Tag Archives: Competition

“He Ships, He Scores!” Improving Your Supply Chain with Games

Mario Fork Lift
Friday evening had arrived, and I was very excited to be on my way home. My wife and I were going on our first date in over four months – the first time we would leave our new daughter with family as we had some fun. After dinner, we went to one of my all-time favorite places: The Nicklecade. The Nicklecade is an arcade full of older games that each only cost $0.05 to play. Ten dollars can keep two people playing the gaming classics all evening. As we played Ski-ball, Dance Dance Revolution, San Francisco Rush racing, and even Guitar Hero, I was struck by how motivated I was on a Friday night.

I had just spent an entire week in typing emails at a computer and occasionally helping with repetitive physical tasks in the warehouse. Now, on a Friday night, I was in front of computers again pressing buttons and tossing ski-balls up the ramp over and over to try and beat my wife’s high score (which I was unable to top). How could the similar skills and activities be so fun and motivating as I worked for tickets, and less so as I worked for paychecks?

The Game of Work

My question caused me to recall a business book classic called The Game of Work by Charles Coonradt. Written in 1984, before a generation was raised on videogame achievements and scores, Coonradt was struck by a similar question to mine regarding construction workers. They would slowly plod along building a house, but during lunch time, they’d run to a local basketball court and give everything they had to obtain 4-on-4 lunchtime victory. Realizing that the principals of games could increase motivation and productivity in the workplace, Coonradt defined five rules of gamification – harnessing the power of game thinking in traditionally non-game work.

  1. Clearly defined goals – Put the basketball through the basket
  2. Better scorekeeping and scorecards – The score is 87 to 89, our team is down by two with a minute left in the game.
  3. More frequent feedback – The scoreboard tells you immediately if you made a goal, and a referee’s whistle will sound every time you break a rule
  4. A higher degree of personal choice of methods – Score points; it doesn’t matter if they are lay-ups, dunks, field goals, or 3-pointers
  5. Consistent coaching – whenever I have a question, I can look over to my coach for guidance or call a time out for more detailed help

Supply chain and operation works lends itself directly to this type of job enhancement. Below are some examples of how gamification has helped boost productivity.

Charles Schwab Throws Out a Challenge

In Dale Carnegie’s book, How to Win Friends and Influence People, the story of Charles Schwab keeping score is a fun example of early gamification.

“Charles Schwab had a mill manager whose people weren’t producing their quota of work.

“How is it,” Schwab asked him, “that a manager as capable as you can’t make this mill turn out what it should?”

“I don’t know,” the manager replied. “I’ve coaxed the men, I’ve pushed them, I’ve sworn and cussed, I’ve threatened them with damnation and being fired. But nothing works. They just won’t produce.”

This conversation took place at the end of the day, just before the night shift came on. Schwab asked the manager for a piece of chalk, then, turning to the nearest man, asked: “How many heats did your shift make today?”

“Six.”

Without another word, Schwab chalked a big figure six on the floor, and walked away.

When the night shift came in, they saw the “6” and asked what it meant.

“The big boss was in here today,” the day people said. “He asked us how many heats we made, and we told him six. He chalked it down on the floor.”

The next morning Schwab walked through the mill again. The night shift had rubbed out “6” and replaced it with a big “7.”

When the day shift reported for work the next morning, they saw a big “7” chalked on the floor. So the night shift thought they were better than the day shift did they? Well, they would show the night shift a thing or two. The crew pitched in with enthusiasm, and when they quit that night, they left behind them an enormous, swaggering “10.” Things were stepping up.

Shortly this mill, which had been lagging way behind in production, was turning out more work than any other mill in the plant. The principle?

Let Charles Schwab say it in his own words: “The way to get things done,” says Schwab, “is to stimulate competition. I do not mean in a sordid, money-getting way, but in the desire to excel.”

