By Tim Lindner
Since 2011, when I began contributing to this magazine, I have keep an eye on Amazon, reporting on its patenting activity around logistics processes, its use of robotics and other automation in the ongoing improvement of its fulfillment centers, and the strategic positioning of these centers close to high-density population centers to support its quest for same-day deliveries. All of these endeavors have been undertaken to position Amazon as the premier ecommerce fulfillment merchant.
We have more recently seen its efforts to move to directly control transportation (air, sea, and land) to reduce dependency on the established third-party logistics giants such as UPS.
There has been a consistency to these developments, notwithstanding their breadth, depth, and velocity. These are developments that supply chain, logistics, and ecommerce competitors can readily understand and in the case of competitors, develop and deploy counter moves.
Similarly, ecommerce competitors such as Wal-Mart can readily understand Amazon’s supply chain and logistics developments and it can argue that Wal-Mart has been the most successful in keeping pace with Amazon.
We are now in mid-2017, and as this column goes to press, stunning new announcements by Amazon have introduced a shift in its apparent strategic direction from linear logistics to an unexpected, indirect envelopment strategy that in the words of one major media commentator has instantly rendered some of Amazon’s competitors’ three-year plans obsolete.
In business development terms, in the blink of an eye, Amazon acquires 450 brick and mortar upscale grocery stores most of which fall into the high density population geographic areas in which Amazon is building new fulfillment centers, and in which Amazon’s own delivery service can offer same day delivery.
At the same time, it is positioning itself as a provider of higher quality ready-to-make packaged meals that will compete with what Blue Apron provides, and while Blue Apron depends upon UPS and FedEx, Amazon can use its own delivery service to better control the “last mile” experience (and cost) to the customers’ homes.
Amazon’s has brought two American brand icons, Sear’s Kenmore and Nike, into its direct product offerings. The two brands have long-resisted doing this, but for different reasons each have conceded to Amazon’s selling power.
Nike products have been selling online for years through Amazon’s army of independent merchants. This has eroded Nike store sales and Nike’s own online selling efforts.
Sear’s Kenmore line of appliances, once the dominant brand in the U.S. that could dictate terms to its suppliers such as GE and Whirlpool, have suffered significant loss of marketshare during the continuing closures of Sears store location. I know this because I worked at GE Appliances when Sears was the dominant customer. Its fall from grace has been spectacular.
Since it began in 1994, a mere 23 years ago, Amazon has become one of the few companies to have a valuation exceeding $500 billion.
Its founder, as of late July, became the richest man in the world.
The stunning implication in all of this is that Amazon can make or break a market at a speed that far surpasses the ability of any other company I have watched evolve. Its supply chain investments bring a level of infrastructure cohesion and efficiency that only a few other companies on the planet can match. Buying a company with 450 retail locations adds an additional omnichannel fulfillment option to its mix in a market that it wants to dominate.
The power of Amazon to suck up scarce resources is dramatic. One of the fastest growing job segments in the U.S is warehouse labor, with more than a million jobs tied to order fulfillment activity. At the beginning of 2017 Amazon announced that it would hire an additional 100,000 people for domestic U.S. operations and this August will hold a job fair to fill 50,000 of those jobs (in time for the Christmas order rush).
Amazon distribution centers are typically found in places where there are clusters of distribution centers at strategic interstate highway intersections that can reach millions of customer within 24 hours. The growing issue within these clusters is the increasing lack of workers. There are only so many people that live in the Harrisburg, Pa., area, one of the largest eastern region cluster zones. For workers, it is becoming a buyer’s market and companies struggle to retain a warehouse worker when a competitor across the street offers a higher base wage and better piece-work incentive program.
I encounter the power of Amazon every day working with distribution center operators as they consider how to update their operations to compete with Amazon. Most of them cannot afford the high end automation that Amazon deploys, and they struggle with the warehouse worker scarcity issue.
My point to all this is that what Amazon does forces everyone else in supply chain, logistics, ecommerce, and now food distribution to react. Amazon’s speed to market and surprise-attack announcements create an escalating sense of urgency in companies that have to compete with it. Most companies take time to make changes, and available capital for the investment in technology upgrades is scarce especially in low margin businesses.
I have this growing awareness that Amazon is accelerating the pace of technology adoption among its competitors and its supplier as well. Twenty years ago, everyone had to keep up with Wal-Mart. Now, Wal-Mart has to keep up with Amazon.
As I look to 2018 through the eyes of my customers and how they are planning to acquire technology to not only catch up but try to keep pace with Amazon, the investment in change will be at a level I have not seen before. They will do it because they have one clear choice: Change or go out of business.
That is the stark reality that Amazon has created.
Tim Lindner is senior business consultant with a software company and a regular contributor to Connected World. He can be reached at email@example.com