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A giant pulling sound
The "giant sucking sound" H. Ross Perot once warned us about is back. Only this time it's not Mexico siphoning off U.S. jobs in a post-NAFTA market. In fact, it has nothing to do with jobs or Mexico. Rather, it's the sound of end users—businesses and consumers—sucking away control of order fulfillment and shipping from manufacturers and retailers.
The shift to a "demand-pull" model has been the subject of much debate ever since the Internet became a sustainable commercial conduit. But as e-commerce explodes, debate is giving way to action.
To satisfy demanding Internet shoppers, for example, Amazon.com, Wal-Mart Stores, and online auctioneer eBay have been testing same-day deliveries. Meanwhile, UPS Inc. nearly 18 months ago unveiled a service called "My Choice" that gave consumers the flexibility to choose when and where they wanted their packages delivered. The rollout was UPS's acknowledgment that for the first time in its 105-year history, control over its small-package supply chain had shifted.
Wal-Mart, Amazon, eBay, and UPS are different kinds of companies following different paths. But their destinations are the same: the wallets of end users. Many of these end users are under the age of 35, and they expect to receive their goods how, when, and where they want them—and, by the way, with free shipping.
That mindset may smack of arrogance, but companies ignore it at their peril. Despite a sluggish economy, Generation Y-ers and Millennials increased their spending by 31 percent in the past year, according to data from Forrester Research.
As for what the future holds, Forrester predicts that online sales, which hit US $200 billion in 2011, will grow 60 percent over the next five years. Business-to-consumer transactions already make up more than 40 percent of all parcel traffic, a ratio that's bound to increase.
Given these trends, it seems clear that the supply chain of 2020 will look radically different than it does today. Truckload carriers will be running at less-than-truckload distances. New air and ground hubs will spring up. Warehouses and distribution centers will be designed and located with the direct-to-consumer model in mind, and they will operate around the clock with robots breaking down pallets into small shipments at a pace manual labor can't match. Regional parcel carriers who've long labored in the shadow of UPS and FedEx will thrive as demand spikes for the short-haul, flexible delivery services that are their specialty. And there will be new job opportunities as shippers, carriers, third parties, and warehouses create high-level positions dedicated to managing e-commerce.
Most, if not all, of the strategy and execution will be aimed at satisfying a new class of power broker: the end user.
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