Keeping up with Amazon.com'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.
Gilmore Says.... |
 |
| 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. |
 |
What do you say? |
|
| Click here to send us your comments |
| |
|
|
|
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 judgement 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.
Your Comments/Feedback
|
|
Steve Murray
NA, NA |
Posted on: Feb, 22 2016 |
|
|
Of course this sort of "Vertical Integration" makes total sense. Why would any large company not want to control, and squeeze efficiencies from all parts of its supply chain. However we have seen many failed attempts in the past, think Ford River Rouge – perhaps companies get too atomic to control effectively - but most of those failures occurred before we had the real-time visibility to monitor everything globally that we have today with the internet.
Time will tell. My bet is that regulators in the various countries will provide Amazon with too much pain to allow them to achieve their grand vision. Competitors will be urging regulators to deny various options, and unless all of the pieces are in place from source to consumer the Tower of Amazon's Bable may collapse. Or maybe the genius team at Amazon will simple make a variant of the plan succeed.
|
|
Brittain Ladd
Amazon Global Logistics, Amazon |
Posted on: Feb, 22 2016 |
|
|
As someone who works for Amazon Global Logistics, I won't comment on the specifics in the Bloomberg article but what I will comment on is this: Amazon is committed to providing customers, regardless of their geographic location, with exceptional value, selection, and experience.
What we have identified within Amazon is that without an optimized end-to-end global supply chain ecosystem, and flawless logistics execution, we simply cannot meet our goals. Individuals who are passionate about all aspects of supply chain management, logistics, retail, and technology innovation, and who have a desire to make history, should explore career opportunities at Amazon. The challenges we have before us are enormous but for our Sellers, customers, and associates, the challenges will be overcome.
|
|
Nathan Kattari
NA, NA |
Posted on: Feb, 22 2016 |
|
|
I communicated to Amazon a while ago the following:
- It takes me less than 60 seconds to make a purchase on Amazon's site.
- UPS lost several times my packages and he took me almost 15 minutes to call C.S. and fix the delivery's problem.
In conclusion, Amazon can invest and innovate innovative solutions because Amazon desires to add value to the customer; unfortunately, a partner in the supply chain can make this investment look like pouring water in the sand. I believe that UPS can create a business division that can handle only Amazon's orders. It is an opportunity for UPS and others to jump on this new opportunity.
|
|
Susan Rider
NA, NA |
Posted on: Feb, 22 2016 |
|
|
Good article!
|
|
Michael Canon
Principal, Catalytic Logistics, LLC |
Posted on: Feb, 24 2016 |
|
| What you describe is the DHL model minus the aircraft, trucks, IT solutions, Track and Trace capability, and human resources. They will be an intermediary outsourcing that is the guts of the operation. Understanding Brazilian customs rules with its 23 states different and often conflicting VAT rules, the Russian corruption processes, the Indian infrastructure problems, etc. should make for fun regional meetings. |
|
Brian Sabourin
Title, Company |
Posted on: Feb, 29 2016 |
|
As I have seen over the past few years, Amazon has come from a web site allowing people to buy and sell products to this multi-layer complex machine, it will be interesting to see this plan develop.
As history has shown several people and companies is that failure can and will happen, so go slow and plan for everything! If it fails it will be catastrophic... but if it works...! Look out! Remember back when people were admiring the Walmart way of buying products for their stores? That'll look like a corner store in comparison.
|
|
Tom French
CEO, Supply Chain Coach, Inc |
Posted on: Mar, 18 2016 |
|
I agree this is an interesting article.
However, the manufacturer still is paying for the cost to serve his consumer.
When you count the number of transportation and handling costs in the flow diagram you notice there are 9 of those that take profit out of your sku. I still believe when the manufacturer wakes up and offers to fulfill all ecommerce orders for all sales channals from manufacturing they will eliminate 5 of the costs. This will not only allow the manufacturer but also all sales channels to make a greater profit.
This is the lowest cost and fastest way to service their consumer.
|
|
Steve Hopper
Principal, Inviscid Consulting |
Posted on: Mar, 25 2016 |
|
| The rumors about what Amazon is up to have been going around for some time, and it all adds up. There are plenty of "smaller urban distribution facilities" available, from local industrial parks down to cheap, vacant general merchandise and grocery retail space. By maintaining inventories of Amazon's fastest-moving (most popular) items in these local facilities and bringing in a few (Amazon-owned) Kiva robots to streamline order picking, these little facilities are suddenly as space- and labor-efficient as large DCs, yet they can provide nearly instantaneous delivery. It's a very interestindg distribution model. |
|
Steve Ighorimoto
CEO, Erovie Nigeria Limited |
Posted on: Apr, 04 2016 |
|
| This is an ambitious end to end global supply chain strategy by Amazon. Technology,innovation and capability development will be the driving force to achieve successful execution.Businesses must embrace constant change and exploit complexity/uncertainty in the market place for sustainability and survival. With thie successful implementation of this project, Amazon will be setting exciting future trend in customer service , order fulfillment,shipping and distribution across international borders. |
|
John Caggiano
Director Manufacturing and Supply Chain, Miller Edge |
Posted on: Apr, 06 2016 |
|
Amazon rarely sits still, they are always looking forward. They have demonstrated tremendous success at executing complicated plans. It will be very interesting to see if they can pull this off. There are many who believe their expansion is too fast. We have seen how that can lead to performance problems operationally and financially. I expect the UPS's of the world are making plans of their own. This will be fascinating to watch.