Quoted from Dale Carnegie’s How to Win Friends and Influence People

A Jewelry Manufacturer Keeps High Scores

A factory that made recognition jewelry created a very simple computer program in the 1980s. The employee would log in his or her manufacturing job, say polishing 100 medallions, and the computer would time him. After the employee completed the work, he or she would see how quickly he or she had accomplished the work. The computer then ranked him or her against personal past records as well as everyone else. The program let the employee know whether the score was above or below average – and by how much. This simple program quickly increased efficiency of the entire factory as everyone tried to beat their coworker and their own records.

Real-time Shipping Dashboard Focused our Warehouse

A couple years ago, as our company quickly grew, we felt a need for better visibility to our warehouse operations. I had worked at Sonic in high school where little TV screens showed each order and helped me know how many hamburgers to make. Could we make a dashboard that showed us what orders we had to ship? With some VBA coding, I was able to create a real-time shipping dashboard that did just that. Every ten minutes, the computer would automatically update from our system database and show the orders we needed to ship and had shipped already that day. If an order went late, it would show up in red. As long as everything was green on the dashboard, we knew we were shipping on time and winning for the company. The dashboard was so effective that I was able to completely step away from warehouse operations as the team worked together to keep the dashboard green – or score points –rather than a manager directing every step.

Ideas for Gamifying Your Supply Chain

Having a better grasp of the principals of gamification, how can you better apply them in your supply chain? Here are some ideas:

  • Vendor Scorecards – We’ve been working extensively on a comprehensive vendor-scoring program. We are giving quarterly feedback on how key vendors are doing on dimensions important to our success. We also hope to build a “Vendor of the Year” award to reward good scores. Without the scorecard, however, our vendors can’t be confident in how they can better serve us as their customer.Crosstraining
  • Cross-training Achievements – An easy way to turn long-term training into a game is to create a grid of people and processes. As employees learn new processes, they receive a sticker that becomes a badge of cross-training achievement. Fast-food restaurants do this all the time. When we put this together in our warehouse, I was amazed by how quickly people began asking their supervisor to train them on new skills so that they could mark it off on the grid.
  • Pick-to-voice Warehouse Picking Systems – Wearing a headset that tells you where to pick your next order is a popular technology in large warehouses. These pick-to-voice systems often track efficiency and set goals for each picker. Taking that technology a step further, you could keep score on a large screen or let pickers “level up.” As employees reach certain scores, they could be rewarded with more difficult orders to pick – or move into new zones of the warehouse. Even adding the “1UP” sound from Super Mario and other video game trademarks could make order picking more engaging.
  • Pallet Wrapping Competition – If you have 30 pallets to wrap by hand, divide everyone into three teams and see who can wrap 10 in the shortest amount of time. Whenever students from local colleges tour our company, I ask them to compete in a “warehouse Olympics” game to see how they fare with the most basic of supply chain tasks. I quite enjoy watching college students race, and often struggle, to tape boxes, sort returns, and wrap pallets.
  • Vendor Terms Competition – Our CEO created a list of vendors that he wanted a dozen employees to contact and ask for extended payment terms. Each Vendor had an employee assigned to it. The list was in a Google spreadsheet we all shared, which allowed us to see each other’s progress in real-time. We could approach the request any way we wanted, and we even received a small gift card when we achieved our goal.
  • Real-time Dashboards and Metrics – Building on our shipping dashboard, we now have a large handful of other real-time dashboards. Purchase Orders, Accounts Receivable, and Accounts Payable are just a few examples of how we keep score. Our jobs become a game of keeping the dashboards free of red lines, which helps us focus on activities that help the company.

Supply chain is the ideal place to apply gamification principals. Large amounts of real-time data make keeping score much more achievable than in other less data-driven disciplines.

Whether it’s PlayStation 4, the NFL, or Monopoly, everyone on my team has a passion for games. Tweaking processes to channel that passion has helped my company in powerful ways. Applying Coonradt’s five “Game of Work” principals helps everyone better achieve results that help the company and enjoy their work more. Most importantly, that increase in motivation helps us become a stronger company and a more competitive supply chain.

