Amazon’s investments in trucks, planes, cargo boats and drones continue to drive speculation on whether the company is building a full-scale delivery platform. But an RBC Capital Markets analyst has drawn attention by likening the moves to Walmart’s shift to tighten supply chain costs three decades ago.
“At the core, we think the decisions Amazon is making today parallel those made by Walmart during the 1980s, as the company began to integrate itself more fully with its suppliers to aggressively reduce costs across all aspects of its business, especially the supply chain,” wrote John Barnes in a note last week. “This can accomplish two things: reduce costs in any way possible and ensure that customers receive goods in a timely manner year round.”
The analyst, who covers UPS and FedEx FDX , said building freight transportation capacity will reduce costs, “create deeper customer relationships,” and keep carriers “honest” around pricing and service. He sees a medium-term risk for freight forwarders and truckload carriers since Amazon’s computer prowess may enable them take over these tasks. Parcel carriers may face a longer-term risk because “a full-blown Amazon parcel delivery operation would likely take years to complete.”
With a wealth of insight into Walmart’s early history, the industry insiders of the RetailWire BrainTrust debated just how close Amazon’s current moves are to the brick-and-mortar giant’s supply chain of bygone days.
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“It’s a reasonable analogy,” said Keith Anderson, vice president of Strategy & Insight at Profitero. “Amazon has always leveraged partners and third parties to minimize risk and accelerate speed to market. Now that the contours of its business are clearer, Amazon is investing to own strategic elements of its supply chain. As RBC’s analyst notes, this will yield cost savings and greater control.”
“Amazon’s move to vertically integrate its supply chain to reduce costs and improve control of distribution, is driven by the same objectives as Walmart’s initiatives,” said Ken Morris, principal at Boston Retail Partners. “Beyond the potential cost savings, greater control of the delivery network will also enable Amazon to better manage delivery commitments and keep its customers satisfied.”
Others saw bigger differences, for better or for worse, between Amazon’s logistics move and the Walmart of the 1980s.
“What is different in today’s omnichannel environment is the consumer demand for both speed and convenience,” said Chris Petersen, PhD., president of Integrated Marketing Solutions. “Consumers are expecting two-day delivery, and even delivery in hours, to their door. The big carriers have shown that they have capacity and reliability issues in periods of peak demand like holiday. Amazon is consumer-centric. Walmart is product-centric. Quicker, reliable delivery for the last mile is at the core of Amazon’s long-term competitive strategy. For Amazon, leveraging the last mile is a strategic advantage.”.
Date: March 28, 2016