- Allen Czermak
Thinking Out Of The Box To Modernize The Supply Chain
At this time, consumers are well aware that there is an issue with the global supply chain. Not so much so in their personal lives as they still receive next day deliveries from Amazon, but more from a knowledge standpoint. People have heard about the shipping bottlenecks in the news and have noticed spikes in retail prices to offset the cost of getting products from point of origin until their final destination, the customer.
But little is being done in regard to preparing the global supply chain for a 100% boost in parcels in the next five to seven years. Politicians and private companies all around the world are trying to ready their logistics networks by investing money into water ports, shipping terminals, and hiring. Here in the United States we are dealing with an outdated supply chain and a labor force that is demanding higher wages due to increased cost of living. There is just too much human element involved for the global supply chain to rely on it for a parcel surge in the future. At this point in time there needs to be an innovative approach for logistics partners, marine shipping companies, big box brands, and small businesses. In order for there to be a healthy global supply chain, all parties involved need to work together and rely on a logistics system that works for all. Right now the supply chain is becoming more expensive and out of reach for the little folks and we need to find a solution for them.
Shekar Natarajan - Business Leader And Business Strategist
Meet Shekar Natarajan who is the Executive Vice President, CSCO at American Eagle Outfitters Inc. He came to the United States from India with $34 in his pocket and is revolutionizing the supply chain network for retail companies in the United States. Ever since he joined the clothing company American Eagle Outfitters, it has purchased a couple of supply chain businesses for several hundred million dollars, which has dropped their lead time from 14 days to 2.5 days. That means that if one of their stores or warehouses stock is depleted it takes just a couple of days to replenish the product for consumers.
What is special about Shekar is that it’s not just American Eagle Outfitters Inc. benefiting from the innovative supply chain network but there are already over 100 other companies that have joined this logistics network. His goal is to level the playing field for all retail shippers just like the United States does for all migrants who enter the country legally. Anyone of them has the ability to get housing and a job and become the next Elon Musk or Jeff Bezos. Natarajan grew up in India in just a single room for him and his family and things like education, electricity, plumbing, and paying for funerals were out of reach for most of the population.
What Is The Issue With The Current Domestic Supply Chain?
To address the issue, we need to first put things into perspective from a small business that does not have the logistics capacity like Walmart and Amazon. These big box retailers can ship anywhere from 50 billion to 100 billion parcels in just a day and a half and rely on their own logistics networks. Amazon and Walmart are becoming safe hubs where retailers can sell their products online but are not a place which offers private sellers the logistics element to keep shelves stocked for customers.
The main issue of the domestic supply chain for small businesses is that it is too expensive to ship their product from the manufacturer to the warehouse and from the fulfillment center to the consumer. Whatever way you flip it, businesses need to either absorb the cost or pass it on to the consumer. To add fuel to the fire, rising inflation numbers and energy costs are not making things any better.
Package Sharing For Retailers
Shekar Natarajan's idea is to consolidate items in a box called Tag Along. The concept comes from his native country, India where people used to hitch a ride in an auto rickshaw. Riders who cannot afford transportation would cram into a three wheeled urban transit. For retailers who cannot keep up with Amazon and Walmart, they would send their items to the Tag Along fulfillment center and would combine them with other items waiting to be delivered to a customer. Once all the items are aggregated together, Tag Along ships the packages to their final destination, the consumers' residents.
This would help bring down the cost of shipping for retailers as the cost of shipping would be shared by multiple vendors. At the same time, the delivery time would be cut down as well due to there being much less touch points through the shipments’ history. To put things into perspective let's take a typical shoe order from DSW. The date of order with free shipping was on Sep 13, 2022. The order was not received by the customer until Sep 21, 2022 which included hitting six points until the package reached its final destination. Natarajan's plan would have the shoe company deliver the shoes to the Tag Along warehouse and wait 24 to 48 hours for other packages and then deliver when package aggregation is complete. The shipment would cost much less to deliver, the customers would see their shoes sooner, and the vendor would be able to keep up with demand.
Challenges For Package Sharing
The main challenge for such a concept is the following; How long should the fulfillment center wait before shipping? What if there is a delay in the products being received? Can we combine items that are not really relevant to one another like snacks and cosmetics? What if there is a laptop and a pack of drinks? There are many things that will need their own box.
How will returns be processed? According to Shopify (web hosting companies for online retailers), 20% of all orders are returned. Many online stores offer free returns which are coordinated by the original shipping company. Those are just a couple of loose ends that have to be figured out.
Cargo Sharing Services
No one is arguing that we need a viable solution for the retail companies to lower shipping cost and to expedite delivery but there is something much greater that is related to the global supply chain. In June 2021, the cost of shipping a container rose to over $20,000 and rates have fluctuated ever since then. It is getting extremely expensive for manufactured products from overseas to ship, due to the heavy fee of shipping to the United States. Marine shipping services, ports, and logistics companies are all driving these costs up and it is simply too expensive for small retailers to survive. Customers don’t want to absorb the shipping costs as inflation is making it harder to live their everyday lives and brands are in a quandary.
Ride sharing services like Uber and Lyft were a new concept but slowly became part of society and brought the cost of transportation down. Municipalities were upset as people began to use public transportation less but all have seemed to adapt to it. What if the same can be done with cargo and large shipping containers? What if there can be independent marine vessels that can be compensated for hosting a set of shipping containers? This would drop out the middleman and allow businesses to ship directly from the manufacturing facilities overseas all the way until the final point of destination. All of this would help ease the strain on the global supply chain as innovation assists our logistics culture.
Of course, there needs to be more people like Shekar Natarajan who want to help the smaller guys but his idea of package aggregation has the ability to create a logistics revolution. The big box companies like Amazon, Walmart, and Home Depot have it all figured out by hosting their own logistics systems. The ones who are getting hurt most are the small businesses and the brands that are serving their local communities. They can’t manufacture their products at an affordable price due to the hefty price of shipping them to the United States. Producing their products here in the USA is also not a viable solution due to it being almost six times the price of manufacturing from overseas.
At this point in time we need to get a bit savvy and think of ideas outside conventional logistics to be ready for the parcel tsunami which is bound to arrive in the next five years. Until then shippers will be subject to pay high prices to deliver goods and it is most likely that cost will be subsidized by the customer. Yeah, things just keep getting more expensive with no relief in sight. Our hope is for innovative ideas to help ease the burden on the global supply chain like cargo and package sharing logistics. If we don’t figure out something fast there will be no small retail companies as they all will become subservient to big box retailers like Amazon and Walmart. Let the logistics revolution begin!