Now instead of getting back to work, get back to gaming.

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If you’d like to learn more, please check out the below sites that were a source for parts of this article.

Five Supply Chain Mistakes that Kill Companies

Supply Chain Epitaph
Any good cowboy knows to be wary of rattlesnakes and stampedes, but the wild west of supply chain also has some precarious situations to avoid. A great supply chain strategy can help you dominate the market over time, but big mistakes can destroy your company in just days. Dozens of smart managers have unintentionally killed or maimed their businesses from these five blunders.

1. Automation – Too Much Too Soon

Supply chain professionals face strong pressures to reduce cost, and automation is an attractive option to accomplish that goal. However, jumping into a new technology without thinking through the strategic process could blur the fundamental problems and goals you face, which often results in investment misalignment. Seven of the incidents described in Supply Chain Digest’s 2006 list of the 11 Greatest Supply Chain Disasters involve poor implementation of new technology and automation. Specifically, the systems were unjustifiably large, unhelpful, or just didn’t work. Sometimes in our zeal to reach the shiny future, we become overly optimistic. Whenever I hear that investing in a new system will, “solve all our problems,” I pause and remember how many failed firms came to that same conclusion. The harsh truth is that the implementation of a new system is much more difficult than is usually anticipated. Furthermore, all too often, companies purchase a system before the demand justifies the investment.

How to Avoid the Mistake:

Don’t use technology as a replacement for a sound strategy and profitable processes. Instead, look to people and processes before technology to solve problems. If you determine that a new system is your best option, be sure to pilot it thoroughly before full implementation so that you don’t make unnecessarily large and risky jumps.

2. Trying to Do Everything Great Results in Doing Nothing Well

As customer needs diverge, you can quickly find yourself trying to provide a wide range of products through many different channels. Lacking a focused strategy can lead your supply chain down the dangerous path of trying to do too much. Richard Rumelt of UCLA compares this lack of a clear, focused strategy to an inept quarterback. If a quarterback were to conduct every huddle with nothing more than the words “let’s win,” then I doubt that team would score many touchdowns. Instead, by narrowing focus and developing a specific strategy of what your supply chain will do – and more importantly, what it won’t do– you can become great at a few objectives instead of being good at nothing.

How to Avoid the Mistake:

Create a supply chain strategy with focus. Strive for a few objectives with which to excel. Avoid vague, all encompassing “let’s win” goals and coaching.

Note: More thoughts on Rumalt’s strategy advice applied to supply chain available at Vivek Sehgal’s Supply Chain Musings.

3. Death by Inventory

Companies die when they run out of cash, and inventory has a nasty habit of eating cash faster than the cookie monster eats cookies. Small companies are especially vulnerable to stock piling inventory in anticipation of opportunities for growth. Never wanting to stock out, some businesses consistently over-order and over-build to capture all remote chances of demand. However, warehouses soon fill with obsolete or expired inventory that is essentially pallets of cash that you can’t use to pay the bills. Small companies aren’t the only ones with inventory issues; big businesses make similar mistakes. For example, Cisco took a $2.2 Billion write-down on obsolete inventory in 2001. More recently, Toyota, a company that prides itself on lean inventory, found itself with too many Trucks and SUVs that it couldn’t sell because demand for those vehicles dropped after the 2008 recession. However, less inventory isn’t always the answer either. Having too little inventory, or having the inventory in the wrong place, can quickly cut your market share and create angry customers. In reality, inventory is a complex creature that requires diligent attention to master.

