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digital freight

The Fifty Shapes of Amazon Logistics

Digital and physical are reaching a point of total convergence, something that would have been unheard of 20 years ago. Companies like WholeFoods and Amazon are changing up their logistics goals in a big way, something that is likely to ripple through other similar industries.  

Amazon Tips its Hand to Logistics  

It’s unarguable at this point that Amazon has a knack for developing an in-house system and turning it into a massive profit generator down the road. We’ve seen it before with Amazon cloud computing when the company needed to boost its data handling capabilities. Now Amazon’s cloud drive, known as Amazon Drive has become a for-profit service that is used around the world.  

So what happens when the e-commerce giant turns its eye towards logistics?  

Amazon Logistics  

We’ve seen over the past few years that Amazon isn’t content to wait for packages to be delivered at someone else’s pace. With Amazon Prime, subscribers have grown accustomed to two-day delivery, a feat which has made smaller companies buckle under the weight of consumer expectation. Not content to rest on their laurels, however, Amazon is pushing the envelope again towards next or even same-day delivery. Banking on the fact that as more people realize they can get their items delivered even faster the more people will sign up for a Prime Subscription. And so far the gamble has paid off.  

“Driven by Prime Free One-Day Delivery and Free Same-Day Delivery, it was another year in which Amazon was able to set shipping records. That was rewarded with a 4% surge in its stock. It now sports a market capitalization of $927 billion,” says the MotleyFool. 

“For the holiday period, the tech giant set records for the number of people who tried Prime. In one week alone, Amazon said five million new customers either began a Prime membership or started a trial. The number of items delivered via Prime Free One-Day and Prime Free Same-Day Delivery nearly quadrupled compared to a year ago,” the Fool adds.  

This year, Amazon’s in-house logistics delivered more than 3.5 billion packages compared to FedEx’s 6 billion. Which isn’t terrible when you consider the fact that Amazon started as an internet book store. What’s more, is 60 percent of Amazon customers opted to ship to an Amazon drop point to pick up the packages themselves, further pushing back FedEx, UPS, and the United States Postal Service.  

It wants to control everything from shipping out of the warehouses to delivery to customers’ porches.

“It wants to control everything from shipping out of the warehouses to delivery to customers’ porches. That requires large upfront investments. In the second quarter of 2019 alone it spent $800 million to expand its one-day delivery for Prime Members. It’s also investing $1.5 billion to develop an air hub in Kentucky that’s slated to open in 2021 and will be home to fifty aircraft. Amazon announced its Delivery Service Partner program in May, enabling entrepreneurs to create delivery networks to handle last-mile deliveries for Amazon. The company is also investing tons of money into drone technology and, in June, debuted its Prime Air Drone design,” reads the Fool.  

Building their own in-house logistics network means less reliance on the now “competition” and giving their customers little reason to shop anywhere else. Amazon is also hedging a bet that by using its own logistics network, it can eventually cut down on the cost of packing and delivery.  

The Convergence of Digital and Physical and the Reimagining of the “Store”  

Amazon building its own logistics network is also changing the landscape for the traditional brick and mortar retailers. Within the past two years, we’ve seen the fall of some major retailers like Toys R’ Us and Bon-Ton. These companies are among those that lacked the ability to grasp the importance of a digital presence and the shape of consumer expectations. As we enter into a new decade, many traditional retailers are beginning to change the way they do business, which might be the only thing that keeps them out of Amazon’s massive shadow.  

“Shopping malls and physical outlets may have seen their best days for foot traffic. However, they have been given a new “lease” on life as fulfillment locations. Retail giant Target Corp. uses virtually all of its 1,900 stores as fulfillment locations, and about 80% of its online orders are fulfilled through a store. The new decade will see an increasing convergence of digital and physical operations as brick-and-mortar locations are positioned as hubs closer to the customer and e-commerce sites direct more package delivery to retail outlets, ABI Research said in a late December study,” reads an article from Yahoo! Finance. 

As e-commerce takes an ever-larger share of total retail sales, the strategy and execution of delivery networks will become the axis of success.

“As e-commerce takes an ever-larger share of total retail sales, the strategy and execution of delivery networks will become the axis of success. Regardless of the industry, logistics will increasingly be the difference between an enterprise’s success or failure,” the article continues.  

Even grocery stores are changing the way they serve their customers. 20 years ago, we never would have considered ordering our produce and perishables online, especially not for delivery, yet new startups like Misfits Market and Butcher’s Box are doing just that. Virtually every major grocery store chain now offers some form of digital grocery shopping where customers can order their items and have them delivered to their car in the parking lot.   

