Tag: Amazon

OM in the News: Walmart Matches Amazon With One-Day Shipping

“Walmart wants to one-up Amazon in the fight for online shoppers”, writes Material Handling & Logistics (May 15, 2019). The world’s largest retailer is rolling out a next-day delivery service to counter Amazon’s recent move to speed shipment times for top customers to just 1 day from 2. Walmart customers in Phoenix and Las Vegas who buy at least $35 worth of goods now get free 1-day shipping. The offer will be applied to 220,000 items and will reach 3/4 of the U.S. by the end of 2019.

Unlike Amazon, which will spend $800 million this quarter to reduce delivery times, Walmart said its shift will actually cost the company less since the items will typically come in just one box from a single warehouse that’s closest to the customer. Keeping a tight lid on expenses is paramount for Walmart, whose domestic e-commerce business isn’t profitable. Walmart has plowed billions into e-commerce to carve out a piece of the market where Amazon rakes in almost 50 cents of every dollar spent online.

The next-day shipping applies to a broad range of merchandise — up to twice the number of items found in a typical Walmart supercenter — and include paper towels, dog food and diapers. Unlike Amazon’s 1-day delivery, which is available for its Prime customers who pay an annual fee of $119, Walmart’s service will be available without a fee.

Walmart will rely on its existing network of national and regional transportation companies to handle deliveries. For the past year, Amazon has offered to help entrepreneurs fund startup delivery businesses to expand its own logistics capacity. Walmart, meanwhile, has experimented with having its staffers make deliveries on their way home from their shifts.

Classroom discussion questions:

  1. What are Walmart’s strengths and weaknesses in this battle?
  2. How do the strategies of the two giants differ?

OM in the News: “Alexa, Manage My Warehouse”

As e-commerce order volume continues spiraling upwards while delivery windows shrink, warehouse workers need innovations to meet picking, packing and shipping goals, writes Supply Chain Dive (April 30, 2019). Speech recognition software and voice-directed applications have been used in warehouses since the late 1990s. Even with continued technological advancements, though, adoption is still relatively low. About a quarter of warehouses use voice-directed picking. Traditional voice-directed technologies with headsets and microphones are one solution. New uses of current voice technologies, like Alexa, are another.

Millennial workers are tech-savvy and like incorporating technology in their jobs. They’re used to smart speakers with consumer applications like Google Home and Amazon’s Echo and Alexa, and the voice systems have similarities. Efficiency is important because individual customers and businesses expect their products to arrive more quickly than in the past. And there’s an increased number of small orders. Instead of a business receiving cases of product on a full or mixed pallet once a week, they’re getting multiple orders per week with individual products.

Those moving to voice-directed technology are often changing from hand-held radio frequency scanning devices. In doing so, they decrease the picking steps in the workflow from 9 steps to around 5 per pick. With spoken commands, there’s no need to hold a device, which must be put down during the picks. Workers no longer need to look at the device screen and use the keyboard to input or find information. The picks are more accurate because the voice system confirms the picker is at the right location and picked the right items. It increases productivity by 30-45%.

Classroom discussion questions:

  1. What are the advantages of voice systems in warehouse “picking”?
  2. What other advances have we seen in huge warehouses such as those of Amazon?

 

 

OM in the News: A New Twist on Reverse Logistics

Walgreens has struck about a dozen deals with companies in a bid to increase pharmacy revenue.

Some retailers believe that getting more directly involved in reverse logistics could them win new customers. Walgreens and Nordstrom will let online shoppers at other brands and retailers pick up or return orders at stores, the Wall Street Journal reports (April 17, 2019), a sign of how retailers are teaming up in new ways to draw customers as more shopping shifts online. Walgreens will offer package pickup and returns at more than 8,000 U.S. locations to companies including Levi Strauss and Urban Outfitters. For example, when shoppers want to return a product purchased on Levi.com, they can choose to ship it to Levi, drop it off at a Levi store, or take it to a Walgreens store.

Nordstrom will test the tactic at Los Angeles-area stores with a group of brands. The strategy highlights how e-commerce is pressing retailers to adjust to changing consumer habits and reset relationships between brands and stores. Department store Kohl’s has helped drive the trend by allowing Amazon returns at about 100 of its stores.

The rise of Amazon and new shopper habits have prompted many brick-and-mortar retailers to reevaluate how they allocate space. Last year, Saks Fifth Avenue moved its beauty department from its traditional spot on the high-traffic first floor in some stores, rebuilding on the 2nd floor to provide more room to offer services and compete with rivals.

