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February 18, 2016 - Supply Chain Flagship Newsletter

This Week in SCDigest

bullet Amazon - The Most Audacious Logistics Plan in History? bullet SC Digest On-Target e-Magazine
bullet Supply Chain Graphic & by the Numbers for the Week bullet Holste's Blog/Distribution Digest
bullet New Cartoon Caption Contest Begins bullet Trivia      bullet Feedback
bullet New Expert Insight and Gilmore's Supply Chain Jab bullet New Videocasts and On Demand Videocasts


The Greatest Supply Chain Show on Earth
If You Work in the Supply Chain, You Belong at MODEX


first thought


Supply Chain Graphic of the Week
US Trade Deficit
in Goods Since 2000

Google Joins the Fresh Foods Delivery Wars
Container Ship Operators Increasingly Taking the Long Way Around
Euro Workers Say Enough of Low Priced Chinese Steel
Macy's Now "Picking to Last Unit"


The Greatest Supply Chain Show on Earth

If You Work in the Supply Chain, You Belong at MODEX


Week of February 15, 2016 Contest

See The Full-Sized Cartoon and Send In Your Entry Today!

Holste's Blog: Looking Beyond Cost Reduction for Additional Benefits


Weekly On-Target Newsletter:
February 17, 2015 Edition

New Cartoon, Remembering Miesemer, WMS Trends, Lessons from Saban and more

Predictions for Procurement in 2016

by Chris Sawchuk
Global Managing Director and Procurement Advisory Practice Leader The Hackett Group


Remembering Supply Chain
Executive Ken Miesemer

by SCDigest Editor Dan Gilmore


Four Things Nick Saban Can Teach us About Inventory Planning

by Dr. Michael Watson

New SCDigest Benchmark
Study on Global Sourcing & Trade Management


What were the percent of men working in US manufacturing jobs in 1968 and 2015?

Answer Found at the
Bottom of the Page

Amazon - The Most Audacious Logistics Plan in History?


Keeping up with's many moves in eCommerce and eFulfillment is almost a full time job, and as I have written before, whether Amazon is a friend, a foe, or something in-between for your business, we should all take our hats off to its incredible pace of innovation, much of it in the boring old logistics space.

But none of Amazon's many moves has topped the news Bloomberg broke last week on Amazon's plans for an end-to-end global logistics and delivery capability. More on that in just a moment.

Let's start to put some pieces together.


Amazon will partner with third-party carriers to build the global enterprise and then gradually squeeze them out once the business reaches sufficient volume and Amazon learns enough to run it on its own, Bloomberg reports.


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Our Expert columnist Marc Wulfraat of consulting firm MWPVL International has developed a niche of being perhaps the industry's foremost observer of Amazon when it comes to its supply chain strategies.

In a recent column for SCDigest, he noted that Amazon quietly rolled out no less than 43 smaller urban distribution facilities (Prime Now hubs and Fresh Delivery stations) in the US last year, with the goal to enable delivery to a customer's doorstep in 60 minutes or less. It also opened up four university bookstores and entered into the world of retail brick and mortar. 

"Rest assured that this is just the tip of the iceberg, as the company is only getting started on its national quick response assault," Wulfraat says. "Amazon's main weakness is that it doesn't have any stores for people to shop at but they are quickly working on eliminating this barrier."

Wulfraat added that he believes that "If you thought that Amazon was a game changer in 2015, hold onto your hat. The company has built an impenetrable moat that cannot be replicated by any other company."

For example, he estimates that Amazon will open an incredible 7.2 million square feet of new fulfillment center space in the US in the next two years, an investment of some $1.2 billion in fulfillment space alone.

In late 2015, Amazon was reported to be in talks to lease 20 cargo jets from Boeing. It is also widely assumed Amazon is behind the daily air cargo flights being flown out of the air park in Wilmington, OH, a wonderful facility that once served as DHL's US hub before it shut down US domestic service, and before that for Airborne Express before it was acquired by DHL.

That "test" started with two daily flights, and has now expanded to five. The company behind the flights is also asking the third-party carrier Air Transport Services Group if service could be expanded to flights to Europe and China - and was told Yes.

Just a couple of weeks ago, Amazon opted to purchase the 75% of French package delivery company Colis Prive it didn't already own, which puts it in direct competition with FedEx and UPS in that country. Many believe Amazon will use this acquisition to better understand the parcel delivery business - and look for opportunities to innovate well beyond France.

It's worth noting that in its 10-K filing with the Securities and Exchange Commission in 2014, UPS noted the risk of having one of its largest customers "develop their own shipping and distribution capabilities," saying such a development, among others, "could materially impact the growth in our business and the ability to meet our current and long-term financial forecasts."