How to Avoid the Mistake:

Don’t be afraid of politely turning away a few, less-profitable customers and custom items if it means freeing up significant amounts of cash through less inventory. Utilize data to back your decisions to avoid emotional purchasing. Build your company’s sales and operations (S&OP) process to ensure all departments are working on the same realistic forecast

4. Single Sourcing – “Help Me Supplier One, You’re My Only Hope!”

As supplier relationships become more collaborative, having only one primary vendor for key products can make financial sense. However, when your company’s destiny becomes married to your supplier’s future, you’re taking on unnecessary risk. Using one supplier for most of your business often makes good financial sense, but you must also stay vigilant in maintaining good back-up sources. Natural disasters, political unrest, or bankruptcy can quickly make your only supplier unavailable, leaving you in an uncomfortable predicament.

How to Avoid the Mistake:

Always have one or two back-up vendors for critical parts and services – preferably in different geographic locations or countries. Even if they are more expensive, give them a small percentage of your business so they stay engaged with you.

5. Complacency – If It Ain’t Broke, Why Fix It?

Last on the list of supply chain mistakes is complacency – getting too comfortable with a good solution. As Alex Rogo learns in The Goal, it’s difficult to push for improvements without a crisis encouraging change. However, remaining stagnate on a profitable model invites competitor disruption. New business models and supply chain improvements frequently disrupt the dominant firms in a market. Clayton Christensen, in his book The Innovator’s Solution, talks in detail about this phenomenon and offers advice on how to survive and prosper from disruptive innovation. To help our supply chains from losing their advantage, we should strive to improve and innovate before our competition forces us to do so.

How to Avoid the Mistake:

Become passionate about continuous improvement. Keep an eye on competitors, new business models, and emerging best practices. Work today to address risks your supply chain will face in the near and more distant future.

Which of these mistakes could your supply chain be facing – and what can you do to help avoid it? What other advice do you have to avoid these mistakes? Share your thoughts below, and be sure to subscribe free to receive future articles by email.

You Should Read This Book Every Year – A Review of It’s Not Luck by Eliyahu Goldratt

If Plato and Socrates enrolled in a top MBA school, they’d likely drop out and produce something similar to It’s Not Luck by Eliyahu M. Goldratt. Written as a sequel to The Goal, It’s Not Luck uses an extended story approach to teach Goldratt’s problem-solving technique called the Thinking Process. Specifically, Goldratt shows how the Thinking Process can not only help sales and marketing revitalizing stalling businesses, but also help solve personal problems. The principles the book explores are so critical, that you should add this title to your list of books to revisit every year.

About It’s Not Luck

The book starts with a corporate board meeting in which a conglomerate decides to sell three of its companies, of which Alex Rogo, the main character, is in charge. Using the principles he learned from the Theory of Constraints, Rogo discovers unique ways to turn around each company quickly by dramatically increasing sales with no additional resources. He does this through mapping out the current reality of each company and then logically addressing the issues that keep them from truly solving their customers’ pains. An excellent summary of the problem solving method, called the Current Reality Tree, is available on a site by Jim Davis. What results from using this method is a logical formula for success. While not a prescriptive checklist, the answer is instead a set of principles general enough to carry far beyond the situations presented in the story.

Positive Impressions

This book is an enjoyable and motivating read because of its format, its broad application, and its evidence that success is not luck. Goldratt takes some rather complicated subjects and slowly spoons them out through a well-written story. While not quite Victor Hugo in symbolism, the story is engaging enough that you look forward to picking it up again. Particularly interesting is watching Alex Rogo apply the problem solving techniques to issues in his family life before applying them to business issues. Deciding whether to let his son borrow his car, helping his teenage daughter navigate boyfriend drama, and evaluating the purchase of a car to share with a friend are all canvases that Goldratt uses to paint the logic-tree method. Once introduced, the methods are much easier to follow later when they take on sales and marketing problems. The most positive takeaway is the assertion and evidence that success in business is not luck, but instead disciplined and creative problem solving that can be reproduced in nearly any industry.

Memorable Quotes

As concise snippets of wisdom, quotes have a powerful way of helping us remember important principles and lessons. Here are five quotes from It’s Not Luck that provide special wisdom.

