an edge.
Building that algorithm will be a journey, combining various analytical methods. The initial aspect will be location analysis, like the ones you do for store location, but combine DC network footprint optimization aspects in the same model. Given the increasingly complex array of data available for location analysis, multivariate statistical techniques can be used to construct models that harness the predictive power of the available predictor variables ……!!! 🤐 Hmmm….I will obviously not waste the time of the readers to share the details. Smarter people at both these companies are obviously already working on iterations of an algorithm better than mine.
Corporate wars will soon be fought on the basis of algorithm driven planning and algorithm driven Supply Chains. THAT…is why data is the new oil and algorithms are refineries (OK…I did make up the refinery part😁)
Views expressed are my own.