Taking Shipping Full Digital with Amazon

Amazon is leveraging its deep engineering skills to quietly upend the traditional e-commerce fulfillment chain.

As an e-commerce leader and tech giant, Amazon is well positioned to take advantage of rapid advances in supply chain digitalization, consumer tech development, and automation to improve its operations and continue to stay ahead of competitors.

As Amazon’s e-commerce operations have grown explosively, so have its shipping and logistics costs. In 2011 Amazon spent over $11B annually on shipping alone [1] and those costs can easily rise as Amazon demands more and more speed from its shipping partners. Both shipping price and speed are key to Amazon’s strategy to woo consumers away from brick and mortar shopping, and even minor improvements in either can greatly increase its competitiveness and dominance in the US market while delivering a best in class customer experience. Developing new ways of applying technology advances to all phases of fulfillment (warehousing, packing, freight transit, last mile shipping, etc.) is Amazon’s best bet for capturing improved value that can be passed on to the consumer.

Recently, Amazon has rolled out new products and services that greatly improve efficiencies and experience for both external and internal customers. These developments seek to reduce cost by improving inventory placement, delivery speed, and successful delivery completion through innovative takes on the end-to-end fulfillment.

On the internal side, Amazon’s experiments with anticipatory shipping have been designed to leverage its deep understanding of its customers to move inventory close to their predicted destinations before consumers even make a purchase decision. With its recent patent for anticipatory shipping [2] Amazon revealed its plan use advances in machine intelligence to move inventory across its fulfillment centers using cheaper (but slower) freight haulers ahead of time in order to avoid costlier forms of rush shipping to satisfy consumers’ demand for rapid fulfillment. This strategy is further supported by Amazon’s existing “Subscribe & Save” product (which is also consumer-facing) which offers consumers 5-15% discounts [3] in exchange for bundling monthly shipments of regularly consumed goods. This bundling strategy enables Amazon to leverage the same lower-cost shipping methods to get inventory close to consumers at predictable demand and cost.

On the consumer-side, Amazon has recently begun experimenting with new means of ensuring delivery completion with Amazon Hub and Amazon Key. These were developed to combat the high costs of replacing packages stolen from customers’ doorsteps and are low-hanging fruit for improving operations through digitalization at the final step of the fulfillment chain [4]. Both products tackle the same problem of securing package pickup but for different consumers; multi-unit building dwellers and single-family home residents respectively. While Amazon Hub utilizes fairly straightforward technology (it’s a glorified smart locker), Amazon Key is a much more innovative IoT solution. Amazon customers who purchase a Key kit enable Amazon carriers to securely deliver packages inside a home, utilizing the included smart lock for the front door and Amazon Cloud Cam to record and secure the process [5]. If this unique digital strategy is successful, Amazon will simultaneously please its customers and bottom-line with the elimination of lost packages at the last mile.

Looking forward a few years, Amazon is beginning to make moves towards applying its digital prowess towards the “middle mile” portion of the supply chain through experiments in freight ground and air transportation. Amazon recently announced new leases of freight aircraft and trucks [6] and its believed that Amazon could save as much as $1B by shipping its own packages [7]. It’s easy to see that once Amazon better learns the intricacies of managing freight logistics on its own it can begin to build innovative digital solutions (a la Amazon Key / anticipatory shipping) to further improve those cost savings. To that end, new leaks have shown that Amazon is already experimenting with driverless trucking [8] and new means of managing truck fleets with an “Uber for trucks” [9]. Amazon has a unique opportunity here (despite Uber’s recent launch of an identical product [10]) because it can guarantee demand for participating drivers as a result of its massive package volume.

To keep up this rapid pace of digitalization in its supply chain, Amazon needs to continue investing in experiments at leveraging its strengths in big data and machine learning to further improve end-to-end fulfillment. As the established dominant player in its market, Amazon has the freedom to try wild ideas (such as Amazon Go) that upend the current logistics paradigms. It’d be great to see Amazon use its impressive resources to push into new realms such as reforming the US rail system, improving truck load utilization, moving towards all-renewable fuel sources, and utilizing last-mile manufacturing, all powered by efficiencies gained through digitalization, in ways that only Amazon can.

For Amazon to win in improving its fulfillment processes will lead to wins for the consumer, in lower costs, improved experience, and better environmentalism. However much of these wins will be achieved through digitalization of the supply chain that inevitably involves cutting human jobs, which may be a major political and human issue for Amazon to solve in its future.

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[1] Bensinger, G. & Stevens, L. 2016, Amazon’s Newest Ambition — Company, a partner to UPS and FedEx, plots to deliver its own packages amid rising shipping costs, Europe edn, Brussels.

[2] Lomas, N. (2017). Amazon Patents “Anticipatory” Shipping — To Start Sending Stuff Before You’ve Bought It. [online] TechCrunch. Available at: https://techcrunch.com/2014/01/18/amazon-pre-ships/ [Accessed 15 Nov. 2017].