“I can’t rely on [management] alone. And there is no point waiting for developments. I’ll have to find a way to influence them in the right direction.” p. 14

Often when we are not in charge, we rely on others to make tough choices and act. Equally often, however, we should act and make positive changes happen, even if it’s someone else’s responsibility.

“You’ll always find her busy, but never without time.” p. 58

Alex Rogo said this about his wife. She had embraced the problem-solving techniques espoused in the book and become a successful marriage counselor. This description exemplifies a constant life goal that many of us, myself included, strive to reach: busy, but always available.

“If you are constantly fire-fighting, you have the impression that you are surrounded by many, many problems.” “[But when] you follow the recipe, and you end up with a clear identification of the core problems.” p. 94-95

Referencing the problem solving techniques explained in the book, Goldratt captures the pain of constantly fighting fires. After careful analysis, we often realize that just a few root causes create most of the pain and emergencies we deal with each day. Using the 5 Whys is an excellent way to reach those problems. Incidentally, the Current Reality Tree method is closely related to the 5 Whys technique.

“It’s very important not to ignore these nasty reservations. Each one of them is a pearl, because if we do take them seriously, if we write each reservation as a logical Negative Branch, we can identify everything that can go wrong.” p.173

This quote ties precisely into another excellent quote, that problems are gold to be treasured. Without acknowledging and addressing problems, improvement relies solely on luck. Fortunately, the reverse is also true: addressing problems ensures improvement will occur.

“We didn’t have time for mistakes, so we had to spend extra time planning.” p. 265

Although I enjoy jumping into problems and live testing ideas, some extra time planning up front usually saves a large amount of pain later on. The old adage is often true – haste make waste.

Concluding Thoughts

The final pages elaborate and revise The Goal‘s key conclusion. The goal of a company isn’t just to make money. Rather, all companies have three basic goals:

  • “Make money now as well as in the future”
  • “Provide a secure and satisfying environment for employees now as well as in the future”
  • “Provide satisfaction to the market now as well as in the future”

Often, important decisions benefit only one or two of these goals. The key to building a great organization then is to find creative solutions that accomplish all three goals. Only then, can a company endure challenges and grow to thrive through them.

The business climate will only continue to grow more competitive and difficult to navigate. As supply chains grow and problems seem to multiply, It’s Not Luck reminds us in a powerful way that any challenge can be overcome. Whether you need to remember how to use the problem solving techniques explained in this book, or you just need to revisit examples of how to successfully jolt a company to triumph, It’s Not Luck is an excellent source of motivation and problem solving tools to review each year.

What thoughts do you have? Please share in a comment, and subscribe to future posts.

Slash Obsolete Inventory with this Simple Hybrid Purchasing Strategy

Obsolete inventory, the stock of products that you’re not actively selling anymore, holds back many small businesses from future investment and growth. It ties up cash and hogs valuable warehouse space. While small businesses can certainly implement various methods of liquidating old products and move on, the best solution is to stop over-purchasing in the first place. Of course, never buying obsolete inventory is an obvious solution, but it’s a very elusive goal. Obsolete inventory has a way of sneaking into warehouses. As a cowboy would say, “how did all those sick cows wander onto my ranch – and how can I avoid them in the future?”

In order to reduce future stockpiles of obsolete inventory, you can work with your supply chain team to implement a simple hybrid purchasing and manufacturing strategy that combines small-batch validation with high-volume price discounts. It combines the power of validation and speed to market with the cost benefits of large-batch, long lead-time outsourced manufacturing. We’ll look to a calendar company to explain the hybrid strategy.

