<img src="https://d5nxst8fruw4z.cloudfront.net/atrk.gif?account=17qJn1QolK10bm" style="display:none" height="1" width="1" alt="">
blog.jpg

Consumer Goods Logistics Blog


Why Amazon Is Good for the 3PL Industry

Published by Alex Stark on May 05, 2016

Talk to 3PLs about Amazon’s incursion into the logistics services space and many are either dismissive or scared. We don’t see it that way. We think Amazon is a very positive, albeit disruptive, force within our industry. The continued growth of an Amazon logistics capability will make every third party logistics more efficient and better aligned with the needs of the end consumer. 

The Expansion of Amazon Logistics Capabilities

Props to the Journal of Commerce’s Bill Cassidy and Reynolds Hutchins for their well-researched round-up article on Amazon logistics capabilities - E-tailer Amazon reshaping logistics as we know it.  Here are just a few of the signals that Amazon is serious about being a logistics provider. Recently, Amazon has:
  • Purchased thousands of trailers in the U.S. and branded them with Amazon logos
  • Registered as a non-vessel-operating common carrier to better manage the flow of goods from China to the U.S.
  • Leased 20 U.S. domestic cargo planes 
  • Rapidly expanded fulfillment and sortation centers and smaller Amazon Prime Now hubs and Amazon Fresh grocery delivery stations across the U.S.
  • Rapidly expanded in Europe, building a delivery and fulfillment network country by country
  • Expanded shipments into China using a free trade zone in Shanghai
Investment is usually a pretty good indicator of intent. This level of investment clearly shows that Amazon views the development of logistics services as critical to its future success. 

Not All 3PLs are Concerned About Amazon as a Competitor

Gartner Group just published an analysis that explains how Amazon is poised to disrupt both the 3PL and last-mile delivery segments. But many 3PLs are either dismissive of Amazon as a direct competitor, or are ignoring the tell-tale signs.
 
During a March 2016 investor call, FedEx founder and CEO Fred Smith characterized as “fantastical” the idea that Amazon’s forays into air freight and logistics might disrupt the business of traditional package carriers. He said such suggestions are “devoid of in-depth knowledge of logistic systems and the markets which FedEx serves” and that “network design, technology, facilities, capabilities and route/stop densities…make it highly likely these entities (FedEx, UPS and USPS) will remain the primary carriers for e-commerce shipments in the U.S. for the foreseeable future.”
 
Other 3PLs acknowledge Amazon logistics capabilities as significant but question whether they can be sustained, citing the company’s inability to turn a reasonable profit performing such services.
 
There are certainly 3PLs that are frustrated with Amazon and the expectation they have created among customers that everything can be delivered in two days.
 
Finally, many 3PLs view Amazon as only a tangential “threat” and not yet worthy of careful attention (even if they secretly wish they weren’t around). 

Amazon is a 3PL Competitor

Make no mistake: Amazon is a competitor to most 3PLs.
 
In the U.S. alone, Amazon operates 161 fulfillment facilities (17 more planned), totaling 69 million square feet of space. Fulfillment By Amazon is the default fulfillment provider to many companies who sell on the Amazon.com website.
 
Amazon is actually running fulfillment operations within the walls of 3PL-operated facilities. As part of its direct online fulfillment program, Amazon will purchase inventory from a CPG manufacturer and may establish gated operations within that manufacturer’s 3PL-operated facility.  If that’s not competition, I don’t know what is. Consumer orders come into the manufacturer’s website, but instead of going to the manufacturer, orders are immediately sent to Amazon for fulfillment by the nearest DC, which may be within that 3PL-operated warehouse.
 
We ship pallets and, a few feet away, Amazon ships eaches.
 
Amazon Logistics dash buttonHave you taken a hard look at Amazon’s Dash Buttons. These Wi-Fi connected devices allow consumers to reorder their favorite items with the press of a button. This is not futuristic stuff. Last month, Amazon said Dash Buttons are currently being pressed within U.S. homes at a rate of more than one per minute.
 
Running out of Tide? Just press a button and that will immediately trigger a 2-day delivery from an Amazon warehouse.
 
Think about the implications for 3PLs, like KANE, that ship products to supermarkets. All those products in the middle aisles can now be sourced from Amazon with the touch of a Dash button.
 
Yes, I think Amazon is in the logistics business.  

The Amazon Effect:  A Positive Force for Change

Amazon is a disrupter. 
 
Business needs disrupters – companies that challenge traditional service models and force everyone in the industry to recalibrate.
 
The 3PL industry needs disrupters.
 
Too often, 3PLs that serve retailers and manufacturers lose sight of the ultimate consumer. Amazon, in contrast, cares ONLY about the end consumer. And, frankly, they don’t much care if other companies, even channel partners, are negatively impacted as they raise the bar on service, or delivery speed, or convenience.   
 
Ultimately, 3PLs should not need Amazon, or anyone else, to catalyze change in our organizations. We need to disrupt ourselves.
 
3PLs do a fantastic job of disruption when it comes to work processes. Continuous improvement programs urge associates at every level to challenge current approaches and identify waste.  But such programs are aimed at the execution of the work. It’s important we apply that same mindset to the execution of the strategy.
 
To the extent that Amazon prompts logistics businesses to disrupt ourselves, it is a very positive force for change.  If we sit around wondering, “What will Amazon do next?” we deserve our ultimate fate. Breakthrough success will come only to 3PLs willing to challenge current models and ask, “What will we do next?”
 
New Call-to-action

Filed under: 3PL Outsourcing