warehouses – Page 4 – The OM Blog by Heizer, Render, & Munson

OM in the News: Amazon Moves In With P&G

At the end of a road in Tunkhannock, PA., called P&G Warehouse Way, sits a warehouse stocked with Pampers diapers, Bounty paper towels and other items made by P&G. Inside the distribution center, reports The Wall Street Journal (Oct.15, 2013), is another company: Amazon.com. Each day, P&G loads products onto pallets and passes them over to Amazon inside a small, fenced-off area. Amazon employees then package, label and ship the items directly to the people who ordered them.

The e-commerce giant is quietly setting up shop inside the warehouses of a number of important suppliers as it works to open up the next big frontier for Internet sales: everyday products like toilet paper, diapers and shampoo. The under-the-tent arrangement is one Amazon’s competitors don’t currently enjoy, and it offers a rare glimpse at how the company is trying to stay ahead of rivals.

Logistics have long been crucial to success in retail. Years ago, Wal-Mart set up a system that lets suppliers monitor what needs to be replenished. Amazon instead is going out to its suppliers by piggybacking on their warehouses and distribution networks. Amazon is able to reduce its own costs of moving and storing goods, better compete on price with Wal-Mart and club stores like Costco, and cut the time it takes to get items to doorsteps. P&G began sharing warehouse space with Amazon 3 years ago and has expanded the practice. Amazon is now inside at least 7 P&G distribution centers world-wide.

The economics of the arrangement benefit both sides. For Amazon, “co-location” reduces the cost of storing bulky items like diapers and toilet paper and frees up space for the Web retailer to stock higher-margin goods in its own distribution centers. P&G, meanwhile, saves on the transportation costs that it would have incurred trucking products to Amazon’s regional distribution centers. Plus, it gets Amazon’s help in boosting online sales, a priority for many in the industry.

Classroom discussion questions:

1. What is the advantage of “co-location” to P&G?

2. The advantage to Amazon?

OM in the News: Wal-Mart vs. Amazon Logistics

This Wal-Mart hub sends supplies out to physical stores

Few have done better than Wal-Mart when it comes to retail logistics—the art of ordering, transporting, stocking and tracking merchandise, writes The Wall Street Journal (June 19, 2013). Wal-Mart pioneered a sophisticated hub-and-spoke distribution network which uses warehouses to service stores less than a day’s truck drive away so it could remove middlemen, quickly replenish shelves and reduce costs. At its distribution centers, scanning technology tracks merchandise as it flows at 6 miles per hour on 12 miles of conveyor belts onto trucks. Some items spend less than 45 minutes in warehouses.

Supply trucks crisscross the country and arrive daily at Wal-Mart’s more than 4,000 U.S. stores. Shipments are based on real-time data of shopper purchases, transmitted by the second as employees scan items at store checkouts. But with its e-commerce operations, which began in the late 1990s, Wal-Mart has been less exacting, instead relying on makeshift spaces carved out of store-serving warehouses and third-party operators to handle the load. Electronics ordered from Walmart.com are often delivered by companies like Ingram Micro which transport Apple tablets or Samsung phones to shoppers without ever going through Wal-Mart’s warehouses.

By contrast, Amazon has spent 15 years building its e-commerce network, with more than 40 U.S. warehouses within 35 miles of major cities. “As Amazon’s bets on infrastructure pay off, it can sell products at lower costs and puts even more pressure on other retailers,” says one industry expert. Wal-Mart now plans to spend roughly $430 million this year on e-commerce investments, including a logistics system tailored for Web orders. It is building distribution centers, but also will use stores as mini distribution centers. While logistics costs account for 3% of the price of an average “shopping basket” in stores, they make up 15% of the price of online orders.

Discussion questions:

1. What is Amazon’s logistics advantage?

2. How did Wal-Mart stumble in the move to electronic shopping?