Chains are also forming partnerships that would have been unthinkable years ago, including carving out real estate for their competitors in the name of getting people in the door. The industry is still grappling with how to navigate the logistic and competitive challenges these partnerships can bring.

Classroom discussion questions:

  1. Is it easy to set up such reverse logistics systems?
  2. What are the ramifications of Sak’s layout decision?

OM in the News: Amazon’s (Sort of) Smaller Urban Warehouses

The NYC Amazon distribution center

Amazon’s first major NYC distribution center is nearly the size of 15 football fields and can spit out one million items a day.  But the 855,000-square-foot facility on Staten Island is a tightly packed site compared with most of the sprawling warehouses the firm has spread around the country, writes The Wall Street Journal (April 2, 2019). It is 20% smaller than Amazon’s usual fulfillment centers, stuffed with twice as many robots as human workers and able to handle 50% more inventory than traditional warehouses.

The space is used as efficiently as a New York studio apartment, and for Amazon and others companies  determined push to deliver goods to consumers as fast as possible, that makes the center a likely model for the future of urban e-commerce fulfillment. Smaller sites are the latest example of how online sales are reshaping logistics networks. As retailers move inventory closer to big population centers, they’re squeezing big distribution operations into smaller buildings that use automation and build up rather than out to get more out of every square foot.

The Staten Island facility has four levels where autonomous Kiva robots help human workers assemble online orders. Inventory is stored on shelves that the robots pick up and deliver to people at workstations on the perimeter. That limits the number of steps human workers take, and allows the company to store more goods in the robot-only sections of the warehouse because they don’t have to build out long lines of racking and walkways for humans to fetch the products. Much of the inventory is presorted at other locations, freeing up space that would traditionally be used for inbound docking and receiving to house additional merchandise.

Classroom discussion questions:

  1. What are the advantages and disadvantages of building vertical warehouses?
  2. How does Amazon make the smaller site work?

 

OM in the News: Amazon Falls Short Over Food Delivery

A contract employee for Amazon picks up bags of groceries to deliver to Whole Foods customers

Amazon last year began offering some Prime members online grocery-shopping and delivery from Whole Foods, touting the service as another perk to customers after purchasing the organic grocery chain. But Whole Foods employees said Amazon workers routinely ask for help finding items on shelves or elsewhere, distracting them from their own duties. And technology that tracks Whole Foods’s inventory is old.

Amazon’s struggles aren’t unique, writes The Wall Street Journal (March 25, 2019). As supermarkets increasingly offer online grocery delivery to keep customers loyal, most services that fill orders from stores are struggling with execution. The challenges are numerous. Many grocers don’t have technology that can readily track inventory in real-time. That means items listed as available online often aren’t in the nearest stores filling a delivery order, leading employees to make their best guess or rely on computer recommendations that can suggest unsuitable substitutions.

Target recently introduced a new inventory-management system for stores and online to speed up replenishment. At Instacart, the largest third-party grocery-delivery service, incomplete orders were the second most frequent source of customer dissatisfaction, after price. Some 15% of consumer products listed on U.S. online ordering services are out of stock when it comes to fulfilling them, nearly double the rate in stores.

There are a number of reasons why many online grocery services struggle to offer substitutions customers want. Shoppers typically depend on suggestions from online tools, and algorithms can make mistakes or suggest inappropriate alternatives. Services that rely on gig-economy workers who pick items off store shelves can exacerbate the selection problem, since many aren’t food experts and juggle many orders a day. Mishandling substitutions is expensive for retailers, as it often leads to refunds or a replacement item that is pricier than the original. Refunding incorrect items decreases an online order’s profitability by 1% to 2% on average.

Classroom discussion questions:

  1. What are the inventory issues that online grocers face?
  2. What can be done to make the systems more efficient?

 

OM in the News: Amazon’s Un-Location Decision

Protesters held signs during a protest at an Amazon store in Manhattan

When Amazon announced plans for a second headquarters in 2017, it promised 50,000 high-paying jobs and billions in investment for a community that would be coequal to its home in Seattle. The company, which outgrew the number of people it could hire in the Pacific Northwest, set off a nationwide frenzy, with more than 200 cities making bids. (We in Orlando even thought we had a decent shot for being selected. But I guess when Amazon listed cultural opportunities as a criteria, they didn’t count Disney World). In the end, Amazon decided last fall that no one city could provide the number of tech workers it needed and split the headquarters in two. The “winners”: Arlington, VA., and NYC.