[3] Amazon.com. (2017). Amazon.com: : Subscribe & Save Learn More. [online] Available at: https://www.amazon.com/b?node=15283820011 [Accessed 15 Nov. 2017].

[4] Popper, B. (2017). Amazon Key is a new service that lets couriers unlock your front door. [online] The Verge. Available at: https://www.theverge.com/2017/10/25/16538834/amazon-key-in-home-delivery-unlock-door-prime-cloud-cam-smart-lock [Accessed 15 Nov. 2017].

[5] Popper, B. (2017). Amazon Key is a new service that lets couriers unlock your front door. [online] The Verge. Available at: https://www.theverge.com/2017/10/25/16538834/amazon-key-in-home-delivery-unlock-door-prime-cloud-cam-smart-lock [Accessed 15 Nov. 2017].

[6] Bensinger, G. & Stevens, L. 2016, Amazon’s Newest Ambition — Company, a partner to UPS and FedEx, plots to deliver its own packages amid rising shipping costs, Europe edn, Brussels.

[7] Bensinger, G. & Stevens, L. 2016, Amazon’s Newest Ambition — Company, a partner to UPS and FedEx, plots to deliver its own packages amid rising shipping costs, Europe edn, Brussels.

[8Amazon Studies Driverless Ideas — WSJ 2017, , New York.

[9] Morris, D. (2017). Amazon To Add Trucking App to Shipping Network Push. [online] Fortune. Available at: http://fortune.com/2016/12/17/amazon-trucking-logistics-app/ [Accessed 15 Nov. 2017].

[10] O’Kane, S. (2017). Uber launches Uber Freight, its app for long-haul trucking jobs. [online] The Verge. Available at: https://www.theverge.com/2017/5/18/15657798/uber-freight-truck-app-ios-android [Accessed 15 Nov. 2017].


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Student comments on Taking Shipping Full Digital with Amazon

  1. It is really fascinating to see what Amazon has been doing with its supply chain by leveraging its technology capabilities. I have heard about anticipatory shipping, which is a technology that combines big data and machine learning. But the Amazon key is something completed new to me, and I do agree with you that regulatory factors need to be considered for those type of disrupted services.

    Supply chain innovation is a never ending game, there are always faster and cheaper ways to deliver items from locations to locations. Being the industry leader, Amazon should take the lead in developing more disruptive technology, and work with government to mitigate the risk associated with the social impact of those technology.

    I am a supporter of new and disruptive technology. In the short run, it might be create social impact such as people losing jobs; but in the long run, with proper training and development, people can learn to operate and work with new technology and make more money.

  2. Hey Tim,

    Thanks for writing this article. It was quite interesting!
    My biggest concern with Amazon Hub and Amazon Key would be customers feeling a threat to their personal security? Can burglary be a concern in this case and if yes, how Is Amazon thinking of addressing this? Can it be addressed securely through IoT?

    The second thing is – Has Amazon thought of Delivery through drones? Given that they are using the machine learning to predict customer patterns on purchases.

  3. Hi Tim,

    Thank you for writing this – I love reading about all that Amazon is experimenting with! I completely agree with Kushaboo, my biggest fear is that the “smart key” technology will pose a massive threat to security. While Amazon may be able to innovate around burglary (e.g. through advancements in A such as facial recognition, remote authorization (I could see a video-type intercom solution)), I worry about three things:
    1. This will isolate high-net-worth or high-security customers: For example, if the customers were high-security clearance individuals, there is no incentive to put their personal safety, or geopolitical safety (in some situations) at risk.
    2. Higher risk of hacking: As homes become more interconnected through IoT, there is a greater incentive for hackers to break into homes and gain access to personal data as well as physical locations.
    3. Time lost dealing with unrelated issues: Tech problems with a smart key will not only impact the delivery system but consumer’s ability to interact with their daily life. The time lost dealing with these complaints and the resulting decrease in customer perception is a huge risk.

    @Kushaboo: I have heard that Amazon has been experimenting with drones! I have attached a few links here; it’s incredibly exciting!

  4. Lots to reflect on for this one. Similar feelings to Khush and Olivia about Amazon Key. But I loved the little nugget about the railroads you have in there. I’d love to see them revitalize/re-imagine freight in ways that others can benefit from, and that make better use of these legacy transportation systems we have strewn across the country.

    Also curious to see if they could offset some of the job losses from warehouse automation with their plans for their own air freight hub (Source : https://www.recode.net/2017/1/31/14462256/amazon-air-cargo-hub-kentucky-airport-prime-air)? I’d imagine that that Kentucky operation will still require plenty of humans, and could be one way to at least be able to claim low company-wide low job losses due to automation. Whether warehouse employees can transition to air freight hub employees is unclear to me, but I’d imagine there would be a retraining cost to Amazon. And I’d also imagine that the $40M in tax incentives Amazon got from local governments for the Kentucky project promise local jobs.

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