From SCDigest's On-Target E-Magazine
- Oct. 24, 2013 -
Supply Chain News: Amazon.com Co-Locating Mini-Fulfillment Centers Inside Key Customer DCs
Shipping Soap and Diapers from a P&G Mixing Center; Grocers Rightly Concerned about Threat from Amazon
SCDigest Editorial Staff
In yet another in a two-year series of interesting and important news reports on developments in e-fulfillment, the Wall Street Journal broke a story last week on a partnership between Amazon.com and Procter & Gamble, in which Amazon locates mini-fulfillment centers inside P&G DCs.
The arrangement apparently started some three years ago, but is just now is coming to light. From the first arrangement, believed to have been in a P&G DC in Tunkhannock, PA, the consumer products and e-commerce giants have expanded the program, the Wall Street Journal reports. Amazon is now inside at least seven P&G distribution centers world-wide, including locations in Japan and Germany.
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| A well-known food company put receiving doors next to shipping doors. That way, a driver bringing a pallet to the shipping staging area could pick up a putaway pallet right next door.
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What Do You Say?
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The potential benefits are obvious. By shipping directly from P&G facilities, Amazon cuts out the shipment leg normally executed to move product from the manufacturer's distribution center to an Amazon fulfillment center.
Receiving costs are surely lower too, with a simple transfer inside the DC of pallets of goods on fork trucks into the Amazon area, versus unloading trucks and putting the items into storage in the traditional DC flow. Order picking processes in the embedded fulfillment centers are probably pretty simple too.
But there is a potential downside, it would seem. If a customer orders products other than those from P&G and carried in one of these embedded facilities, Amazon would have to make a second shipment from one of its traditional fulfillment centers, adding to total shipping costs.
Of course, Amazon often makes multiple shipments currently on regular merchandise, most notably when some products in an order must be drop-shipped from its vendors.
In this regard, Amazon probably has some advantage with the P&G partnership, in the it acquired the Soap.com and Diapers.com web sites a few years ago. Those focused sites likely do get lots of orders say for nothing but P&G's Pampers diapers, reducing the chances a second shipment would need to be made.
"I could even see the chance Amazon would provide an financial incentive in some way for ordering only products that could be shipped from one of these embedded DCs," said SCDigest editor Dan Gilmore.
In turns out that Amazon has an official program for these embedded fulfillment centers, which it calls Vendor Flex. It is not clear, however, if any manufacturers other than Procter & Gamble are actually participating program currently.
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Needless to say, some retailers are not happy with the arrangement, believing it gives rival Amazon a big advantage on-line. Clearly, Amazon's substantial test of its Amazon Fresh same-day grocery offering, is making many traditional brick and mortar retailers nervous. The fear of course is that Amazon may take a meaningful bite out of the traditional grocery sector's HUGE revenue, estimated to be somewhere in the $600 billion level in the US.