But, as the whole world knows, Amazon last week canceled its plans to build the expansive campus in NYC after facing an unexpectedly fierce backlash from lawmakers, progressive activists and union leaders, who contended that a tech giant did not deserve nearly $3 billion in government incentives that the state and city had offered in their confidential bid package. The backlash in New York showed no sign of abating and risked tarnishing Amazon’s image beyond the city.

“Amazon, one of the richest companies in the world, run by the richest man in the world, had held a nationwide contest in which governments scraped together enough entitlements to satisfy it, even as those same cities struggled to fortify corroding infrastructure and stave off a housing crisis that has pushed the middle class to the brink and forced the poor into homeless shelters,” wrote The New York Times (Feb. 15, 2019). Our current system of location incentives, in which powerful corporations can pry billions in tax benefits out of cities and states to locate facilities, without any added investment in infrastructure, schools and other benefits, is one worth a class discussion.

Classroom discussion questions:

  1. How important are incentives, in the final analysis, in location decisions?
  2. What was the “final straw” for Amazon, in deciding to pull out of NYC?

OM in the News: Going Green (and Light) for Amazon

“Amazon’s rise is forcing laundry detergents to shrink, writes The New York Times (Dec. 28, 2018). Tide and Seventh Generation have introduced redesigned laundry detergents that are several pounds lighter by cutting down on plastic in their packaging and using less water in their formulas. They’re making the changes to please Amazon: Lighter packaging means it costs less to ship the detergent to shopper’s doorsteps, making each sale more profitable.

Tide has cut down the plastic in packaging

For consumers, the new packaging has been designed to better survive shipping without leaking. The challenge, however, is getting online shoppers to buy detergent that looks nothing like the heavy bottles they are used to. Tide is putting its detergent into a cardboard box, making it 4 pounds lighter than its 150-ounce plastic bottles, but still able to wash the same 96 loads. Seventh Generation went with a compact plastic bottle that’s less than 9 inches tall, rectangular in shape and has no measuring cup.

Amazon may drop products from their website that cost too much to ship. Tide, owned by P&G, says its Eco-Box has 60% less plastic and uses 30% less water in its soap than its 150 ounce bottles. The boxed detergent doesn’t need to be packed in another box: online retailers can just slap an address on it. Seventh Generation, owned by Unilever, spent 3 years developing its smaller bottle. At 1.6 pounds, it is 5 pounds lighter than its standard 100 ounce bottle. It still washes the same 66 loads as the heavier one. The measuring cup was replaced with a cap that automatically squirts out the right amount of detergent needed for a single load of laundry. To make sure the new bottle could withstand delivery, it was sent to a laboratory that mimics the vibrations of Amazon’s warehouse conveyor belts, the bumps of a delivery truck and any accidental drops by warehouse workers.

Classroom discussion questions:

  1. Why is this an OM issue for Amazon?
  2. Why is product design an important part of sustainability?

OM in the News: The Drones Will Have to Wait at Amazon

Instead of charting a future that makes drivers obsolete, Amazon is so dependent on them it’s copying FedEx to build a network of independent couriers around the country in a frantic effort to keep pace with demand that peaks in December. Jeff Bezos captured the world’s imagination when he appeared on CBS’s “60 Minutes” and pledged to fill the skies with package delivery drones. “Five years on, Amazon’s CEO is betting on decidedly more terrestrial technology: drivers.,” writes Material Handling & Logistics (Dec. 18, 2018) 

Bezos this summer issued a call-to-arms to aspiring entrepreneurs, offering them a chance to earn $300,000 a year by starting their own businesses making Amazon deliveries. All for as little as $10,000 up front, far less than the $250,000 it takes to open a fast-food franchise like McDonald’s or the $1 million required to buy a typical FedEx delivery business. Instead of charting a future that makes drivers obsolete, Amazon is so dependent on them it’s copying FedEx to build a network of independent couriers around the country in a frantic effort to keep pace with demand that peaks in December.

So far, Amazon has attracted tens of thousands of aspirants eager for a ground-floor opportunity serving the fast-growing company led by the world’s wealthiest man. Applicants go through phone interviews followed by several days of training. In just a few months, hundreds of new businesses have sprouted up around the country that employ thousands of drivers.

Shipping is one of Amazon’s fastest-growing expenses and consistently outpaces online sales growth. The company must find cheaper ways to deliver packages or its e-commerce business could be unsustainable without further price hikes.

