07 May Amazon Q1 2017 Results Part 2
Drivers and robots and planes, oh my! Amazon’s recent investments reveal the online retail giant’s continued pursuit of cutting-edge, out-of-the-box logistics strategies.
Research into Amazon’s recent corporate investments as well as comments shared by company spokespeople over the last several quarters confirm that Amazon continues to set the bar in terms of ground-breaking new approaches to warehouse logistics, distribution, and delivery — all part of the online retail giant’s mission to “remove friction between the customer and ownership of the product.”
In this, part 2 of tED magazine’s coverage of Amazon’s recent financial reports, industry expert Justin King, Senior Partner at Washington, D.C.-based B2X Partners (www.B2XPartners.com) and founder of eCommerceandB2B.com, helps shed light on the ‘distribution revolution’ Amazon is leading and the steps electrical distributors can take to successfully do battle.
tED magazine: In what ways has Amazon shifted mind-share in the e-commerce world?
King: Amazon definitely continues to raise the bar in the e-commerce distribution/delivery arena by setting new customer expectations regarding that all-important ‘last mile’ of the customer experience, which is what customers remember the most. The new benchmarks they’ve set – same-day delivery, next-day delivery, Saturday/Sunday delivery, etc. – not only resonate in the retail world, but now translate to the B2B world as well. People may not even need such fast delivery, but they’re increasingly coming to expect it because Amazon has demonstrated that it can be done. Amazon may not even be the lowest-priced provider out there (though they’re in the low-price ballpark) – the fact is that the one-click simplicity of doing business with them means more to customers than the lowest price, or, in other words, the entire customer experience they bring to the table holds greater value than any money that can be saved by using a different, less-expensive provider. We don’t price-shop Amazon because we trust that they have a “good price” and the rest of the experience they offer delivers such value. This is what makes Amazon’s approach to the market so aggressive and forces competitors to have to follow.
To some extent, if distributors adopt this type of approach, most customers will use the distributor’s website because they too value simplicity and ease of doing business over the lowest price. Distributors don’t need to be the cheapest guy on the block (they do need to have consistent pricing that customers can trust, however), but rather need to consider adopting ways to make the experience for their customers as easy as an Amazon experience. This might include simplifying the buying process through the introduction of apps which have a great search capability, contain the customer’s purchase history, and otherwise ‘remove friction.’
tED magazine: Tell us how Amazon has ‘removed friction’ through its new ‘Flex Driver’ program.
King: Amazon’s same-day service is now offered in 30 U.S. cities, while ‘Amazon Prime Now,’ which features free two-hour delivery and one-hour paid delivery, is currently available in 45 cities around the world (generally those located within a 15-20-mile radius of one of their distribution centers). Recently, Amazon added 18 airplanes to its own fleet, enabling them to no longer have to depend solely on shared assets owned by UPS, Fedex, or the U.S. Postal Service and giving them greater ability to quickly move items between their distribution centers and further control costs.
On the ground, Amazon recently instituted a Flex Driver program, which, like Uber, recruits drivers who want to schedule their own hours and shifts and can commit to ensuring that Amazon deliveries are made within the promised time period; drivers who own a cargo van can be eligible to drive for Amazon Cargo. Such opportunities for drivers typically pay between $18-25 per hour, tap into people’s growing desire to set their own schedule/be their own boss, and are app-centric through every step of the process, from package pick-up and scanning to delivery.
There’s technology involved in setting up a system like this, but it’s not something a distributor couldn’t consider doing; they could start small by hiring 1-2 delivery people to provide fast delivery and added value at that last mile.
tED magazine: How is Amazon making use of robots in its fulfillment centers?
King: Amazon advertises that it carries 50 million different products that can be delivered within two days. While they don’t necessarily share where all of their facilities are located, Amazon reportedly operates about 100 fulfillment centers nationwide; several large ones recently opened in areas like Baltimore, Philadelphia, and north Jersey and the company is scheduled to open a total of about 20 new ones in 2017. Certain sorting centers in Japan and at least one here (near Trenton, New Jersey) are automated and incorporate the use of robots which help fill orders by picking a required bin of product and delivering it to the front of the center via a system of laser and magnetic tracks on the floor, at which time live employees package it up for shipment. Without robots, the typical worker in an Amazon fulfillment center walks an average of 5-7 miles per day to fulfill orders, but robots can work 24/7/365, so they represent a more efficient approach. Add to this the fact that Amazon acquired the company that makes these robots, enabling them to best control the cost of their manufacture and use.
tED magazine: In light of these developments, how might electrical distributors compete with Amazon or learn from them?
King: That’s the key for distributors – not necessarily competing with Amazon, but at least understanding what that company is doing so that they’re better positioned to partake in ‘coopetition’ and seize the opportunity to both compete and cooperate.
Among take-away messages, I think that distributors should consider taking a hard look at how they deliver and fulfill products for customers. From vending and VMI solutions, supply chain strategies, and other ways to efficiently get their product from the branch or distribution center to the customer, distributors should continuously work to remove the friction between the customer and ownership of their product.