Amazon Dominating Competition with Tech-Driven Supply Chain

Analyzes how Amazon is winning the e-commerce battle in the US by having the most tech-enabled supply chain of all US retail companies.

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:

  1. Unrivaled breadth in products they can offer customers
  2. Lower shipping costs that translate to savings for their customers
  3. Quick shipment that enables packages to be shipped in two-days or even same-day shipping on many items
Amazon has vertically integrated into the container carrier industry

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.

Amazon has begun leasing planes as part of their vertical integration of their supply chain

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.

Amazon robots stock and pull inventory in one of their distribution centers

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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Student comments on Amazon Dominating Competition with Tech-Driven Supply Chain

  1. I agree that Amazon has a great advantage in the USA with its highly digitized and monitored supply chain. This enables them to keep the pole position in this market by continuously improving supply chain and reducing costs.
    However, I have some doubts about Amazon’s ability to become a significant rival to Alibaba in China. Alibaba knows the market very well, invests in digitization, and has a very sophisticated supply chain as Amazon does. I also don’t think that using the existing logistics network in the opposite direction, as you proposed in your article, would be as cost efficient as it is today. It is a completely new logistics case to optimize how to bring goods to China; routes are different and goods are not same. Therefore I am not sure about to what extend Amazon can leverage its existing network, which is designed from world to USA. Finally, there is also the tendency of Chinese people to use their own brands, especially in web services. Amazon will have to face with all these challenges in order to build a strong presence in China.

    1. Great points Levent. I agree that the opposite direction supply chain would be tough. To be honest, Amazon is quite cutting edge in terms of digitizing there supply chain. The idea is definitely a stretch. Also, I agree China will be tough. I think the market is so big that it may be worth trying anyway, but they should definitely not underestimate the uphill battle that will be.

  2. Regarding the U.S., I think this is a fascinating debate. The issue remains last-mile delivery, and as we’ve seen with the recent announcements by Walmart (acquiring Parcel) and Amazon (partnering with Kwikset to develop Prime exclusive door systems for in-home delivery), no one seems to have cracked the case on how to solve for not only the immense cost of the last mile, but also how to best serve customers. I think one other interesting phenomena will be how both Walmart and Amazon (Whole Foods), utilize their physical store assets to deliver experiences and savings customers want. Walmart recently launched a discount for items ordered online and picked-up in store. I anticipate Amazon will launch something similar in their Whole Foods locations.

    The Chinese market has its own challenges and fierce competitors. As Levent mentioned, Alibaba is an incredibly strong competitors that rivals Amazon’s dominance in the U.S. However, one other competitor to keep an eye on is Tencent. Through its WeChat platform and ownership stake in JD.Com, Tencent could be poised to give Alibaba a run for its money. In my opinion, even though it may be early in the Chinese eCommerce game, Amazon has fallen behind and should seek to partner. As we’ve seen with other large companies trying to take-on local competitors (Uber vs. Didi Chuxing), often times the local incumbent brings too much expertise for foreign competitors to gain traction, often leading to massive losses.

    1. I agree China will be tough. I think the market is so big that it may be worth trying anyway, but they should definitely not underestimate the uphill battle that it will be. I’m curious Drew about your thoughts on how they could partner with Alibaba or Would it be in the form of investing in one of those companies? Or how could they partner without giving away things that could make it easier for or Alibaba to compete with Amazon in SE Asia or India or wherever they are likely to be battling in the future.

  3. Similar to Drew and Levent, I am skeptical about Amazon’s ability to beat Alibaba in the Chinese market. Primarily due to regulations that limit the ability of foreign companies to compete, China has developed its own “alternate web universe.” [1] This means that local players, in particular, and Alibaba, continue to dominate the market. [1]

    I think what will ultimately help Amazon compete with its US players is its ability to have a dense global supply chain that its US competitors might not yet have access to. If the regulatory environment remains the same, however, I doubt that this edge will help the company compete successfully in China. If anything, the outlook remains bleak. For example, Amazon recently sold off its cloud assets in China as a result of more stringent government regulation on online data in the country. [2]

    Despite the setbacks, Amazon has not thrown in the towel just yet. The company is continuing to do aggressive talent recruitment in China, with over 400 jobs posted on its career portal for the country. [1]

    [1] Amazon’s China Hiring Signals Renewed Ambitions in Alibaba Battle. Bloomberg Technology. September 2017.
    [2] Cadell, Cate. Amazon sells off China cloud assets as tough new rules bite. Reuters. November 2017.

  4. Amazon has made enormous strides in terms of reducing costs to customers and improved speed of delivery but hasn’t made it a priority to reduce the environmental impact of their business. The amount of packaging material is increasing since suppliers are trying to use minimal box sizes to fit a variety of products, thus subsidizing the space with packing peanuts. More and more packaging materials is leading to more waste that isn’t being recycled properly.
    I personally don’t think Wal-Mart, Macy’s, and Costco pose a real threat to Amazon’s e-commerce channel for the short term. They each have their advantages and disadvantages. Amazon has a large variety of products and it’s the convenience factor of having it delivered to you. Brick and mortar stores have the satisfaction of being able to go to the store and immediately buy or try something and use it.

