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Industry leaders lead with materials handling

Amazon is taking market share from its competitors by building a better supply chain
February 22, 2011

Several years ago, Accenture did a study linking the best supply chains to the rise in the value of those companies’ stock. The message was simple: how well you execute when it comes to sourcing, manufacturing, warehousing and shipping your products has a direct impact on your bottom line.

Indeed, one of the refrains we hear from system suppliers is that their best customers have looked for ways to invest during the recession to lower their materials handling costs and gain market share over their competitors.

If you want more proof, take a look at two stories in today’s Wall Street Journal.

Retailers Struggle in Amazon Jungle looks at how Amazon has taken market share over its brick and mortar rivals in the last year.

While major retailers have struggled to increase their revenues, including industry leaders like Wal-Mart and OfficeMax, Amazon.com’s sales increased by 40% in 2010 to $34 billion. You read that right – in the depths of a recession, Amazon saw a 40% increase in revenue. Not only that, a study by Wells Fargo found that Amazon was as much as 19% cheaper than Wal-Mart on a basket of goods, and about 9% cheaper if you added in the shipping costs associated with buying online from Amazon.

But the metric that really caught my eye was this: The survey found that Amazon typically had more items in stock than its rivals; what’s more, when its rivals ran out of stock on promotional items, Amazon responded by raising its prices an average of 10%.

Keeping product on the shelves, whether those items are in an online retailer’s DC or a retail store’s shelves, is a direct result of how well your supply chain is executing. Raising your prices on popular items when your rivals run out of stock, well that’s just dancing in the end zone because you can.

Want further proof? Another story predicted that Wal-Mart is likely to report its second straight year of declining domestic same-store sales today. Part of its misstep is attributed to a change in strategy that alienated Wal-Mart’s traditional customers. But the story went on to point out that “a retailer once known for efficiency now often has out-of-stock shelves on weekends.” That’s another hint that Wal-Mart’s once vaunted supply chain is skipping a beat and is in need of a tune up.

There’s a lesson there for other companies that are paying attention.

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About the Author

Bob Trebilcock, editorial director, has covered materials handling, technology, logistics and supply chain topics for nearly 30 years. In addition to Supply Chain Management Review, he is also Executive Editor of Modern Materials Handling. A graduate of Bowling Green State University, Trebilcock lives in Keene, NH. He can be reached at 603-357-0484.


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