Hybrid Strategy Example: ABC Calendars

ABC Calendars sells a wide variety of unique and fashionable calendars. Each year, some of its styles do very well and sell out, but some of its styles barely sell at all. In July, ABC doesn’t know which of its styles will sell well, and in February of next year, its leftover inventory will drastically drop in value. Not too many people buy new calendars two months into a new year. In the past, ABC Calendars has moderated focus groups to forecast the winners. Based on forecasts, ABC sent out large purchase orders to its Asian vendors. These vendors produce in large batches with long lead times, but their low cost helps keep ABC’s margins high. ABC needs these margins to offset the money it loses from the styles that don’t sell. Historically, ABC has done pretty well picking winners, its right about two-thirds of the time. However, as the competitive market changes, ABC needs to do much better.

The real problem ABC Calendars is facing is that the low-cost, outsourced vendors require long lead times and high order quantities. This forces ABC to guess the winning styles before it has any real sales data. To make a good margin, ABC can’t rely on local or in-house manufacturing because it costs so much more. Nevertheless, ABC is trying a new hybrid strategy that will give it quick and valuable validation while still enjoying the lower margins that outsourced vendors offer. The following graphic and explanation show how ABC utilizes a hybrid purchasing and manufacturing strategy to reduce inventory and better calibrate which products deserve a large purchase order.

ABC defines the first step in each product’s life cycle as the prototype phase. More than just a working prototype to proof and pass around the office, this is a chance for ABC to get some initial customer feedback and validation. Even at a very high cost, this phase enables ABC to print around a hundred of each calendar design. It then places them in a few test stores to see how they sell. This first wave of customer voting with their pocketbooks will guide ABC to know which styles show promise.

Based on initial sales in the prototyping phase, ABC begins low-volume, higher-cost manufacturing. Whether ABC manufactures itself or uses a local company, it can slowly increase volume with smaller batches. It can then continue to sell to its early customers and obtain more validation. Usually the higher cost of local manufacturing erodes ABC’s profits. However, before it jumps into the investment of a large outsourced order, ABC doesn’t mind paying a higher price to gain market insight. It actually prefers giving up some margin to avoid piles of obsolete inventory later.

Now that ABC knows which styles have the most positive momentum, it’s ready to place the large orders and capitalize on the lower price from higher volumes. However, before placing goliath-sized orders, ABC plans its exit strategy for the items it’s ordering. ABC orders a substantial amount to carry it through most future demand, but not enough to sustain demand through February. Instead, ABC orders enough to satisfy around 80% of projected demand, planning to run out of inventory around mid-January. Then, when inventory starts to run low, ABC switches back to the local manufacturing option. Again, this decreases margin, but it helps guarantee its warehouse will be nearly empty when March 1 comes and demand disappears for its product.

In addition to printing calendars, any business that produces a large number of SKUs and relies on slow but cheap outsourced manufacturing can significantly benefit from this hybrid strategy. It’s certainly not a lean, one-piece flow or a built-to-order supply chain strategy, but it’s a realistic step in an effort to reduce inventory through hybrid purchasing strategic shift.

What are your thoughts? Please add your experiences or thoughts in a comment below. Additionally, please subscribe here to receive our weekly insights.

Surviving the Amazon Effect

The Amazon EffectThe Amazon Effect – a term for the change to the competitive landscape caused by the growth of Amazon.com. Jim Tompkins recently posted a podcast about this topic and how its changing the business climate. Essentially, Amazon has grown to become a competitor with nearly every company – from Walmart to Apple, Home Depot to Netflix. Jim predicts that because of Amazon’s growth, and several other tipping points, a perfect storm of bankruptcies will sweep through an unprecedented number of companies by 2014. The podcast also spends considerable time speculating on what the brick-and-mortar Amazon store will look like – a move that has many large retailers anxious as Amazon continues to expand its business models.

With Amazon competing with everyone, how can a small business endure this new wave of competition and survive the Amazon Effect? Three survival options are (1) differentiate your services to what Amazon does not yet offer, (2) leverage your business’s flexibility to innovate, or (3) join forces with Amazon and become a supplier. Above all, remaining focused on your customers will help weather any challenge.