|
|
Peter Kuehnel
Business Architect, NA |
Posted on: Apr, 27 2016 |
|
| Amazon works with a collaboration model that is not product oriented. The Amazon platform model briding the retail actor is including an enormous value that can be redistributed to all participating actors - a real win-win model (except the retailers). When taking a part of these savings and adding added value services to the platform a monsterous 'honey pot' creates quickly with an enormous volume. I personally estimate the volume related to the Dragon Boat vision as very high and high enough to run their own global delivery network applying the same platform model just briding some more actors. Consolidating on the most interesting flows and leaving the others for the 'product-oriented' business. When observing Amazon's hiring you might have the feeling this company is also looking with interest at the B2B markets. Its supplier integration capabilities are huge and I can imagine that business will assign a lot of trust to Amazon as a 3PL provider that other LSPs didn't achieve until now. |
|
Aleksander Wyka
Enterprise Architect, NA |
Posted on: Apr, 28 2016 |
|
| Very good article, I also believe in the genious of this company and specific corporate culture that allow them to remain big achievers however I tend to agree with Steve Murray that local legislators, future tax legislations that need to apply to global companies like Amazon so they pay taxes where it is due, will create risks for this ambitious plan. In the same time I can also forsee various citizen movements to localise their economies and use local currencies (i.e. Bristol) that will support their fight for employment and good local quality food distribution. I have been buying from Amazon for years and find their customer service is excellent but on the other side I will urge legislators to favor local suppliers and logistics that pay local taxes and provide jobs other than those in Amazon's distribution centers. Many jobs are at risks from globalisation, digitalisation and robotics and our ability for job creation in the new sharing economy is not so good so I expect in future various social movements against corporate consolidations that are just good for the Wall Street analysts. |
|
Nick Little
MD, Railway Management Programs, Michigan State University |
Posted on: May, 04 2016 |
|
Very interesting. New? Well, actually not a new structure. Go back in time to the setting up of the Post Office and their international postal union to ensure mail and parcels sent from one country could be delivered in any other contry and the operational costs were covered by the revenue received by the originating company. It is an old, vertically integrated business model that is truly differentialted by technology as a key enabler throughout the process. This enables fast, accurate order processing, optimal inventory management and moves towards instantaneous gratification that we all seem to be expecting. What sets Amazon apart, is their ability to see beyond the boundaries of tradition, culture and behavior. They have a vision (whatever it may be) and are disposed to risk taking like few other organizations, plus they not only think outside the box, they work outside the boundaries their competitors expect them to remain inside.
|
|
Purbesh Mahapatra
Senior Consultant, Capgemini Consulting |
Posted on: Dec, 05 2016 |
|
| Amazon is unnecessarily spending huge bucks because of lack of intelligent human resources under its staffing. The same can be done within a fraction of the costs that Amazon is spending. It's a big pity that some CEOs of very big companies are failing to observe this and are unreasonably awed by Amazon's strategy. Just relax guys, there are better and more cost efficient ways of managing supply chain. By the way, good points by Michael Canon and Nick Little. |
|
Siddhant Parnaik
Associate Consultant, ITC Infotech - Business Consulting |
Posted on: Jan, 30 2017 |
|
Keeping in view of Amazon's company strategy, which is primarily centered around achieving excellent consumer service levels and in turn providing consumer delight, it becomes financially unviable to invest money in owning end to end supply chain. Its important for Amazon to focus on continuing with their prevelant robust supply chain model until they have captured a much higher consumer base across the globe. Financial viability with owning end to end supply chain is not only expensive but an ordeal to operate given global contraints. It might prove determental to the current status quo supply chain network that has been successful in delivering what is promised to the end consumer.
What Amazon enjoys now is the gurantee by vendors and middleman. This will fade as they integrate and own the whole network. The title of goods on ownership will entirely be their's and the scope of enjoying the middleman cushion will no longer be there.
I feel that Amazon should follow what they have been doing so far, and focus on expansion of consumer base by integrating with other e-commerce sites, which will help create a win-win for everyone. |
|
Devender Singh
All India Logistics Head, HT Media Limited |
Posted on: Feb, 22 2017 |
|
The article is very interesting and ambitious. It is very sensible to have an end to end logistics and distribution network use a common integrated technology platform to squeeze out inefficiencies by improving quality & speed of communication and transportation, while using economies of scale to spread overhead cost, removing intermediaries and increasing profitability. The challenge would be increase capacity utilization of assets (Warehouse & transport) to lower per unit cost. And, Amazon will have to a make a plan for trade-offs between serviceability and cost.
Amazon revenues are growing on YOY basis. Amazon is thinking big and has a very progressive vision for the company. It will definitely put itself on the fast track much ahead of its competitors.
|
|
|