These are just some of the changes we’ve seen in the past few years, but some grocery stores are taking it to a whole new level.  

A True Change of Pace for Whole Foods 

Perhaps one of the biggest changes in the grocery scene is what we’re seeing from Whole Foods. The organic food market was purchased by Amazon in August of 2017 and under the titan of commerce’s influence has become a supplier for other retailers. How have they been doing so far and what does that mean for their logistics network? Download our White Paper about the subject and learn how you can establish processes and systems that are in line with supermarkets and retailers’ requirements, such as On-Time and In-Full (OTIF) or Must Arrive By Date (MABD). 

How Can SMBs Contend With Big Box Retailers?

Small and mid-size businesses are finding themselves in a difficult position in today’s market, courtesy of the Amazon effect. Consumers now expect free shipping and in most cases they expect it to be either two days, one-day, or even same-day delivery. That’s all well and good when you have a massive financial engine to throw behind it (having your own in-house logistics and distribution network doesn’t hurt either) but for smaller companies, that’s not always an option. Instead, SMBs are left with the choice of eating exorbitant shipping fees to meet customer expectations or stick with standard delivery and risk losing their market share.  

In 2020, SMBs are going to have to make some tough decisions on how they invest their shipping and logistics dollars,

Through 2019, this tension has been growing, complicated even more so by big-box retailers, Walmart in particular. In 2020, SMBs are going to have to make some tough decisions on how they invest their shipping and logistics dollars, when and where to invest in technology over team (or vice versa), and where they can go for reliable and affordable delivery options. 

The Ever-Growing Logistics Challenge

SMBs are going to have their hands full when it comes to figuring out the best route to go for logistics, especially when trying to keep up with Big Box Influencers. Walmart has put a tight fist on logistics with its MABD and OTIF policies. In an effort to keep products on the shelves exactly where and when they need them, the retail superstore has begun punishing carriers who don’t deliver everything they are supposed to, exactly when they’re supposed to deliver it. Given that Walmart is an incredibly lucrative contract for carriers they will, of course, oblige. Ensuring that Walmart gets exactly what it needs. 

SMBs don’t typically have that sort of clout, however. So what options do they have available to them? Understanding that their customers expect a new level of service that would never have been considered as possible 20 years ago, SMBs will have to look at alternative logistics strategies to ensure that their customers are happy while keeping profit margins in the black. 

Knowing where to Source Carriers

Knowing where to source carriers from is among the top challenges for SMBs. Sure, there’s a UPS store down the street, but is that the most cost-effective means of shipping out goods? There’s also a USPS in every town on the map, but will they get products there on time? These are just some of the questions that SMBs will have to be able to answer. 

All of these questions and variables make it incredibly difficult for smaller companies to come up with a stable plan for their logistics.

There’s also the matter of fluctuating shipping rates, and tightening capacity, which are subject to change with seemingly little or no notice. All of these questions and variables make it incredibly difficult for smaller companies to come up with a stable plan for their logistics. Most of them are resigned to the fact that they will have to increase their shipping and logistics budget and hope for the best. 

Investing in Technology

Tech is another difficult consideration for SMBs. On the one hand, many companies realize that it’s important to have the right technology solution in place. On the other hand, it can be expensive to the point of being cost-prohibitive. What technology should smaller companies invest in? What is going to help them the most to stay relevant and viable in today’s market? These are questions that don’t always have an easy or straightforward answer and that tends to make smaller companies more hesitant when deciding how to invest their logistics dollars. 

Taking a Lesson from the Big Box

If Amazon and Walmart have taught us anything it’s “if you can’t beat ‘em, join ‘em.” Amazon has taken several pages from their competitors’ playbooks and made it work for their own operations and the same can be said for Walmart.  Learn more about the supplier retailer relationship from our whitepaper here.

In addition to managing the relationship with shippers, it might also be time to involve the financial experts that are in your industry.

In addition to managing the relationship with shippers, it might also be time to involve the financial experts that are in your industry. Many businesses tend to compartmentalize their logistics and their C-Suite when ultimately, both have tools and skills that the other needs to not only survive but thrive. We’ve also got something to say about that as well.

Lastly, if you still have questions about how to compete with the big box stores or make your logistics dollars go further, let us know. The BlueGrace expert team is ready, willing, and able to answer your questions and to help turn your business into a lean, green, logistics machine it was always meant to be.  

Amazon’s Next Frontier: The Food and Grocery Business

Amazon has already proved its mettle in the e-commerce space and in the distribution sector. Earlier in the year the company also staked its claim in the digital freight brokerage industry. Now, it has set its sight on the grocery business.   