Differentiate Your Services

“In real estate, it’s location, location, location. In business, it’s differentiate, differentiate, differentiate.” – Robert Goizueta

Obviously, in order to avoid direct competition with Amazon, your business needs to provide a product or service that is different. Though this may seem simple, the great challenge lies in staying ahead of how quickly Amazon’s portfolio is expanding. Having not yet opened a brick-and-mortar location, Amazon’s business model still relies fully on the Internet. Web hosting, software, and eBooks delivered electronically, as well as their enormous SKU count of products ordered electronically, all rely on their website and customers interacting with their system. Although their system is easy to use, that model leaves an opportunity for differentiation.

Highlight your Company’s Service

A key asset that a small business can offer is expertise and service to its customers. Although I sometimes spend hours comparing customer reviews and creating my own analysis of a product, I greatly value the honest expertise and guidance that small businesses provide. The more we become accustomed to working with computers, the more we feel refreshed with positive human interactions. Human relationship building is often absent from the Amazon experience. Therefore, customer service and human interaction can be a key to differentiating.

In addition, you may want to change how you approach your customers. Several years ago, IBM, seeing the trouble ahead for its business if it focused on hardware, switched its business model. Instead, it became an executive consulting company that helps implement its hardware and software. This value-added service satisfies a demand that a 1-Click purchase and a box full of hardware cannot.

Leverage Your Business’s Flexibility to Innovate

“The ability to learn faster than your competitors may be the only sustainable competitive advantage.” – Arie de Gues

Being a small business has an inherent strength of flexibility that most large companies wish they still had. Alignment is much easier when you can fit all your employees into one room and share your vision. More importantly, it is much easier to test and implement innovations because implementation on a smaller scale is more feasible. Once you grow as Amazon has, you cannot implement innovations as quickly and easily as a startup.

A friend of mine who recently completed a summer internship at Amazon highlighted one of its weaknesses. My friend had spent the summer working at a distribution center and proposing various process improvements. However, because of the company’s size and emphasis on short-term ROI, he was not able to implement his ideas. To be fair, I do not know any of the details or merits of his suggestions. Nevertheless, my friend did not want to work for them after the internship because of this experience. It highlights not only the lack of flexibility in operations, but also inefficiencies such as paying an MBA intern for a summer with little in return.

Instead, being able to integrate quickly the latest innovations in supply chain – or any other department – will help you withstand the waves of Amazon’s competitive presence.

Join Forces with Amazon and Become a Supplier

If you want to be incrementally better: Be competitive. If you want to be exponentially better: Be cooperative. – Author Unknown

For many businesses, the strength of Amazon is a boon rather than a burden. From my dad who sells books on Amazon’s marketplace to consumer goods manufacturers that work through Amazon as a retail channel, more people visiting the site means more potential customers. Recognizing that Amazon will be one of the main retail channels for the next few years can help you prepare your company to fit into its network.

How can you become a supplier to Amazon and other online retailers? Listing your products online is quite easy – most online sites pride themselves on large SKU counts, especially if you are the one holding the inventory. Success depends more on your ability to process orders seamlessly and drop-ship to customers. Quickly shipping to consumers will keep your supplier scorecards high and customer reviews favorable. Many 3PLs can handle these services for you, which is an excellent option if order volumes justify the expense.

Customer Focused Philosophy

The Amazon Effect is certainly a threat to many companies unprepared for the new competitive landscape. I agree with Jim Tompkins that many companies will eventual shut their doors because of the increased competition. However, Amazon’s devotion to its customers, more than their operations or business model, is what has made it so powerful. Jeff Bezos, CEO and founder of Amazon.com has said,

“Do not be competitor focused, be customer focused.”

That then is the key to surviving the Amazon effect. Recognize the increased competition, but then work on every part of your supply chain and business to serve the customer better.

What do you think? Please add your comments on how small businesses can survive the Amazon Effect.