Products and Services Companies Thriving in Internet Sales Channel
Today’s Supply Chain Technologies Enable Broadly Expanded Market Opportunities
By Clay Thomas, Principal SCMO2
Companies really can have a platonic relationship with Amazon! While many examples exist, I recently read a products and services company case study that really got me thinking. The intelligence and insights made possible by today’s planning systems unlocked capabilities for them that simply did not exist only a few short years ago.
This automotive-related company has many local shops with regional distribution centers. In any industry where services provide a greater margin over products, there are a significant amount of “sunk” costs to maintain the requisite staffing levels. Enter Amazon. Amazon and other retail aggregators help these companies leverage those staffing assets by providing a new channel for generating new business, creating a recurring revenue opportunity and contributing to bottom line profitability. Brilliant!
How did this company do it?
In this example, they entered into an agreement with Amazon to provide the installation service of tires that customers bought on the website. Based on an agreed upon catalog, this company is able to plan for which tires they must stock locally. They lose the margin from the sale of the tires, of course. But using the right tools, they are able to use price elasticity to better manage inventory across their entire network in this channel, tracking those customers who ultimately purchase installation services at their local shops. Any opportunity to drive traffic into their shops opens the potential to sell additional products and services, and generate repeat business from an expanding customer base.
So instead of relying exclusively on local advertising to drive foot traffic into their shops, corporate leaders can broaden their target audience and spread costs across all locations, reducing their overall customer cost-per-acquisition metrics. For companies that rely so heavily on foot traffic to pay for shop labor and related inventory carry costs, exploiting this channel can help make more efficient use of available assets.
Years ago, it would have been very difficult for a legacy planning system to manipulate and model potential demand and related stocking levels throughout your network correctly. In fact, you would have needed multiple systems to even have a chance at modeling a scenario like this. But not now. SAP’s Integrated Business Planning (IBP) is designed precisely for these types of complicated arrangements.
In addition to the various statistical models available, continued addition of AI/ML algorithms and demand sensing can help shape that demand picture better. Its flexible data structuring enables easy inclusion of these different planning levels within the broader planning scope. And along with financial dimension context, the relationship or integration with network inventory optimization makes planning in this newer go-to-market approach more feasible. Throw in the dedicated collaboration with tire suppliers made possible through the SAP Ariba network for direct materials and you suddenly have a stable means for delivering great customer experiences that drive future revenue. Even more brilliant!
The possibilities exists. Today. What a great way for companies to leverage cutting-edge technology and planning platforms to mutual benefit with big internet sales aggregators, rather than constantly trying to fight against them … and losing.