Classroom discussion questions:

  1. What are the strengths and weaknesses of this delivery approach?
  2. Would your students be interested in joining such a business?

OM in the News: How AI Powers Amazon’s 1-Hour Deliveries

Amazon boxes are scanned on conveyor belts. AI systems keep track of all items in the warehouses, which can be as vast as 1 million square feet.

By the time someone clicks “buy” on Amazon, its Supply Chain Optimization Technologies team has probably expected it.  The team forecasts demand for everything sold by Amazon worldwide and  underlies the entire Amazon retail operation. Launching their fastest service, Prime Now, Amazon now delivers household basics within hours, thanks to artificial intelligence.

With AI, computers analyze reams of data, making decisions and performing tasks that typically require human intelligence. AI is key to Amazon’s retail forecasting, writes Supply & Demand Chain Executive (Nov. 28, 2018).  It is also a key to how Amazon speeds up deliveries: The team predicts exactly where items should be stocked so that they are as close as possible to the people who will buy them, an essential process with the race for same-day and even same-hour delivery. Few other retailers have ventured into these speeds, because they’re very expensive. AI is woven through every part of an Amazon purchase, from the website to the warehouses to the actual delivery. The firm calls it the “first mile,” “middle mile” and “last mile.”

In 2013, Amazon got a patent for “anticipatory shipping.” The idea was to get an order as close as possible to the customer’s address before the customer actually click “buy.” Since then, Amazon has built a massive warehousing footprint around the country, with smaller warehouses closer to city centers where Prime Now promotes super-fast delivery.

Amazon is also now rolling out new efficiency-boosting technology that eliminates the need for the handheld scanners we show in the Chapter 12 Global Profile. The new system retrofits workers’ stations with advanced cameras that can automatically scan items that workers hold in their hands. This kind of innovation is a controversial, where retail store layoffs are rampant, just as automation is reshaping the workforce.

Classroom discussion questions:

  1. What are the operations issues discussed in this article?
  2. How is AI used at Amazon?

OM in the News: Amazon’s HQ2 Spectacle Ends

The Amazon HQ2 saga is finally over. Fourteen months ago, Amazon announced a beauty contest, in which cities could apply to win the honor of landing the 2nd headquarters. The prize: 50,000 employees. The cost? Just several billion dollars in tax incentives. Then last week, Amazon announced it would split the prize between Arlington VA, and NYC. So the question, writes The Atlantic (Nov. 12, 2018) is: “Did the world’s smartest company really need 13 months, and applications from 238 cities, to reach the striking conclusion that it should invest in New York and D.C.?”

When covering Location Analysis (Ch. 8), you could also ask your students: Why are U.S. cities spending tens of billions of dollars to take jobs from one another in the first place? (Recall the “Border War”, in which the Kansas and Missouri sides of Kansas City have spent $1/2 billion dragging companies back and forth across state lines, within the same metro area, creating no new jobs.)

Every year, American cities and states spend about $90 billion in tax breaks and cash grants to urge companies to move among states– more than the federal government spends on housing, education, or infrastructure. These deals take resources from everything local governments would otherwise pay for, such as schools, roads, police, and prisons. In the past decade, Boeing, Nike, Intel, Royal Dutch Shell, Tesla, Nissan, Ford, and G.M. have each received subsidy packages worth more than $1 billion to either move their HQs within the U.S. or, quite often, to keep theme right where they are. New Jersey and Maryland offered $7 billion for HQ2, which would have been the biggest corporate giveaway in history.

And companies don’t always hold up their end of the deal. Consider Wisconsin, which lured Foxconn with a subsidy plan that will end up costing over $4 billion. Foxconn said it would build a large manufacturing plant that would create about 13,000 jobs. Now the company is building a much smaller factory with just 1/4 of its initial promised investment, and much of the assembly work to be done by robots.

Classroom discussion questions:

  1. Money aside, why did Amazon select the D.C. suburb and NYC as co-HQ2 winners?
  2. Make the argument for and against the giant incentives being offered to companies.

OM in the News: UPS, Capacity, and a Busy Holiday Shipping Season

UPS is counting on a big boost in shipping capacity to avoid logjams in its network during the peak holiday shipping season, and the delivery giant is raising prices to help offset those investments. The company is planning to deliver 800 million packages in the U.S. between Thanksgiving and Christmas, up from 750 million last year, reports The Wall Street Journal (Oct. 25, 2018). Nearly every delivery day during that stretch will see volume of more than 30 million packages!

