Amazon Supply Chain Services: Logistics Cloud for Uncertain Times
Businesses can now tap Amazon’s logistics capabilities for cost savings, execution expertise, and resilience – but be mindful about protecting customer data.
Amazon recently announced a new service selling its full suite of logistics capabilities to big business customers. In a move reminiscent of its 2006 launch of AWS, the company is now offering variable cost shipping, warehousing, and inventory management to operations leaders across industries. The announcement comes at a propitious time for supply chain leaders trying to cope with an unpredictable world.
An Urgent Need for Resilience
Uncertainty is the new normal, with geopolitical conflict, trade wars, and inflation anxiety blowing up the lean, low-cost, customer-is-king economy that most supply chain practitioners grew up with. Resilience is the newest must-have trait for companies hoping to please customers and investors.
Zero100 recently surveyed 100 supply chain leaders on the topic to understand how they’re coping. We split the sample into those with more advanced digital risk management capabilities (Leaders) and those with less (Followers). There is a clear gap. Leaders are much more likely to routinely consider inventory planning, logistics, shipping, and network design than Followers, who are more likely to fall back on suppliers to handle risk.
In other words, Leaders’ resilience strategies map perfectly to Amazon’s offering, but on a by-the-drink basis.
Why Amazon?
When Covid hit, Amazon’s online shopping volumes spiked 50% almost overnight. The bump in scaling an already massive logistics network left Amazon with spare capacity. Like the buildout of its data centers 15 years earlier to handle peak holiday season network traffic, that extra capacity needs to be put to use.
The original cloud business, Amazon Web Services, has been a profit engine since. Cloud computing for businesses like Netflix, Airbnb, BMW, and Coca-Cola provides revenue in non-peak months from January to August. Amazon Supply Chain Services hopes to do the same thing, albeit at much lower margins.
What’s in It for Customers?
Cost Savings – Amazon’s early customers include Procter & Gamble and 3M, neither of which experience the seasonal holiday spike in demand. This should mean reasonable costs for consumer deliveries during off-peak times.
And even during the holiday peak, Amazon’s existing last-mile network can be expected to get higher drop densities and route affinities, both of which reduce unit delivery costs while improving service performance, assuming Amazon shares these savings with customers.
Also, since Amazon’s offer includes business-to-business services, shipping raw materials or semi-finished goods between factories, middle-mile assets like containers, long-haul trucks, and aircraft could also be available at low costs.
Execution Expertise – With a logistics network built from the ground up around clean data, Amazon’s SCOT (Supply Chain Optimization Technologies) has led in applying analytics to supply chains. This includes decades of experience with AI, machine learning, and robotics. For customers, these capabilities could enable better inventory placement, lower safety stocks, and fewer out-of-stocks.
It also means Amazon’s knowledge of robotics, materials handling systems, and packaging optimization becomes available to customers able to collaborate with Amazon account teams to plan orders and build cases or pallets. Expect these technical services to evolve in the same way that AWS services grew to include technical consulting on everything from blockchain to edge computing.
Resilience on Demand – Maybe most important is Amazon’s ability to scope and price resilience-related services like stockpiling inventory to manage tariff risks or shifting volumes from West Coast to East Coast to avoid port strikes. The lessons Amazon has learned in dealing with regulation, labor unrest, energy costs, and even natural disasters become a shared resource for its customers.
The killer app may be the ability to drive growth without making lumpy capex bets on logistics assets that take time to scale and end up either written off as white elephants or subscale facilities that don’t deliver strategic value. The fact that both UPS and FedEx stocks took an immediate hit when the news broke says a lot about what this means to the logistics services business.
What to Do
For most big shippers, this is good news. Check out Amazon’s offer before making any new bets on logistics investments, but bear in mind little is proven so far.
One watchout for retailers: Stores are part of your logistics network, but also an essential element of the consumer value proposition. Amazon Supply Chain Services could work for you, but at the risk of disintermediating you from your customers and their data. Data that helps protect and grow the lifetime value of shoppers includes store, online, and fulfillment interactions. Be careful to protect this data.
Author Note: Kevin O’Marah worked as a director at Amazon between 2018 and 2021.