Posted in Operations & IT Articles, Total Reads: 1795
, Published on 13 October 2014
Do you believe in astrology?? Well, some of you may not. But what if we say that the time has come when someone can predict the products you are about to buy in the future? You have to believe this. The time has come. Technology has evolved. Sooner or later, the products you are interested in buying will keep pinging you either with an exclusive offer or delight you with an immediate delivery at your door steps. Welcome to the much awaited game changer in e-commerce -Anticipatory shipping.
Wonder how could an organisation predict what you want? That is where the crux of the technology lies. There is a humungous amount of data we share with online retailers intentionally or otherwise. Every time we click on a product offered online, the duration of product views, time spend on site, prior activities on the site, shopping cart contents, data on wish list, etc. gets stored with the organisation database. In addition to these, the organisations make use of the real world information obtained from customer enquiries and responses to marketing efforts. This data is processed by an algorithm for enabling speculative shipping of products. In effect, they anticipate and ship i.e., the retailers anticipate when you may order the product and ship it to the shipping hubs nearby before order is placed. This eventually results in very high speed delivery by ensuring dispatch of the product immediately after ordering.
Image Courtesy: freedigitalphotos.net, Stuart Miles
Anticipatory shopping Technique- the amazon way
This concept is not something new; this is already being followed by all the major retailers for their ocean imports. They do not allocate inventory to specific distribution centres before the products start from their origin point. They ship the products and wait till the ship arrives at the destination point to determine the amount of goods to be dispatched to each distribution centre. This minimizes the imbalances that may occur in inventory distribution. The advantage these retailers enjoy is enough time (weeks) to analyse the sales and distribution data and allocate inventory accordingly.
However, this technique of predicting what people require and when they would order that product has been in development stage at the online-retailing giant Amazon for some time, with the patent for the same first filed back in August 2012 (excerpt shown below).
“A method may include packaging one or more items as a package for eventual shipment to a delivery address, selecting a destination geographical area to which to ship the package, shipping the package to the destination geographical area without completely specifying the delivery address at time of shipping and while the package is in transit, completely specifying the delivery address for the package”
While Amazon is planning to execute the same thing here, i.e. ship the products and then decide the end consumer, it doesn’t enjoy the time benefit for analysing (just few hours/days).
Amazon collects data from wish lists, returns and browsing patterns, product searches, shopping patterns and predicts what goods customers will eventually order. Then, these products will be moved to shipping hubs close to the customer from Amazon's fulfilment centre. Amazon’s anticipatory system involves two computer systems, one identifies general shipping location and a second onewaits for delivery address to be finalized. But it would ship only when an actual order is received at Amazon’s home-based shipping system. When an order is placed by customer, the item would already be in transit, reducing drastically the delivery time to typically one day. It could be even faster, based on the customer’s adjacency to Amazon distribution centre.Such a system will work with high efficiency for items which are in regular demand or items which have strong pre-order interests.
Amazon is already renowned for offering some of the lowest prices in the retail world, and it has introduced free shipping for Amazon prime member and no sales tax on the transaction in a place where Amazon does not have significant presence. Amazon can make use of its data on household price sensitivity and supply and demand trends to decide which products and customers qualify for its deals. Amazon has anticipated this and has mentioned in its patent: “Delivering the package to the given customer as a promotional gift may be used to build goodwill”
Role of Big-data
Big data refers to the practice of collecting information in digital form from numerous sources and applying analytics to identify trends, patterns and related intelligence. The analysis done on the data may point to scenarios that have happened but weren’t easy to perceive, or it can help in predicting what will happen in the future.
The importance big data in anticipatory shipping is due the huge volume of information to be analysed. This includes data in supply chain domain like point-of-sale data, RFI readers, bar-code scanners, GPS devices on vehicles and mobile devices, and real time data from software systems used for managing transportation and warehousing.
Value addition and Effect on supply chain
By sharing and integrating customer behaviour data from traditional and the new data sources into state of the art big data-based analytics, huge impact can be made in the supply chain. This can take the form of increased efficiency of freight operations, enhanced capacity and asset utilization, synchronized transport schedules supporting synchro-modal or other smart logistics networks, and reduced risk of disruption in supply chain.
According to the studies conducted by World Economic Forum, 50–60% of today’s available transport capacity is wasted. Anticipatory shipping algorithm can play a major role on forecasting volumes and optimizing capacity utilization. Big data-based volume predictions and capacity utilization techniques will improve prediction accuracy of expected orders and freight requirements within a network by correlating data from different sources and with different degrees of privacy protection.
Another value addition to supply chain is predictive supply chain risk management which comprises of techniques using big data algorithms to simulate various possible supply chain scenarios by considering potential risks. Thus the service providers will have the opportunity to select the most appropriate scenario according to market factors avoiding disruptions in manufacturing and product.
However, the effect of the new technology is not without flaws. However sophisticated the software is, there is no way to know customer’s unspoken buying rationale and predict behaviour accurately. Amazon will have to pre-emptively ship its products to speculatively interested buyers based on research into browsing and buying patterns in the past. But many of these patterns will not be actual reflection of buyer’s personal interests, incurring expenditure on shipping based on wrong analysis.
There are also chances that a customer would have browsed online for a product for a long time but he would have done so with other competing e-commerce sites also. He would have also bought the product from that competitor, resulting in an irrelevant product being shipped via anticipatory shipping
Effect on the end customer
The biggest advantage to the customer, as evident from above, is that it will solve the major criticism online retailer face with respect to traditional retailers- the days or weeks long delay in delivering products to the customer’s hands compared to on-the-spot availability with traditional brick-and-mortar stores.
The novice technology also wins the three-Ds of consumer psychology– delight, discounts and deals- that Amazon focusses on. Anticipatory shipping enhances the customer delight and causes rise in customer satisfaction by superfast delivery. It is also instrumental in building Amazon’s reputation for deals and discounts by transferring the logistics cost saving to customers.
Though it is a revolution in the way online retailing interacts with customers, customers may become concerned about the privacy issues. Customers may not respond positively to the storage and usage of their online activities for commercial purpose. In a decade where privacy in digital space is a burning issue, commercial tracking of digital footprint will have everlasting impact on the company’s image
Will it stand the competition from other technologies?
The sealing of technology through patent has advantages as it can drive competitors into applying to the patentee for a licence and discourage competitors from infringing the patent. But given the huge opportunity opened up by the technology, competitors may introduce alternative non-infringing methods which can be more efficient. The other innovative technologies by Amazon-like delivery by drones- will complement the technology by reinstating its USP of high speed product delivery.
The Way Ahead
Amazon has always been on the forefront in innovating ways in which online retail interacts with customers. They had patented the revolutionary ‘one-click’ checkout mechanism way back in 1999 and they’re hoping anticipatory shipping will achieve similar success. Given the geographic reach, business scale, financial muscle and cutting edge logistic solutions, Amazon can revolutionize the industry and anticipatory shipping will be the next big thing in online retailing. However, the impact of the technology on supply chain is yet to be seen in reality- it will either be an expensive logistical nightmare or it may pave way for a retail revolution, equipping Amazon with one more competitive advantage, which will push many rivals behind.
This article has been authored by Ravi Kumar Mukala and Dean Israel from IIM Indore