On top of all that now comes the new Bloomberg report, which says Amazon has plans a lot more ambitious than competing regionally with FedEx and UPS.

"A 2013 report to Amazon's senior management team proposed an aggressive global expansion of the company's Fulfillment by Amazon service, which provides storage, packing and shipping for independent merchants selling products on the company's website," Bloomberg reported. "The report envisioned a global delivery network that controls the flow of goods from factories in China and India to customer doorsteps in Atlanta, New York and London."

The project's name: Dragon Boat - and it is proceeding apace.

The end result will be the launch of a new venture called "Global Supply Chain by Amazon" as soon as this year, Bloomberg adds. As part of that strategy, Amazon plans to take on freight forwarding and brokerage services directly, eliminating a set of middlemen. 

"Amazon wants to bypass these brokers, amassing inventory from thousands of merchants around the world and then buying space on trucks, planes and ships at reduced rates," Bloomberg adds. "Merchants will be able to book cargo space on-line or via mobile devices, creating what Amazon described as a 'one click-ship for seamless international trade and shipping.'"

A key part of the plan, it seems clear, is to use technology to automate the often cumbersome global logistics process. Is that possible in the short term? Maybe. More on that in a second.

The goal is to move sellers from booking freight moves with DHL, UPS or FedEx to instead work directly with Amazon, the 2013 plan said. "The ease and transparency of this disintermediation will be revolutionary and sellers will flock to FBA given the competitive pricing."

Amazon will partner with third-party carriers to build the global enterprise and then gradually squeeze them out once the business reaches sufficient volume and Amazon learns enough to run it on its own, Bloomberg reports the documents said. Wow.

To this end, Amazon received a license to act as a wholesaler for ocean container shipping from the US Federal Maritime Commission on Nov. 13. Meanwhile, the Chinese Ministry of Commerce granted a similar license on Sept. 17, under the name Beijing Century Joyo Courier Service Company Limited, one of the trade names for Amazon China and Amazon Global Logistics China, according to documents posted on the Ministry of Commerce website. 

A huge assumption of this new Amazon business is that the growth in cross border eCommerce volumes will grow substantially - but that has indeed been the case recently.

Global Supply Chain by Amazon plans to attract merchants in countries such as China and many others and then consolidate that export merchandise at regional shipping hubs. The large volume of goods that could be amassed means Amazon would be able to buy cargo space at lower wholesale rates and then offer a lower price to these merchants by passing on some of the savings. 

What's more, "By automating the shipping paperwork, Amazon can further reduce costs and make the process more convenient for merchants," Bloomberg says.

With a few finger taps on their smartphones, merchants in China will summon Amazon trucks to pick up products from their factories and warehouses, the documents said. Once the shipments reach their destination ports, they will be plugged directly into Amazon's distribution networks for speedy home delivery.

Will it work? Though of course there will be challenges, I don't immediately see why not. Amazon has been able to reduce eCommerce friction in domestic markets around the world. While doing this cross-border may be a harder nut to crack - and freight forwarders won't see their business slip away without a fight - if Amazon can offer a better mouse trap, the world might just beat a path to its door.

To accomplish this, a natural acquisition for the company would be a Global Trade Management vendor to gain direct capabilities for import/export process automation, managing regulatory compliance, and more. The cost for such an acquisition would be chump change compared to what Amazon would spend overall on this program.

A few months ago, the Wall Street analysts at Baird presciently recommended that Amazon should build a global 3PL business, noting that "We believe Amazon may be the only company with the fulfillment/distribution density and scale to compete effectively with global [logistics] providers, and with an investor base that is historically tolerant of large-scale investment and low margin revenues," Baird wrote. (See graphic below.)

If all this is correct, it may be the most ambitious logistics strategy in history. What else could compare? Fred Smith's hub and spoke idea that became FedEx? Malcom McLean's invention of the ocean shipping container and ships to support those container movements?

I guess we will have to see how it plays out to make a final judgment on where this strategy stands, but Amazon's move would certainly be in the conversation.

"May you live in interesting times," the expression goes. We are doing that with Amazon and logistics in spades.

What is your take on Amazon's plans for a end-to-end global logistic service? Can it work? Why or why not? Will technology be key? Let us know your thoughts at the Feedback section below.

View Web/Printable Version of this Column

New Videocast:

Now is Finally the Time for WMS in the Cloud

As Supply Chain Software Moves to the Cloud, Barriers to Warehouse Management Joining the Party have All Fallen Away

What has changed, and what WMS technology developments are fueling this transition. We'll cover all that and more in this detailed, fast-paced broadcast.

