Supply Chain Matters highlights for its readership a published report that once again points to the strategic threat that Amazon is developing to yet again disrupt the retail and wholesale industry.

 

Background

For some time now, Supply Chain Matters has published viewpoints on the disruptive threat that online platform provider Amazon will and has had on both online and physical retail, but also package logistics, transport and last mile product fulfillment strategies surrounding many industry sectors.  We collectively have to admire what this platform provider has accomplished across various dimensions.

In a posting published in July 2019 titled: Amazon and the High Financial Cost of One-Day Shipping, we commented on the online platform provider’s disappointing profitability growth at the time. Amazon had strong dependencies on last mile fulfillment carriers UPS and the U.S. Postal Service (USPS).

We highlighted specific statements from senior Amazon executives indicated that that in-time, significant investments in logistics processes leading to two and one day delivery would lead to cheaper per package costs than those of the two services providers.

We further made reference to a published Business Insider report specifically citing Morgan Stanley’s head logistics analyst as indicating:

We continue to see Amazon emerging as a significant player in the industry and believe its ambitions go beyond insourcing to third-party delivery as well, which could bring a new level of risk to numbers at both UPS and FedEx.”

This prediction was as early as 2019.

In April of this year, Supply Chain Matters highlighted Amazon CEO Andy Jassy’s second letter to shareholders which specifically indicated:

Despite 2022 being one of the harder macroeconomic years in recent memory, and with some of our own operating challenges to boot, we still found a way to grow demand (on top of the unprecedented growth we experienced in the first half of the pandemic).

Jassy went to specifically address the revised strategy for the worldwide Retail unit:

For the Retail business unit and specifically supply chain customer fulfillment, Jassy pointed to in text bolding, several changes that would lead meaningful improvements in fulfillment costs and speed of delivery. Indicated was that over the last several months, every process path in fulfillment and transportation was scrutinized with scores of processes now redesigned resulting in productivity gains and added cost reductions. The result is described as moving from a national fulfillment network focused to a more regionalized fulfillment focus.

As the statement goes, the rest is unfolding history.

The online retail platform provider not only managed to take maximum advantage of the explosion of online retail market growth as an offshoot of a global wide pandemic during 2022, but also reformulate its hub and spoke oriented inventory deployment and customer fulfillment network.

Now it seems history aims to repeat itself, at least from a Wall Street investment lens.

The $100 Billion Revenue Opportunity

A published report from Bloomberg News last week (Paid Subscription) indicated- “Amazon.com Inc’s next big thing might be lurking in the expensive supply chain apparatus that’s helped transform the e-commerce business into a juggernaut.

The report makes reference to Truist Securities analyst who has maintained a described bullish view of Amazon, indicating in a new research piece: “By turning its logistics network into a service offering for off-Amazon merchants, we believe the company is turning a major cost center into a profit center.”

Indeed, Bloomberg observes that Amazon shares have risen 58 percent this year as the shift to cost-cutting has not only boosted profits but repositioned the provider to leverage its fulfillment services to non-Amazon Prime customers.

Specifically commenting on logistics and last mile capabilities, this report observes:

Supply Chain by Amazon is the latest part of its drive to become a leading logistics company, overseeing the flow of products from factories to customers’ doorsteps globally. The company aims to replace a variety of businesses handling tasks like ocean freight, customs, ground transport and inventory storage, with one seamless service.”

A third equity analyst for Globalt Investments is citied as observing:

Amazon is basically a stock that is loved, not really based on today’s earnings, but more so what they’re gonna do in 2024 and 2025. The revenues might take time to ramp up to get to the point where they’re really going to be making money.”

Thus, the Wall Street love fest marches on, fueling added investor interest, by at the same time, added peril for other logistics services providers.

 

Continued Moves to be Aware Of

Supply Chain Matters has since published three added Amazon specific commentaries with logistics industry specific connotations:

Shopify And Amazon Collaboration- New Dimensions Of Competitiveness. September 5, 2023)

Two Significant Fulfillment Announcements From Amazon (September 14, 2023)

Amazon’s Decision To Up Holiday Season Worker Needs- The Why (September 21, 2023)

Further, The Wall Street Journal just published a report: Amazon Introducing Overhaul With Robotics to Speed Deliveries. (Paid subscription) This article points to the deployment of new artificial intelligence laden robotics systems termed Sequoia and Sparrow to speed order pick and pack rates while automating material handling flows in customer fulfillment warehouses.

 

Added Thoughts and Perspectives

As with just about every Amazon tactical move, there is always an objective and an underlying strategy that leads to desired end state of operational and fulfillment capabilities leading to increased revenues and profitability over time. At the same time, parcel logistics and transportation services providers FedEx and UPS continue to instill added rate hikes and additional fees for the shipment of parcels. They are focused on overcoming their own added costs as well as respond to investor pressures for added profitability.

In our research advisories, we have urged businesses to open their awareness toward Amazon’s growth segment strategies and associated tactical moves. Do not dismiss Amazon’s threats and underlying capabilities in supply chain execution and fulfillment dimensions.

The real goal for Amazon is the ability to both know and anticipate customer buying and fulfillment needs, and to offer a compelling set of inventory management, logistics and customer fulfilment capabilities that are seamless and more cost affordable for businesses, retailers and wholesalers.  At the same time, this online platform and service provider garners added means to leverage its expensive cost structure among added revenue streams.

Seamless comes with an associated risk, that being all of the pertinent information related to specific customers and their buying channels. That is the most important value, one that transcends incremental cost and/or control dimensions.

Bob Ferrari

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