To handle the surge in packages driven by online shoppers, UPS is building more automated sortation hubs, including its 3rd-largest U.S. facility that just opened in Atlanta. UPS says it has added 7 times more processing and sorting capacity this year than it did in 2017. To offset those costs, it is pushing up prices on domestic deliveries and adding surcharges on oversize packages. In the U.S. business, revenue per piece rose 4.8% in the 3rd quarter, the fastest growth since 2011.

UPS also working closely with more of its largest shipping customers, like Amazon, on better forecasting demand during the period, including predicting volume based on where it’s shipped from and coordinating with shippers when they have promotions. The company hopes to avoid unexpected volume surges that caused delivery delays in the past. “The last couple (years) we’ve been constructively dissatisfied,” UPS’s COO said. “Our goal is to have this peak be the peak we all want it to be through the eyes of our customers.”

UPS is addressing its recent declining profit by trying to woo more higher-quality businesses—including small- and medium-size customers and health care companies—to offset predominantly lower-margin shipments tied to e-commerce.

Classroom discussion questions:

  1. What tactics for matching capacity to demand that we discuss in Supplement 7 is UPS employing?
  2. How might UPS’s moves impact profit and revenue?

OM in the News: How Robots Will Change Retail Forever

This Amazon distribution center in Baltimore can fulfill a million orders in a day. It may not need humans for long.

What if your company could store and deliver goods as easily as data? Amazon, Walmart and others are using AI and robotics to transform everything from appliance shopping to grocery delivery. “Welcome to the physical cloud,” writes The Wall Street Journal (Oct. 15, 2018).

Take, as an example, Amazon’s one-million-square-foot distribution center in Baltimore. Its scaffolding and seemingly endless conveyor belts disappear at a vanishing point within the building. The machine is a dazzling combination of chutes, ladders, rollers and 11 miles’ worth of conveyor belts. Customers’ orders move from shelving into bins and from bins into boxes as they travel via the machine straight into delivery vans, passing by stationary workers at various points along the way. Humans are rarely required to move around here. It’s much faster, and cheaper, to have stuff brought to them.

This is where robots come in. Kiva robots can carry up to 750 pounds of goods in their 40-odd cubbies. After a customer places an order, a robot carrying the desired item scoots over to a worker, who reads on a screen what item to pick and what cubby it’s located in, scans a bar code and places the item in a bright-yellow bin that travels by conveyor belt to a packing station. AI suggests an appropriate box size; a worker places the item in the box, which a robot tapes shut and, after applying a shipping label, sends on its way. Humans are needed mostly for grasping and placing, tasks that robots haven’t mastered yet.

Amazon’s robots signal a sea change in how the things we buy will be aggregated, stored and delivered. The company requires 1 minute of human labor to get a package onto a truck, but that number is headed to zero. Autonomous warehouses will merge with autonomous manufacturing and delivery to form a fully automated supply chain.

Classroom discussion questions:

  1. How does this latest Amazon facility differ from the one we describe in the Global Company Profile that opens Chapter 12?
  2. How is AI being used in this warehouse?

 

OM in the News: Amazon, Incentives, and Electricity

 

When officials in Montgomery County responded to a FOIA request on their bid, they delivered a 10-page document of incentives — with every line of text redacted.

We have blogged a few times about Amazon’s quest for incentives in locating its new HQ2, promising a potential of 50,000 jobs. The few bids that have become public are breathtaking financial packages that indicate just how much states are willing to pony up to woo Amazon. Maryland put together an $8.5 billion bid, and New Jersey got legislative approval to offer $7 billion in tax credits and incentives to pick Newark.

Others are not as forthcoming with how taxpayer’s money will be spent. “We are not releasing documents related to Amazon HQ2. We are not subject to F.O.I.A.,” said Miami-Dade Beacon Council. Requests by the New York Times (Aug.5, 2018) to Austin, Atlanta and Indianapolis met with similar responses. The photo reflects the response from Montgomery County, Md.

But today’s post is not about HQ2. It is about Amazon’s cloud computing business–its fastest growing and most profitable division. Data centers come with a lot of ongoing expenses, the biggest of which is electricity. Over the past 2 years, Amazon added dozens of new data centers with vast fields of servers running 24/7. In at least 2 states, it’s also negotiated with utilities and politicians to stick other people with the bills for millions of dollars of electricity.

