Can Amazon be considered a logistics company?
With the e-commerce giant Amazon offering a diverse range of services, Supply Chain Digital delves deeper into Amazon’s heightened interest in the logistics space.
Combining a host of services, Amazon is lots of things to different people. The company is unique and there’s nothing quite like it. Focusing on providing a varied range of services such as e-commerce, cloud computing, digital streaming and artificial intelligence (AI), the US-based company’s influence is felt worldwide. With approximately 647,500 employees, 288.4 sq.ft of real estate and consisting of almost half of the online retail in the US, Amazon is considered one of the “Big Four” alongside Google, Facebook and Apple. However, now, it seems Amazon is adding another string to its extensive bow as the global giant enters the third-party logistics carrier (3PL) market.
Originally founded in 1994 by CEO Jeff Bezos, Amazon has significantly transformed its services throughout the years, from its early beginnings as an online bookshop in Seattle to becoming the global powerhouse it is today. It conducts business in a number of different areas and ways. These are: Amazon Logistics — its fulfilment and logistics platform, Amazon Web Services (AWS) — its cloud computing infrastructure, Amazon Prime — its loyalty programme and Amazon Retail — its online shopping function. However, the key question remains: can Amazon primarily be considered a logistics company?
Following the TJI Research’s report in April which revealed that select shippers in Chicago, Los Angeles and New York were invited to use Amazon Shipping, the service began offering 50% cheaper shipping rates than UPS for some sellers. As a company that is versatile and seemingly transforms at will, Amazon made the decision to directly compete with third-party shipping companies and reduce sellers’ reliance on firms such as FedEx and UPS. Previously, UPS handled 62% of Amazon’s total traffic, with Amazon just dealing with 10% of its own shipping traffic, however, change is afoot as the tech giant seeks to support its own Prime fast-shipping programme.
In the US alone, Amazon’s warehouse and distribution centres total 386 facilities, as well as 159 fulfilment centres, 47 inbound and outbound sortation hubs as well as 52 Prime Now hubs and 115 local delivery stations, according to data by MWPVL International. Taking this figure worldwide, Amazon boasts 850 facilities in 22 countries, consisting of 220mn sq.ft, while comparatively speaking, UPS has around 1,000 package handling facilities with approximately 68mn sq.ft.
Amazon’s fulfilment process begins when products arrive on tractor trailers and travel inside on conveyer belts as they start the process of reaching the all-important final destination: the customer. Following the product’s journey along the conveyer belts for packaging, the box is packed and weighed before then being loaded onto Amazon trucks to bring the orders from fulfilment centers to sortation centers. Amazon’s planes take to the air from 20 airports across the country, packages are loaded onto metal containers that holds hundreds of boxes in slotted stacks. With each plane having the space to carry over 30 containers, Amazon has the capacity to back up any influx of orders. To handle this, Amazon now offers a one-day delivery option for Prime members, in a bid to deal with the quick turnaround and process orders more efficiently.
However, despite this one-day delivery service, Amazon still didn’t feel this was quick enough. At the re:MARS conference (Machine Learning, Automation, Robotics and Space) in Las Vegas earlier this year, Amazon unveiled its latest Prime Air innovation: drones that deliver straight to customers’ doors. The drones, which are fully electric and can fly up to 15 miles to deliver packages under five pounds to customers in less than 30 minutes, are the latest example of Amazon’s determination to push what is possible. But, despite the implementation of new technology such as AI and machine learning (ML), Amazon does also consider its sustainability drive as it seeks to achieve “Shipment Zero” and aims to ensure all of its shipments become zero carbon, as well as harbouring the aim of achieving 50% of all its shipments net zero by 2030.
Speaking exclusively to Supply Chain Digital, Kiri Masters, Founder & CEO of Bobsled Marketing, a digital agency that helps consumer product brands grow and protect their Amazon marketplace channels, believes it’s become clear that Amazon has become a major player in the logistics space. “Five years ago, UPS and FedEx didn’t consider Amazon to be a competitor to them. However, during that time it has become obvious that Amazon is a fulfilment competitor, both at the sort of high-level logistics level as well as getting packages into the hands of customers,” explains Masters. “Amazon has invested a lot of money into their fulfilment network starting with their warehouses and now have over a hundred warehouses or fulfilment centres in the US, as well as dozens more internationally too.”
Having authored books on Amazon, such as ‘The Amazon Expansion Plan’ and ‘Amazon for CMOs’ as well as regularly contributing to Forbes, Masters is well-placed to provide insight into how Amazon conducts operations. “Amazon’s stores purchase inventory from the brand, hold it at their fulfilment centres and then complete each order as they come in,” she says. “Then, when they’re running low on inventory, they’ll repurchase from the brand. Over the last 10 years, Amazon’s unit sales have shifted from being largely sales from these retail relationships with brands to a marketplace model where today over 50% of units sold on Amazon are actually sold by third party merchants on Amazon’s marketplace. I believe that part of the reason for a big shift in the makeup of third-party sales versus first party retail sales is Amazon's fulfilment capabilities.”
“In short, I believe that Amazon is definitely a fulfilment company,” she summarises. “Based on the fact that they not only fulfil their own items purchased from brands as a first party, they also open up their fulfilment centre network to third party merchants and allow these merchants to leverage Amazon’s fulfilment infrastructure. It’s very similar to what they did with AWS, which is an enormous and very profitable part of their business. They created their own cloud computing infrastructure to be used internally within Amazon. This then led to them selling that to other businesses and enterprises and is how its fulfilment and logistics division originally began too.”
So, with all this considered, can Amazon ultimately be considered not just any logistics company, but one of the biggest globally? When asked for comment, an Amazon spokesperson said: “Amazon uses a variety of operational models to get packages to customers, including traditional carriers and independent local delivery companies. Amazon Logistics is comprised of small and medium sized businesses that enable us to supplement capacity to serve our growing customer base as well as enable faster delivery options such as one-day, same-day and even one-hour delivery for customers.”
Whatever the future for Amazon, it’s clear the giants are showing no signs of slowing down.
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NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”