Bertrand Russell once famously said, “The only thing that will redeem mankind is cooperation.” The virtues of cooperation are understood and respected across the world as an way to work towards the greater good. In his treatise on statecraft, "Arthashastra," Kautilya speaks of the “shada gunya siddhanta,” or the six-fold policy around foreign affairs, to ensure successful international relations. One of the six principles of surviving war (competition, in today’s business landscape) is "samashraya," or joining hands with those having similar goals.
While none would argue against the virtues of sharing or cooperation, neither Bertrand Russell nor Kautilya would likely imagine that they would find their role in an area of business that has historically thrived on exclusion and operating in silos. Yes, we are talking about supply chains.
Supply chain shake-up
Across the world, supply chains have primarily focused on vertical integration. Whether it’s expanding the warehousing and distribution network by adding distribution centers and fulfillment centers, or adding logistics capabilities by expanding the carrier fleet, the key points of differentiation for supply chain leaders have traditionally been defined by the quality and range of their asset base. Not anymore. Welcome to the era of shared economy in supply chains.
Let us imagine for a moment, a platform where multiple retailers can be onboarded. Where each retailer agrees to participate in a shared ecosystem by sharing their logistics and fulfillment assets with others. An anchor retailer could likely build this platform and maintain it. The member firms pay an upfront fee for registration, and, depending on individual license agreements, can use this shared platform. But why would these members join the platform? One powerful reason is the ability to access shared assets.
Retailers like American Eagle Outfitters have already embarked on this journey. The Pennsylvania-headquartered lifestyle and apparel retailer acquired Quiet Logistics in December of 2021 for approximately $360 million. It also acquired AirTerra to improve the fulfillment model and carve out a new business around a logistics platform. The ‘Quiet Platform’ that ensued has been onboarding retailers at a remarkable pace. It already boasts some 60 partner brands, including Steve Madden, Kohl’s and Peloton. The idea behind this “plug-and-play” service is to pool the logistics and fulfillment assets of partner brands so that all the partners can use. As it turns out, the whole is greater than the sum of its parts.
While more established players in this area have much larger distribution networks, retailers like American Eagle are taking the lead to counter that. Let’s say an order comes through the American Eagle website. This order could be fulfilled by a warehouse that also services Steve Madden and gets delivered by vans that move products for Kohl’s. By pooling distribution and logistics assets, partner retailers on a shared platform can improve delivery lead times and last-mile fulfillment. They can also enhance the efficiency of load consolidation, route optimization and load balancing of carriers by offering a wider choice of SKU-to-trailer mapping, and a more robust delivery promise.
Turning cost centers into revenue centers
For American Eagle, the platform serves a dual function. It transforms a traditional supply chain, something that is typically viewed as a cost-center, into a source of revenue. The platform also reduces the unit cost for partner retailers—a win-win situation. More importantly, with quicker delivery times and more options, the group that benefits the most is the customer.
Emergence of the platform economy
With the ubiquity of services like Uber and Zomato, its clear that the platform economy is a mainstay in today’s evolving business landscape. A notable advantage of the platform economy is that the marginal cost of customer acquisition drops dramatically following the onboarding of a critical mass of customers. Similarly, when more customers are onboarded in a supply chain platform, the marginal cost of customer fulfillment nears zero. And with an increase in pooled distribution assets, the marginal cost drops even further.
Sharing will trump exclusion.
To compete in a fast-transforming omnichannel world, where customers demand to have their favorite products delivered anytime and anywhere, retailers need to think innovatively. Unit economics will play a defining role in shaping their success, and a shared economy in supply chain will be a key enabler to that.
Suffice to say, Russell and Kautilya would have smiled to watch the remarkable benefits that cooperation can bring to the ever-evolving world of retail supply chain. And as if that was not enough, we are just scratching the surface in this exciting space!