Amazon stands out for its success in offloading its power costs and also because it dominates America’s cloud business, writes BusinessWeek (Aug.27, 2018). It has gone from nonexistent to using 2 percent of U.S. electricity! Although data centers typically yield few new jobs, politicians desperate to make up for fading manufacturing businesses have worked closely with utility companies to land Amazon data centers. In Virginia, where Amazon operates at least 29 such centers and is planning 11 more, the company’s 78-page application for a special rate agreement has two versions—a heavily redacted public one and another under seal with state regulators.

This is certainly an interesting topic for classroom discussion when covering Chapter 8.

Classroom discussion questions:

  1. What are the plusses and minuses of providing such incentives?
  2. What is the alternative?

Good OM Reading: Surviving the Amazon Effect

“Many manufacturers and wholesale distributors have been profoundly impacted by the Amazon Effect, even if  they don’t compete directly with Amazon,” writes a new report by Oracle. The Amazon effect refers to Amazon’s influence, dramatically raising customer expectations for things like: (1) Frictionless commerce (epitomized by 1‐click checkout and Amazon Go); (2)Extremely fast, low cost, or free delivery, with precise real‐time tracking and easy returns; (3) Nearly infinite selection; breadth and depth of products; (4) Rich product search, filtering, and product information; and (5) Personalization.

In fact, the boundaries between retailers, manufacturers, and wholesale distributors have become ever more blurred. Manufacturers and distributors are increasingly selling directly to the end customer. And existing customers’ expectations have also changed. Customers, whether consumers or businesses, expect to be able to view in‐depth product information, configure, order, check status, and potentially request returns or report issues online 24/7—that is in addition to the traditional channels of interaction.

Now, many retailers are demanding that suppliers hold inventory and drop ship to the retailer’s customers, forcing manufacturers to become proficient at fulfilling a large number of smaller orders consisting of just a few items, in addition to continuing to fulfill a small number of large bulk orders as traditionally done. Those 2 different types of order flows require completely different models for order management, warehouse management, inventory management, material handling, pick, pack, ship, and logistic/transportation management.

In short, running a business the ‘old fashioned way,’ is becoming increasingly untenable. To adjust to these changing expectations, the report suggests a 2‐pronged strategy: 1) differentiate and 2) optimize. (1) It is impossible to ‘out‐Amazon’ Amazon. They have scale, technology, capital, and experience that is hard to compete with head on. So it is vital to provide value that Amazon is unable to. This can take many forms, such as unique customer experiences, products not available elsewhere, specialized technical expertise and advice, and personalized services. (2) Businesses must also optimize their execution. This means: Improved forecasting and Inventory optimization; Fulfillment optimization: and Compressed cycle times/digital supply chain.

OM in the News: Amazon Drives Deeper Into Package Delivery

“Amazon is pushing further onto the turf of its shipping partners UPS and FedEx, enabling small businesses to carry its overflowing supply of packages in the all- important last-delivery leg to the consumer’s door,” writes The Wall Street Journal (June 28, 2018). The online retail giant is inviting entrepreneurs to form small delivery companies employing up to 100 drivers and leasing 20-40 Amazon-emblazoned vans, an initiative that should help it rapidly build out its own delivery network across the country. It has also contracted with many small delivery companies to drop off its packages in major metro areas, many in unmarked white vans.

It is yet another major push by Amazon to gain more control over its own deliveries in a continued quest to build a vast freight and parcel shipping network. Amazon says it has to build out its own services simply to handle the surging number of online orders that UPS, FedEx and the U.S. Postal Service can’t. More than $4 of every $10 spent online in the U.S. is on Amazon, and the number of its deliveries topped more than a billion last year.

Still, Amazon has taken broad steps in recent years to poach some of the most desirable deliveries from its partners and could be on a collision course to one day compete directly with the shipping giants. Amazon expects that hundreds of entrepreneurs could sign up to help the company deliver packages the “last mile,” which is typically the most expensive piece of an online order’s journey.

The number of packages Amazon needs to ship in the U.S. has more than doubled over the past five years to roughly 1.2 billion packages last year. Projected growth is too much for existing delivery companies to handle. Amazon has advanced deeply into logistics over that same period, building out more than 70 delivery stations, buying more than 7,500 truck trailers, leasing 35 aircraft to fly its wares around the country and expanding into ocean freight. Amazon spent $21.72 billion on shipping world-wide last year, or about 12% of overall revenue.

Classroom discussion questions:

  1. How does Amazon handle the “last mile?”
  2. What are the advantages and disadvantages of Amazon’s logistics strategy?