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Mar 30, 2021

What Billy Beane Can Teach Us About E-Commerce Logistics

Originally posted

Jack Freeman, principal, Peakspan, uses the analogy of a book, “Moneyball: The Art of Winning an Unfair Game,” to share insight on how retailers can win the e-commerce game.

If you’ve ever seen the movie or read the book “Moneyball” it’s not a bad analogy for e-commerce logistics. If you’re a brand competing against Amazon for consumer loyalty, it’s kind of like being the Oakland As competing with the New York Yankees — better than you at every position, 10x the salary cap…how is a single brand expected to compete with supply chain perfection?

Flawless execution requires both art and science. The art? Cultivate a brand that matters and following the cares about you. Customer experience is king.

Winning the heart of the consumer is an “art” which is why we need personalized “front-of-the-house” technologies to power personalized email marketing campaigns, product recommendations, intelligent search and omnichannel customer engagement.

While personalization and CX are certainly strategic imperatives, they only mark half the battle. When it comes to getting your Marc Jacobs mascara in two-days before your big night out with the girls (oh…to simpler times…), the brass tact of who gets in in your hands faster is all the matters. Amazon will have this mascara in your hands in two days one day and consistently — no questions asked, no risks, gets it done every time. Marc Jacobs can accept this fact, or they can play Moneyball…

This popular book by Michael Lewis is called “Moneyball: The Art of Winning an Unfair Game.” Nevertheless, an appropriate title for our discussions – this IS an unfair game. To beat the New York Yankees — each of these players needs to be extremely skilled at their position, cost effective and needs to fit into the general manager’s larger system for winning.

E-commerce supply chain and logistics is no different. The equivalent “playing the Yankees game” is to hire more people and build more technology in-house. You won’t beat the Yankees at their own game. Amazon has around 300 fulfillment centers globally, a robotics division, a global delivery network and most notably, they are one of the most impressive technology organizations on the planet. Unless you are Walmart with 10,000 stores worldwide and a $350BN market cap and healthy cash flow, you can forget about competing with Amazon head- to-head. You are the Oakland A’s and they are they New York Yankees. As Billy Beane would say: “it’s an unfair game.”

What did Billy do? He changed the game. There are nine players on baseball field and he found the exact nine players within his salary cap and paired them with the exact right strategy to win. Once this realization was made, the A’s won 103 games that year.

Who are these so-called e-commerce logistics players? Let’s unpack some “candidates” who would have been on Billy Bean’s radar if he were competing with Amazon rather than the New York Yankees:

1. Pitcher: E-commerce platform: you obviously need a kick-butt e-commerce platform with a seamless front end (incl. search, personalization, etc.) with less clicks and high speed. This is your pitcher.
2. 1st baseman: Product information and feed management
a. The shift from mass production to mast customization has led to endless combinations of products (for my water bottle, I want 37 color options, five textures, four sizes, three styles and a partridge in a pear tree. Moreover, a proliferation of channels, combined with the above-mentioned product skew combination complexity has lead to a product information and feed management nightmare. As Billy Beane would say, “data is our lifeblood.” Without good product information and feed management, the whole show stops
3. 2nd baseman: Inventory/order/allocation management
a. Above, there is lots of talk around “competing with Amazon.” While that certainly is the 1.5 trillion market cap 800-pound gorilla driving change, the other fundamental change driving rapid innovation in the e-commerce logistics space is pure volume and velocity of orders. This is more specifically seen in the D2C and dropshipping spaces where new companies of all sizes are being founded and architected to reach the masses without ever having to consider physical retail or supply chains. Understanding demand, processing orders, updating inventory, intelligent orchestration of allocating/placing/moving inventory near enough real time with sound algorithms and flowing this back into the product landing pages is table stakes.
4. Shortstop: [Omni-]warehousing
a. Housing physical goods across the country requires access to physical infrastructure at the right locations, with intelligent receiving, picking, packaging and shipping. For retailers large enough to own or lease warehouses, a WMS is critical, and for up-and-coming D2C/SMB brands, on-demand warehousing or co-warehousing options can be incredibly strategic and high leverage.
5. 3rd baseman: E-commerce fulfillment
a. One you have the order, the clock starts (go!). You first need to understand where your inventory sits at all times (in almost real time). Once you do, e-commerce brands work with fulfillment centers or 3PLs to facilitate the picking, packaging, boxing and labeling of goods. Amazon has hundreds of their own fulfillment centers, countless robots, and has this down to a science which powers their low delivery windows and high batting average. Competing against this requires a combination of software (that is flexible and modular) and shared services models.
6. Centerfield: E-commerce shipping
a. The number one reason (50% of the time) consumers abandon their cart is due to unexpected costs (shipping, taxes, fees, etc.). This is where the rubber hits the road and where Amazon shines through consumer friendliness, dependability and trust.
7. Rightfield: Checkout experience
a. The number two reason for cart abandonment is having to “create an account” (yuck…). This is where marketplace models thrive (always signed in, information is always stored, etc. — and don’t even get me started on product recommendations or recurring orders!) Who wants to create a Marc Jacobs account for one night out with the girls? Customer experience is king and so if your checkout experience reminds the user of the DMV, you effectively just handed over that margin to Amazon on a silver platter.
8. Leftfield: Last-mile logistics
a. Simply put, e-commerce delivery in the last mile is the cornerstone of two-day delivery (or same day, or same hour, or right now. Last-mile delivery is the final leg of the journey. For example, Amazon has a fulfillment center on 35th and 5th — last mile is the process of ensuring products which are received at this fulfillment center, are rapidly dispatched around Manhattan.
9. Catcher: Returns automation
a. If you thought e-commerce shipping was hard, let’s think through the operational and financial complexity in sending a package from a consumer back up through a retailer’s supply chain and refunding a payment, all at massive scale because consumers are rarely satisfied and can’t make up their minds. A poor returns experience can tarnish a brand’s reputation (especially when Amazon makes it so seamless). This is now table stakes. No one said the catcher had the most glorious position but try throwing out a runner attempting to steal second without one.

Taking an “Amazon-like approach” to e-commerce logistics is not for the faint of heart, but what is the alternative? As Billy Beane would so elegantly put it: “Adapt or die.”

Jack Freeman is principal at Peakspan