Dashing Through the Value Chain

Posted by Ken Sawka on May 4, 2015 12:48:00 PM

Amazon last month announced Dash – small push-button devices that uses the Amazon app on your smartphone to connect to your home wifi network and enable push-button ordering of 248 different popular products used throughout the home – laundry detergent, diapers, dog food, and granola bars, to name a few. Amazon markets this to its Prime customers as the ultimate consumer convenience. No more last minute runs to the store to re-stock toilet paper. Just push a button and, um, go about what you were doing.

Dash

The reviews on Amazon Dash have been mixed, from best thing ever to something that will ruin all of humanity. For me, Amazon Dash is way more interesting than, say, Amazon’s rumored drones. Don’t get me wrong, I don’t look forward to having packages of books, dog food, or video game cartridges falling on my head after being released by malfunctioning UAVs, but if I’m a participant in the consumer products value chain, this is a ton more frightening.

Amazon has already up-ended the retail front-end of that value chain by letting its Prime members receive a wide choice of products in just two business days without ever leaving their family room. What’s more, thanks to Amazon, with help from smartphone manufacturers acting as accomplices, shoppers, when they do venture out of their houses, routinely scan a price bar code at a bricks and mortar retailer and see the same item available from Amazon at a lower price, and click to order right then and there.

Disrupting the Value Chain

But this goes way further, and impacts virtually every player along the value chain. Amazon Dash – should it take hold (and, really, why wouldn’t it?) – represents another disruption of the value chain.


 

ValueChain

The Consumer Products Value Chain: Amazon Dash
carries implications from consumer to raw materials suppliers.


 

How, for instance, do brick & mortar retailers like Walmart compete with push-button shopping from the home? Does all the customer power that the big box retailers have built over the years disappear as online retailers earn the ability to dictate price and delivery terms to their suppliers, as Walmart has done over the past 10 years? And how long will it take for all of this to play out? As Harvard professor and disruption guru Clayton Christensen has said, “Disruption is less a single event than a process that plays out over time, sometimes quickly and completely, but other times slowly and incompletely.”

For distributors, Amazon Dash has the potential to disrupt warehousing and logistics. Consumer expectations of fast delivery mean that warehouses will have to be run with exponential increases in efficiency. Or, the very logistical assumptions underpinning retail distribution have to be reconsidered. Distributors may have to face the reality of potentially shuttering their large, remote centers and open small, distributed warehouses within a few clicks (pun intended) of Amazon customers.

Benefitting from the Disruption

On the other hand, big consumer products manufacturers like Proctor & Gamble and Unilever, stand to benefit tremendously from Amazon Dash. Imaging having your brand proudly displayed throughout your consumers’ homes, and associated with the ease of push-button ordering and rapid delivery. But, with this benefit comes a down side – how to ramp up production to satisfy consumers that will come to expect near-instantaneous delivery of their laundry detergent and air freshener. Do manufacturers sacrifice the efficiency benefits of large centralized manufacturing operations and move to small, distributed, and local plants? Is the capital investment necessary to overhaul manufacturing operations worth it? Will municipal zoning restrictions even allow micro-plants to be built within spitting distance of residential neighborhoods?

For packaging suppliers and co-packers, at what point in the value chain does packaging occur? Perhaps manufacturers no longer need to package their items for retail display, and instead push that activity – and expense – further down the value chain. And, if the regionalism of manufacturing and distribution takes hold, packaging may need to become hyper-local, reflecting local tastes and even individual consumer identities.

Last, for ingredients suppliers, the economics of commodity supplies (petrochemicals, agricultural ingredients, and the like) potentially is thrown into disarray as supply chain efficiency and cost advantages become the holy grail of competing in this new, distributed, highly efficient value chain.

Now, like the drones, Amazon Dash may be nothing more than a publicity stunt. But, with the proliferation of interconnected devices and advances in data analytics (the heart of the Internet of Things), I wouldn’t count it out. Imagine the fun competitive strategists will have every time they push an Amazon Dash button and ponder the ripple effect all the way down the value chain.

Topics: Consumer Goods, Value Chain Analysis, Innovation, Technology/Telecomm

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