Amazon’s Grocery Connect 

Unlike its other ventures, the retail giant’s foray into the food and grocery business has not been profitable — at least not yet.

For the uninitiated, Amazon is not new to the food business. It has been operating in the food and grocery sector since it acquired Whole Foods in 2017; Amazon Go stores; and its fresh grocery delivery service. However, unlike its other ventures, the retail giant’s foray into the food and grocery business has not been profitable — at least not yet. According to an article published in The Motley Fool, Amazon’s CFO Brian Olsavsk speaks about the company’s latest quarterly results saying, its sales from physical stores, which are principally Whole Foods revenue, were actually down by 1.3% from the previous year — “this is the only major segment of Amazon’s net sales that didn’t show any growth”. 

This has not dissuaded the company from making further investment in the food and grocery business though. Early last month, it announced its plans to launch a new brick and mortar food and grocery store brand. The first store will be opened Woodland Hills, California in 2020.  This new business will be separate from its existing food and grocery business.  

With this announcement, one can say with certainty that for next year, one of Amazon’s major business goals will be to acquire a large slice of the global grocery and food retail market which is estimated to be worth USD 12.24 trillion by 2020

What will be different in the new venture?  

While Amazon has a presence in the food business, its reach has been limited. According to news reports, Amazon is aiming to reach a wider customer base. While Amazon’s Whole Foods business caters to the high-end customer, the new stores will be designed to cater to mid and low-income households. The new stores are expected to enable Amazon to offer their customers a range of products more in line with other large retailers like Walmart, Costco, and Kroger.   

In an article in Forbes retail expert Neil Stern, explores in-depth what the customer can expect from Amazon’s yet to be named new grocery venture: 

  • The new store will be omnichannel from the beginning 
  • It will have ample space for in-store picking and holding facilities 
  • The focus will be on mainstream products 
  • It will be more price-competitive than the Whole Foods business  
  • It may focus more on Amazon’s private label  

Will technology be a part of the new venture?  

Anything that Amazon does is powered by technology.

Anything that Amazon does is powered by technology. So it goes without saying that technology will be a large part of the newly announced grocery venture as well. In his article, Neil shares that the new store might not be as tech-savvy as the facilities available at Amazon Go stores. Further adding that technology in the new store might not be immediately scalable.  

Irrespective of the level of savviness, we can safely assume that technology will play an important role in the store, if not initially, then going forth.  

What’s in it for you?  

Business opportunities.  

Anyone associated with the business world knows, Amazon works on a large scale. The new grocery venture will sell a wide range of products. To run this operation efficiently and competitively, Amazon will need to source products from a variety of suppliers. And for this, the e-commerce behemoth will need to enlist a large number of suppliers.   

While working with a large scale operator like Amazon has its perks, it also has stringent requirements. Organizations like Amazon expect high quality, regular supply of goods, and adherence to delivery timelines from their suppliers. Given the fact that the e-commerce giant is a technology-driven company, it will also look for tech-savviness in its business partners.  

So, what are the qualities required to become a supplier for such a large scale venture? 

You need to have a rigorous inventory management system, a strong forecasting technique, and a well-managed distribution center. 

While the company will share what it would look for in a supplier, there are a few things that are usually expected from suppliers working with large scale multinational companies such as Amazon: 

  1. Quality products: There can be no compromise on this ever. The product, packaging, and delivery all have to follow a set standard. Any deviation from the standard can lead to losing the contract.  
  2. Technology: Technology is gradually taking over the retail space. Data transfer, reports, and invoicing are all done electronically, usually with the help of specialized software. Suppliers need to ensure that their organization is not only able to transfer required data in a systematic way electronically but is also connected internally through technology. This will help ensure both accuracy and speed in work and data exchange.  
  3. Strong supply chain: A robust supply chain with end-to-end visibility is an essential requirement to do business with large scale organizations such as Amazon. For this, you need to have a rigorous inventory management system, a strong forecasting technique, and a well-managed distribution center. 
  4. Reliable transporters: Another important factor in successfully servicing a large retail store chain is a reliable transporter/carrier with a well-connected network and a good track record of on-time delivery.  

To know what other factors come into play for qualifying as a supplier for a large, food and grocery retail chain, download our whitepaper  Whole Foods: Thriving as a supplier in the complex supermarket supply chain.  

The food and grocery retail landscape is set to change with new technologies being adopted by the retail leaders. To cater to them and work alongside them, their suppliers will also have to deploy modern technology in their business.  This is where we can work with you to make your supply chain – Amazon ready or any food and grocery retail business ready.  To know how we can assist you in getting there, connect with our team at 800.MY.SHIPPING or fill out the form below.