Amazon not only sold $2.5 billion worth of goods, it introduced Prime members to new services. How should rivals compete in 2017?
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Growth will be so strong and quick because web-based supply chain management has hardly penetrated retailer’s thinking at all. Suleski’s report “Beyond CPFR: Retail Collaboration Comes of Age,” published by AMR in April, concluded that fewer than 45 retailers and manufacturers have adopted CPFR in “meaningful” form. And by Suleski’s definition, the market has a long road ahead of it: “A meaningful level would be where a majority of SKUs are being bought and sold collaboratively between two trading partners,” she says. Given that most retailers deals with hundreds or thousands of trading partners, the meaningful level of CPFR today is indeed only a few bricks in the road.
Suleski reports that only 17% of the retailers describe CPFR as “quite important” or “extremely important” now, although 44% use those terms to describe the importance of CPFR two years from now.
Given that the market has been plenty excited about technology solutions to supply chain problems in the past, why should anyone believe that CPFR is any more likely to become universal than EDI has become? “CPFR is different in that it doesn’t cost a lot to get started in it,” Suleski says. “The benefits can accrue to companies no matter what their size.”
In fact, Suleski expects small and mid-sized retailers to be enthusiastic users of CPFR, perhaps even more so than large retailers. “In some ways, they have more to gain from CPFR because when you’re big, you already have collaborative relationships with suppliers,” she says. “But if you’re small, chances are you don’t have those relationships, so this is a good way to achieve that. And once you’re collaborating with your suppliers, you have the opportunity to differentiate yourself through customer service-you’ll have the items in stock and consumers will know they can trust you to have what they want. You won’t be able to compete with big retailers on price, but this will allow you to compete on service.”
PacSun avoided EDI-to its relief today
Only recently did Pacific Sunwear of California Inc. become large enough that executives felt it could support an EDI supply chain system. But now it’s too late for EDI and Ron Ehlers is glad the company never took the EDI plunge. “We never made that leap into EDI, and so we have no legacy systems that we have to supplant,” says Ehlers, vice president of information services.
PacSun management had always believed that once a retailer reached $1 billion in sales, it was time for EDI. And, in fact, PacSun had planned to start development of an EDI system this year in anticipation of reaching $1 billion in sales in 2003. “We were going to jump into EDI because of the size we had become and because some of our vendors already had EDI,” Ehelers says.
But then PacSun executives became aware of SPS Commerce Inc.’s web- and ASP-based based supply management system and changed their minds. Not only would the system allow the company to move to electronic ordering, advance ship notices and invoices, but it was easy for suppliers to implement compared to EDI-an important factor to PacSun since most of its suppliers are small clothing manufacturers. “We deal with a lot of small vendors without technology capabilities in house,” Ehlers says. “They never would have adopted an EDI system.”
PacSun and SPS began serious discussions about the web-based system in July 2000, went live with tests in March and by the end of August planned to have all 400 suppliers online. “When I began hearing about this, my reaction was that this was too good to be true,” says Ehlers. “We had been looking at traditional EDI, but that required both parties to be technologically sophisticated. This does not require that level of sophistication.”