A top a hill at the end of a road called P&G Warehouse Way sits a warehouse stocked with Pampers diapers, Bounty paper towels and other items made by Procter & Gamble Co. It also houses an ambitious experiment by Amazon.com Inc.
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 including discount chains, club stores and grocers.
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Logistics have long been crucial to success in retail. Years ago, Wal-Mart Stores Inc. set up a system that lets suppliers monitor what needs to be replenished.
Amazon instead is going out to its suppliers with a program it calls Vendor Flex. 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 Wholesale Corp., and cut the time it takes to get items to doorsteps.
A few of Amazon’s rivals have caught wind of the arrangement and aren’t happy about it. “Retailers don’t like things that benefit their competitor but not them,” said Anne Zybowski, vice president of retail insights at consulting firm Kantar Retail.
Yannis Skoufalos, P&G’s global product supply officer, said the company values its relationships with all its customers and works closely with many retailers to help reduce costs in their supply chains and meet their unique needs. For example, P&G works with warehouse clubs to keep its products in stock without taking up too much storage space inside the stores.
Household staples have traditionally been considered too bulky or cheap to justify the cost of shipping. Americans currently buy just 2% of such goods online, retail analysts estimate. Yet even that sliver of business was worth $16 billion in 2012, according to Nielsen Holdings NV, and the research firm believes online sales will grow by 25% a year to $32 billion in 2015.
Date: Oct. 14, 2013