Partnerships predominate
As a means to profitability - even survivability - linkages of dot coms to 3PLs or to proven players/brands may be the future for B2C.
By Tom Feare, Senior Editor -- Modern Materials Handling, 5/15/2001
Does anyone in business do it all anymore? Hardly, it seems, when talking about successful supply chain players in the e-commerce world.
Partnering is in. Alliances and collaborations are too. Indeed, the word, "collaboration," has a positive spin to it here. Within the context of its application to supply chains, there's very little of Webster's other, negative connotation of the word: working with an enemy invader.
Partnering, moreover, "isn't an elective any more. It's a required course," says Larry Brown, vice president, worldwide process technology and quality, Dell Computer Corp. About half of Dell's sales come from the Internet.
At ProMat 2001 Brown described his company's close relationships with just-in-time suppliers. Collaboration – including Internet links to suppliers – is helping drive Dell's parts inventories down to 3 hours of supply from 25 hours, for example.
Dell has supplier parts hubs, which are pinged electronically every 2 hours to prioritize the PC maker's parts requirements. These pings come as Dell refreshes its forecast of demand every 2 hours, Brown says.
Partner or perish?
How vital are close ties to supply chain partners? Others agree with Brown's view that they're required.
"Inter-enterprise collaboration is essential" in the current e-business world, says Chris Newton, senior analyst at Boston-based AMR Research.
Through business alliances, partners shrink reaction time to react to supply chain demands, for example. "Speed is the ultimate weapon," Newton adds, when it's supply chain competing with supply chain.
Partnerships with players already well established in business and with widely recognized brands are also very important to surviving, then succeeding as a dot com, in AMR's view.
Analysis from AMR suggests that most pure players in online retailing are doomed to extinction. Unless, that is, they follow a business model that blends conventional retail store operations with online sales. Or a business plan that marries the dot-com name to that of a well-known brand and long-established company.
Evolution of e-alliances
Partnering as a means to success in the so-called new e-economy has come a long way in a few years. Early on, partnering usually started with a pure-play, startup online retailer. That firm then linked with a third-party provider (3PL) for its distribution. This approach to e-fulfillment often was seen as a way to avoid up-front costs while building the online business in the shortest time possible.
By outsourcing distribution, the startup firm didn't need to make large capital outlays to build and equip an e-fulfillment center. Precious venture capital could be spent on such needs as Web-site infrastructure and marketing. Through outsourcing, the dot-com firm and its online customers received the 3PL's established expertise in fulfilling orders.
Among e-fulfillment outsourcing partnerships that are working well are several 3PL operations featured previously in this magazine. For example, there's Ingram Micro Logistics serving a variety of dot-com clients. And there's Dart Warehouse working for Sears.com and others in e-commerce.
Sharing distribution
Beyond 3PL links, partnering for dot coms increasingly involves links to established brick-and-mortar companies. The alliance may be in the form of a merchandising, marketing, and/or distribution agreement or strategic alliance with the retail stores. Or the ties may be to the proven, old economy firm's emerging online operations.
Online grocery retailing, for one, seems to be heading in these directions. So too are sales of books and toys, drugstore and health/beauty items.
Groceryworks.com, a Dallas-based Internet grocer partnered with the Safeway supermarket chain this past year. Groceryworks now serves as the online presence for Safeway, while Safeway provides the inventory to Groceryworks at prices 10-15% below what they were paying before. It is a win-win for both. It also gives Groceryworks a name brand that garners customers' trust.
"Because you cannot see a storefront, many online customers wonder if we are just five guys working out of a garage somewhere," explains John Lauck, chief marketing officer for Groceryworks.com. "But when we go in with the Safeway name, it gives instant recognition."
In books, toys, and other retail sales, Amazon.com activities in the marketplace possibly are another model to follow. Certainly it has been active in partnering with as well as investing in other dot-com operations. Since 1999 it has built up a business network of partners in e-commerce. Most recently, it teamed with Borders to set up a co-branded Web site this summer.
As the preceding examples illustrate, succeeding at managing the supply chain often isn't a solo effort. It takes teamwork – many times coming from outside, established sources expert at what they do – as well as team players within the dot com.
Click on this icon to read more on different ways to partner – and find out who’s using partnerships, who’s not.
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