  5. Great topic, Aaron! This made me think of something I read this past summer about how Amazon continues to modify its “customer promise” alongside its shifting operating model. Tech blogger, Ben Thompson, notes the evolution from: “’s objective is to be the leading online retailer of information-based products and services, with an initial focus on books.”… to: “Our vision is to be earth’s most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.”… and ultimately to where Amazon stands today: “Our vision is to be earth’s most customer centric company.” [1]

    Amazon’s latest vision, to me, represents a shift away from pure e-commerce towards investment in infrastructure and spaces that can reduce the burden of delivery (echoing Drew’s concerns about last-mile delivery). I see this having several implications in terms of Amazon’s ability to beat-out competitors in the US and China:

    1) In China (and Asia more broadly), will Amazon be able to understand and build-out the infrastructure needed to scale its quick delivery model? In our Marketing class, we discussed how Zalora’s deep market knowledge for Southeast Asia pushed it to scale a cash-on-delivery and hyper-localized model. Will Amazon be able to manage the cultural and infrastructural needs in Asia to replicate such models at scale?
    2) In the US, we see increasing concerns of Amazon’s “big brother” aspect, particularly as they occupy physical space, which might diminish the consumer trust at the core of the business model. Some speculate that launching Amazon HQ2 via a public forum was one way of quelling its invasive image. Nonetheless, Amazon must be thoughtful about how it toes the line of value-additive personalization and expansion that invades privacy and escalates consumer distrust.

    [1] Ben Thompson, “Amazon’s New Customer,” Stratechery,, Accessed November 29, 2017.

  6. Thanks Aaron, I love reading positive articles about Amazon 🙂

    Amazon has done great strides in optimizing their inbound supply chain in terms of getting products from vendors in their warehouses in the shortest time possible and I agree that a lot of their practices can be used as best-in-class examples of operational excellence. Drew brings up an interesting point – an even bigger opportunity to all e-commerce players now is around the last mile delivery both on the cost-cutting side and on the customer-promise side to the point where they are intertwined. Consumers are having increasingly high expectations to receive products faster virtually for free and Amazon is embracing this by offering free one-day and even one-hour delivery with Prime Now in certain cities. Satisfying this customer promise adds another level of costs to the P&L of retailers and it will be interesting to see how each one (especially smaller direct-to consumer brands) respond to these pressures and who from the big players first (or if anyone) sacrifices an aspect of the customer promise in order to save on costs.

  7. Great write-up Aaron! Definitely agree, Amazon is doing some amazing things in leveraging technology and digitalization to enhance not only their supply chain expertise, but the customer experience as well.

    However, I would challenge their ability to penetrate a market like China, where the incumbent Alibaba is already so well established. Rather than negotiate import agreements to China, which would make simply flipping the supply chain transfer lanes a bit tricky, and competing head to head with Alibaba in its home market, I think more value could be unlocked in further vertically integrated in markets like the US. As you mentioned, they’re already doing this with shipping freight and airplane distribution, but could they take this further by even integrating into production for several key products? In this case they would increase their margins even more.

    Also, if Amazon continues to leverage digitalization to expand their global supply chain, I wonder what negative impacts this would have on society as a whole. We are always worried about monopolies but with an integrated global supply chain that is more efficient than any of its competitors, Amazon would hold a lot of power in the distribution business. So far, Amazon’s main competitive advantage has been simplicity and ease of delivery. But by vertically and globally integrating, they could reduce the prices on items further than just waving shipping fees, which could drive a lot of competitors out of business and Amazon into higher power [1].


  8. Thanks Aaron, It’s hard to argue that Amazon has optimized or is in the process of optimizing every element of their supply chain. They have been the industry leaders for efficiency, transparency, and cost for shipping – beating out longstanding government incumbents and ultimately delivering real beneficial value for their customers.

    You asked if 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? Coming from this background, I would argue that its not their supply chain that poses a treat, but their assortment and curation. While Amazon wins out in many categories, they are lagging in the traditional retail categories of Apparel and Accessories, which are increasingly falling to ecommerce players.

    Yet there is no arguing that Amazon’s power is leaving few scrapes for the others. As we’ve seen with Kiva, the DC automation company they acquired that you mentioned in your essay, existing retailers may need to start thinking of Amazon as a friend – not foe. The Kiva acquisition left a major technological gap, as many retailers were using the technology in their DC’s when it occurred. Amazon decided to take the technology in-house in April 2015, renamed it Amazon Robotics, and “encouraged prospective users of Kiva technology to let Amazon Robotics and Amazon Services provide fulfillment within Amazon warehouses using Amazon robots.” This is one example thats indicative of their ability to manipulate and control the entire industry by way of acquisition and bargaining power. From that perspective, I think they’re unstoppable in the US.

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