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Beating Amazon at their Own Shipping Game

Bruce Merrifield, President — Merrifield Consulting

• Amazon Supply • order fullfilment • big data • AmazonSupply.com • eCommerce • business analytics • optimizing inventory • delivery costs • optimizing operations • Financial Costing •  analyzing fleet costs •  set delivery price • analyzing delivery

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Pricing is not as fluid as it used to be, and there's less opportunity to make up profits through increased pricing/increased margins. With these options losing their effect, the new growing solution is to develop operational excellence. It's important to know what you are good at, where you're most efficient, and to capitalize on those strengths.

There are some things our clients have been doing using WayPoint to achieve that operational excellence.

Much of it revolves around transportation. Transport is a big controllable part of the cost structure, and has become especially significant in the age of Amazon, now that the transport is essentially expected to be free. The Amazon infrastructure is so powerful, they can often afford to lose money on shipping costs. As a result, other companies often have to find a way to match this or get swept under the rug, and keeping up with Amazon's dexterity in shipping is no easy task.

What is our solution for this? Use Amazon as inspiration! Their transport model can be scaled down into a similar form that works great for companies of any size.

Amazon may ship some items for free, but that only happens when it's convenient to do so. If you want to order something on Tuesday evening and have it delivered by Wednesday morning you can do that, but with quite a price. Free delivery? They'll deliver it for free, but on their time, when the cost of doing so is lowest. And that free delivery usually is shipped alongside an order that someone else paid a premium to express ship, so shipping them together consolidates costs. With this setup, Amazon is able to give more options for anybody's unique needs, and can do so at a minimized cost.

Pricing is an integral aspect of this transport system. The number of miles the delivery takes is basically irrelevant. The destination may be two miles away but with traffic, a half hour wait on the dock, detours, etc. then that will rack up massive expenses on what should have been a short trip. Instead, the way to cost deliveries is by the minute. From the end of the last delivery to the completion of this delivery, that is the more accurate and specific measure of the costs of that delivery. Our clients do that within WayPoint, and it enables them to have much better control of their costs, and to offer much better pricing.

Spreadsheets are of course a great tool, but they can lead to analytical errors. In many cases when companies want to put together some numbers to monitor and control things, much like the analytics used in this pricing system, they will use spreadsheets to do it. The problem is, the numbers that come out of that analysis tend to be averages or medians that may give an indication of roughly what values will tend to be, but these numbers are often far too general.

For example, if a man robs a convenience store, they'll often have a tape on the door to measure his height by which they can track him down with much better accuracy. The average American man is 5'10".

If the robber is 5'7" and the store doesn't have that tape on the door, if the police go by averages then they'll never find the culprit.

This is why a more detailed data system is necessary. Companies who work based on averages will be wrong far more often than they're right. You need more granularity than that to be effective in the modern age.

"One size fits all" is becoming antiquated. Companies are now able to offer the customers more options, and make it affordable with their flexible analytics-based pricing systems. Do you want to be one of the companies who refuses to become more flexible, and breaks as a result?

For more information about Bruce Merrifield, visit: www.merrifieldact2.com