Amazon’s recent breakup with longtime shipping partner FedEx shows how far it has come in creating its own delivery network. As consumers flock to its site for everything from toilet paper to TVs, Amazon has quietly blanketed the nation with hundreds of warehouses and package-sorting centers, flooded the streets with tens of thousands of vans and taken to the air. The costly effort is enabling Amazon to control how goods reach its customers—and increasingly turning it from a customer of delivery companies into a rival. Here is The Wall Street Journal’s (Aug. 30, 2019) look at Amazon’s vast shipping empire.
Storing, Sorting and Shipping The 2013 holiday season was a turning point for Amazon, after orders overwhelmed carriers and led to late packages and upset customers. Since then, it has multiplied the number of fulfillment, sorting and other facilities from 65 to 400+, planting facilities near city centers across the country to be as close to each customer as possible. That has enabled Amazon to deliver more packages to doorsteps within a day, catering to demanding online shoppers.
Big Spender Amazon’s aggressive pursuit of greater shipping control and speed has raised the amount it spends on shipping and fulfillment. Those costs have risen from $5.5 billion in 2010 to $61.7 billion in 2018, and they now equal more than 1/4 of Amazon’s revenue. It spent more than $800 million alone in the second quarter to shift its standard free shipping option to next-day from 2 days.
Heavy Lifting Amazon is no longer handling a small glut of overflowing orders. It is the primary carrier of its brown boxes. The shift over the past few years is staggering. It now delivers 1/2 of its orders, up from 15% in 2017.
By Land, Sea and Air All of this means Amazon needs more ways to transport its increasing volume. Last year it created a program where entrepreneurs with their own delivery companies could begin delivering packages in Amazon-branded trucks. Amazon is also renting 60 planes, and expects to adding another 10 by 2021. It has even sought to manage ocean freight.
Classroom discussion questions:
- What unique strategies is Amazon using to expand its delivery services?
- How is Amazon achieving competitive advantage through OM? (See Ch. 2).