Amazon’s Supply Chain & E-commerce Leadership
Amazon is winning everywhere. Whether it is their media streaming service, tablets, voice assistants, cloud computing, or their core e-commerce business they are a market leader in the space. At the heart of their success is their world class supply chain1. Their supply chain has made Amazon 5x as large as the next biggest e-commerce player in the US2.
Amazon’s use of digitization in their supply chain has driven their leadership and given them three distinct advantages over their e-commerce competitors:
- Unrivaled breadth in products they can offer customers
- Lower shipping costs that translate to savings for their customers
- Quick shipment that enables packages to be shipped in two-days or even same-day shipping on many items
While Amazon has a big lead on their competition in their supply chain, their brick and mortar rivals are not sitting idly by. Wal-Mart continues to invest in e-commerce and their supply chain as indicated by their $3B acquisition of Jet.com3. Target also is working hard to catch-up and has added talented e-commerce leaders including a key Amazon “Supply Chain Guru4.” Outside the US, China represents a massive e-commerce market that is dominated by Alibaba.
For Amazon to continue their strong leadership position in e-commerce in the US, and be positioned to compete effectively against Alibaba in China, they must continue to optimize their supply chain through technology leadership.
Amazon’s Priorities to Maintain Leadership
Amazon is well-positioned to maintain their leadership position because of their unrelenting focus on being the “Earth’s most customer-centric company5.” They have sought to execute on this mission by being at the cutting edge of key technological trends across their supply chain.
In 2014 Amazon made headlines for filing a patent for anticipatory shipping6. Using their mountains of customer data and deep analytics they are improving their capabilities of shipping orders even before they are being made to cut down on shipping time but a lot of development is still required to fully unlock this capability.
Another priority for management is to continue vertically integrating their supply chain. In 2016 Amazon moved into the ocean freight business and began leasing airplanes to transport goods. Amazon’s digital capabilities are enabling merchants to then book space on these vessels on their mobile phones7. This integration coupled with their technological prowess will help Amazon further drive down costs for their merchants and prices for their customers.
Wearhouse automation is another area where Amazon is working on driving down costs. Amazon acquired the robotics company Kiva in 2012 and has deployed 80,000 of these robots to stock and pull inventory automatically. These robots have only been deployed in 25 of their 140 built or announced fulfillment centers8. Continuing to iterate on and deploy these robots across all their fulfillment centers will continue to be a top management priority in the years to come.
While Amazon keeps many of their long-terms plans close to the vest, based on Amazon’s recent bets and/or investments in robotics, airplanes, drones, ocean carriers you can assume they will focus their development. Additionally, there is so much room for continued development in those domains, that Amazon will likely continue to focus on those areas to further optimize their supply chain for the next decade plus.
Amazon is at the forefront of digitization across their supply chain. It seems as if they are doing everything out there to optimize their supply chain. One area they could further develop in their supply chain is making the most of all the physical store locations they acquired from Whole Foods. They can use the Whole Foods locations to test products and services, price points, assortment interactions, merging offline and online shopping experiences, and test home delivery or store pickup. They can then use their world-class analytical capabilities to identify relevant changes to further optimize their supply chain.
Another area Amazon should continue to develop is optimizing their supply chain to bring goods into China. Alibaba will be a difficult incumbent to unseat, but leveraging Amazon’s incredible logistics network to get goods from China to the rest of the world can be used in the opposite direction. They can use this supply chain to get unique goods from around the world that can be exported into China. Access to a unique set of goods could help give Amazon an edge to better compete with Alibaba when Amazon inevitably makes China more of a priority.
Based on Amazon’s current supply chain advantages, do large brick and mortar players that have made progress online like Wal-Mart, Macy’s, Costco, etc. pose a real threat to Amazon’s e-commerce dominance in the US? What would Amazon have to do to effectively be able to compete against Alibaba in China?
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- Viewed 11/13/17 – https://www.cips.org/supply-management/news/2015/may/amazon-takes-worlds-best-supply-chain-title-in-gartner-survey/
- Viewed 11/15/17 – http://wwd.com/business-news/business-features/amazon-wal-mart-apple-biggest-e-commerce-retailers-10862796/
- Viewed 11/14/17 – http://fortune.com/2016/09/20/walmart-acquisition-jetcom/
- Viewed 11/15/17 – http://fortune.com/2016/02/29/target-amazon/
- Viewed 11/15/17 – https://www.amazon.jobs/working/working-amazon
- Viewed 11/14/17 – https://www.google.com/patents/US8615473
- Viewed 11/13/17 – http://harvard.aci.info/view/14650deba575c0c0128/15306b2705200110003
- Viewed 11/15/17 – https://www.fool.com/investing/2017/09/19/this-secret-amazon-technology-could-be-worth-15-bi.aspx