Retailers frequently have to decide between the expensive luxury of supply chain independence and their heavy reliance on industry giants.
However, opening up supply chains for shared infrastructure and cooperative capacity offers efficiency without reliance. Retailers have a more cooperative “third way” to supply and deliver goods when they use a collaborative logics platform like Quiet.
For retailers caught between the expensive privilege of supply chain independence and heavy dependence on the retail behemoths, a new cooperative supply chain model may point the way to a hyper-networked supply chain future.
Amazon, Walmart, and Target have shown how important scale is in retail, both for consumer choice and the logistics’ economies of scale.
Smaller retailers are increasingly forced to make a difficult decision: join forces with one of the behemoths to take advantage of their platform, along with all the risks that super dependency entails, or maintain their supply chain independence but accept higher costs, less resilience, and perhaps a worse customer experience.
Rear Admiral Henry Eccles, a renowned planner for the US Navy, once said, “The essence of flexibility is in the mind of the commander; the substance of flexibility is in logistics.” Retailers have had to use all of their dexterity and imagination over the past two years to navigate the dual challenges of COVID-19 and the unstoppable rise of online sales.
Online retail sales made up 19.6% of all retail sales globally in 2021.
Increasing from 13.8 percent in 2019 to 19.6 percent in 2021, the research firm Statista projects that 24.6% of all retail sales will be conducted online by the year 2025. Online shopping has also changed how consumers expect to access inventory and receive deliveries on demand. Nowadays, agility and the sustainability of retailer margins depend critically on logistics competitiveness.
Customized supply chain models have drawbacks.
Retailers typically have a network of service providers, warehouses, and distribution centers as part of their supply chains. However, customized infrastructures have their drawbacks, and while outsourcing certain components might increase flexibility, it also has higher marginal costs.
The volume handled by Walmart’s supply chain is reportedly 200 times greater than that of the retailer at the level below, which moves 200–300 million units annually. With that volume difference comes a cost disadvantage that some retailers estimate to be between $0.50 and $1 per unit.
Walmart’s volumes are still increasing. While subscale retailers face a dwindling capacity for investment and a widening competitive gap, economies for the scale players continue to improve.
Some retailers have now decided that a third option exists. Opening supply chains for cooperative capacity and infrastructure sharing promises a model of efficiency without giving in to a platform superpower, just as Airbnb and Uber mobilized utility value locked-up on single-use properties and vehicles.
Supply chains working together for increased efficiency
American Eagle, a clothing retailer, is at the forefront of this innovative thinking to break free from the limitations of conventional models. Shekar Natarajan, the company’s chief supply chain officer, has completely overhauled American Eagle’s supply chain.
In 2021, the company bought the logistics companies AirTerra and Quiet Logistics, greatly increasing capacity and exceeding American Eagle’s own item throughput requirements. More than 50 additional retailers, including Saks, Fanatics, and Peloton, have now been added to the Quiet platform by Natarajan and his team. Each of these retailers added their item volume as well as virtualized access to their infrastructure to the Quiet network.
The end result is a growing supply chain of “co-opetition,” which recovers that $0.50–$1 per item and levels the playing field.
The secret to a quiet supply chain model is cooperation.
The Quiet model, which is run by an algorithm, encourages participants to open up and connect their infrastructures rather than giving up ownership of them.
As it travels to customers, a package may pass through the storage facilities and shipping operations of numerous different participants. With the combined purchasing power of its cooperative community, Quiet can also obtain services from companies like FedEx or UPS.
Clearly, trust between the cooperating organizations is essential to new collaborative models like Quiet’s success.
When they have the capacity, everyone is willing to contribute infrastructure, but will they cooperate when the going gets tough and their warehouses and distribution centers may find it difficult to handle both their own packages and those of other network members? Modern data sharing protocols and traceability technology are also necessary for the model.
