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B2C Electronic Commerce Battlelines Moves to the Supply Chain

Earlier this week Quidsi, a subsidiary of Amazon.com, announced a new program called Familyhood Plus that bears a close resemblance to its parent company’s Prime offering.  Quidsi, which translates to “what if” in Latin, is an umbrella company that sits atop numerous popular web brands such as Soap.com for health, beauty and household essentials;  Wag.com, a pet specialty site; YoYo.com for toys and games; and Bookworm.com for children’s books.

Unlike Prime, Quidsi’s pilot program will start with no annual fee.  However, participants must agree to receive certain marketing programs and to try shopping on new sites.  But those which do participate will receive free shipping on up to 90% of the merchandise on Quidsi’s portfolio of sites.

When you ask retailers how to gain a competitive advantage in the cutthroat e-commerce marketplace, most will talk about aggressive pricing strategies, flexible return policies, user-friendly websites and highly-targeted marketing campaigns.  You rarely, if ever, hear a mention of supply chain and logistics in these discussions.

But these days, more and more competitive advantage is being gained by retailers such as Quidsi that can deliver the product the fastest to the consumer.  In fact one of the reasons why so many consumers continue to purchase items in stores that could be found cheaper online is the immediate gratification that comes with taking possession of the item after the checkout.

In late March, Walmart announced that it had started to place lockers in some of its brick and mortar stores.  Consumers can order online then go to a nearby store to retrieve the items.  Lockers avoid the need for the consumers to wait in line to speak to a store clerk. Amazon began introducing lockers last summer to stores ranging from Staples to 7-Eleven in metropolitan regions such as Washington DC, New York City and San Francisco.  Google went a step further when it acquired BufferBox, a Canadian operator of lockers in major metropolitan areas throughout North America.

The competition to offer more aggressive delivery schedules is not limited to the US market.  The stakes have been raised considerably in the United Kingdom over recent years.  For example, Argos now offers 90-minute delivery via a shuttle service for deliveries in the greater London area.  Next offers delivery the following day for orders placed by 10PM.  Ocado offers shoppers to specify grocery delivery windows of within one hour.

Logistics and the supply chain become particularly valuable when they can impact the volume of sales a retailer can handle.  GSI Commerce, a unit of eBay, which provides fulfillment for brands such as Godiva and Aeropostale, has been able to use improvements in distribution center operations and transportation management to increase its holiday sales volume.  GSI guaranteed Christmas Eve delivery for any orders placed before 11PM on December 22nd of last year.  That is eight hours after Amazon.com’s cut off time of 3PM on the 22nd.  An increase of just an hour during this last minute shopping window can increase sales by up to 10% for an online retailer.

GSI’s extended holiday shopping windows were made possible by re-engineering the picking and packing processes within its distribution center.  Warehouse efficiencies have become a critical differentiator in the online commerce market.  In fact, some retailers are pursuing mergers and acquisitions with hopes of leapfrogging the competition.  For example, Amazon.com acquired a maker of robotics systems for distribution centers named Kiva Systems.  These robots speed through giant warehouses moving inventory from shelves to workers to accelerate order flow.

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