Featuring SCDigest editor Dan Gilmore and Dinesh Dongre, VP Product Strategy, Softeon

Thursday, February 25, 2016

On Demand Videocast:

Trends and Issues Global Sourcing and Trade Management

Results from SCDigest's New Benchmark Study on Practices and Technology in Global Trade

You'll learn the results of the survey, unveiled in a new report launched with this Videocast. Not to be missed by anyone interested in global sourcing, global trade management and supply chain visibility.

Featuring SCDigest editor Dan Gilmore, Gary Barraco, Senior Director of Supply Chain Solutions at Amber Road, and Dan Gardner, President of Trade Facilitators Inc.

Available On Demand

On-Demand Videocast:

Using Supply Chain Modeling to Improve Operations and Outperform the Competition

PriceSmart Builds Optimized, Aligned and Dynamic Supply Chain Network

You'll learn about key new trends in supply chain design, where companies are finding the value, and learn the powerful story of how leading retailer PriceSmart has used network design tools to craft its network of the future to support growth, optimize flow paths, and right size inventory levels.

Featuring Frank Diaz, senior vice president, distribution and logistics at PriceSmart, and Toby Brzoznowski executive vice president at LLamasoft and SCDigest's Dan Gilmore

Available On Demand


Just catching up on some miscellaneous Feedback this week, including our Feedback of the Week from Steve Wilson of Tompkins International, on our First Thoughts column on how Amazon's stock price may have a huge impact on the future of eCommerce. Also some comments on our review of 2015 in numbers and charts.

Feedback of the Week on Amazon's Stock Price and eCommerce:


Another great column, but, it points out the false hope in the thinking of a lot of retailers in their battle against Amazon. It may make us feel good to point out that Amazon isn’t making any money, but, Amazon reinvests over 10% of revenue in R&D ("Technology and content" on their income statement) and this is on top of their capital investments. No other retailer reinvests even 1%. Amazon could tweak that spending a bit and the profits would flow. So, to answer your question, even a drop in their stock price will not cause Amazon to back away from free delivery.

Speaking of free delivery, yes there is a cost to delivery and the price to the consumer will be zero but covered by the margins of the retailer. Retailers in their stores don’t break out the rent on the price of goods so this why are we so concerned with charging specifically for delivery? Delivery is just one part of the costs of the internet retail supply chain to reach the customer just as rent and sales staff are expenses for the in-store supply chain.

Amazon understands, and our analysis confirms, that delivery costs will drop dramatically as internet retail grabs a larger and larger share of the total retail market and Amazon continues the shift to shipping locally from local fulfillment centers since they backed away from fighting the sales tax issue in 2013. That is another scary thought for retailers that 2%-3% of revenue could flow to the bottom line as delivery costs for Amazon fall. Amazon will continue to grab market share and will be incredibly positioned for this future of eCommerce.

There are real reasons why Amazon enjoys such a high valuation as their profits are miniscule. The smart money understands these reasons and for another perspective I would like to refer your readers to an October 19, 2015 analyst report from Robert W. Baird & Co. which explains other reasons for how far ahead Amazon is of most all other major retailers. Hopefully we will start to see bolder responses from retailers or it will be like Walmart mowing down their discount department store competitors in the 80s and 90s.

Steve Wilson
eCommerce Supply Chain Transformation
Tompkins International

  Feedback on 2016 in Numbers and Charts  

Once again, excellent article with factual data and charts. The PMI chart was very telling and a clear indicator of what some folks are fearing about 2016. I just saw the movie "The Big Short" about the Mortgage and Banking industry and what amazed me was how so many "experts" missed the telltale analytics which clearly foresaw the economy on the brink!

We need folks focused on the key analytics and BI that allow us to understand what is happening now, what it is signaling and then make the management decisions to shape the future business. As they say, the only way to forecast the future is to make the future and understanding comes from key analytics and BI metrics. Keep showing us these great indicators!!

Tom Dadmun
Retired VP of Supply Chain


What about cost trends in facilities and wage rates associated with the warehouse logistics sector?

My commodities trading buddies think we are in a pricing freefall, but my clients are gagging on rate increases associated with rent increases, and my retail clients can't accept the reality of the impact of 200%+ turnover in hourly material handler ranks who typically earn in the $10-11 per hour range.

That wage rate is about toast!


Tom Miralia
Distribution Technology



Q: What were the percent of men working in US manufacturing jobs in 1968 and 2015?

A: A bit of a trick question - 70% in both years, according to the Bureau of Labor Statistics.

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