Is Amazon vulnerable because it does not control last mile delivery ?

An article in WIRED magazine (May 8, 2014) titled “Amazon Should Make the Postal Service Its Own Personal Courier” describes Amazon’s service vulnerability because it does not control outbound transportation from distribution centers, unlike WalMart. The UPS delivery slippage last Christmas and its impact on Amazon suggests how vulnerable the company is to third party transportation. But should Amazon convert fulfillment centers to sortation centers and team up with the US Postal Service to efficiently use postal carrier delivery routes ? Should Amazon create its own fleet of dedicated delivery trucks and, if so, how will it ensure effective utilization to keep delivery costs low and ensure the close to 150 deliveries per route required to be effective ? How will Amazon’s same day delivery goals match up with these realities ?

Advertisements

About aviyer2010

Professor
This entry was posted in Ecommerce, Operations Management, Supply Chain Issues and tagged , , , , , . Bookmark the permalink.

9 Responses to Is Amazon vulnerable because it does not control last mile delivery ?

  1. Yang Junchao says:

    I consider that cooperation means a lot of things in the business world. It can not only maximize the profits of each company, but also improve the efficiency. Amazon as a strong international electronic commerce company, typically do a very good job in the electronic commercial area. For example, Amazon leads a head the concept of Big Data, which plays as a significant role in today’s business world. However, although Amazon do a good job in electronic information’s (such as customer information and production information) collection and processing , their actual logistics distribution issue is solved by UPS.
    I consider that logistics distribution issue is vital in today’s electronic commerce’s success.In the article “Amazon Should Make the Postal Service Its Own Personal Courier”, the author says: “FedEx and UPS can optimize their routes to avoid these losses because they always have a steady stream of packages coming through from myriad senders.” It indicates that UPS certainly is the expert in this area. Therefore, I believe Amazon needs to collaborate with UPS more intimately. Maybe make the Postal Service as Its Own Personal Courier is a good way.

  2. Ayush Goel says:

    If given a choice I would use a mix of both approaches here, use USPS as well as integrate Amazons own fleet of last mile delivery trucks. I will first generate a heat map of the regions where volume of orders is high, and start a pilot program to UPGRADE fulfillment centers to sortation facilities in those high stress region and partner with USPS for the rest of the delivery regions. This approach help me understand where I have failed in the delivery system at first, rectify that then expand to other regions. On the other hand USPS can certainly partnered with, but it wont be my first choice, even though they are inexpensive, cost of integration of their IT system and training their employees to handle such load would be very high. We can look into more specific NMRC based contracts with UPS and FedEx to begin with then slowly phase them out once Amazon can develop its own fleet. Either way I feel from the volume and trend of purchasing habit now shifting from rigid in store to more open space virtual catagory would need Amazon and other big market players to adopt similar models, and Amazon is doing it sooner than later.

  3. Yunyang Olivia Liu says:

    I think that Amazon should start to build its own logistics network in the next few years. Due to the concerns of the significant initial investment and “Rome is not built in a day”, Amazon should continue to partner up with strong logistics alliance like UPS but start to gradually taking over some of the routes by learning from UPS. A successful example would be Weichai’s recent practice, one of Cummins’s main competitor in East Asia market in Engine manufacturing business. Weichai used to heavily rely on 3PL for all the logistics need. However, cost is going higher in the past few years, Weichai decided to gradually take over the logistics by itself; Weichai also recruited managers and engineers from 3PL companies to minimize the learning curve. Now, Weichai not only takes over all the inbound and outbound logistics by itself but also grow it into a new business unit – Weichai Logistics, a profitable business that even provide service to some of its competitors. Amazon definitely have the potential to do that. It will not only be a money-saving strategy but also add more synergy to its overall business.

  4. Heng Wang says:

    I doubt Amazon should get into the delivery business.
    First, UPS or Fedex have been in courier delivery business many years. Both of them have achieved a rather huge and steady flow to make business sense most of the time. Amazon has huge flow too, however the volatility must be higher than UPS or Fedex’s. It’s gonna to be harder for Amazon to make it equally efficient compared to UPS or Fedex.
    Second, USPS may have some slack in its delivery capacity. However, there must be a reason for that. I doubt partnership with USPS will help Amazon to handle the last mile efficiently.

    I would suggest Amazon look into it current supply chain structure with its flow data. They may need to decide how far they should go to establish fulfillment centers, that is where to locate new centers, what would be their capacity and etc. They may probably need to have more centers and manage material flow within those centers more efficiently. In doing this, the last-mile volatility could be alleviated and Amazon would not have to get into something that it has strong established competitions.

  5. Vikas Solanki says:

    I would suggest Amazon can handle this situation by better coordination with UPS.They can utilize their analytics capabilities and can easily identify the locations, occasions etc. and share this information with UPS so that they can build their capabilities to tackle high traffic situations accordingly. The same methodology is followed by e-commerce companies in India where every community do their shopping based on the regional Festivals. for e.g. Diwali , Onam, Eid etc. Flipkart(one of the fastest growing e-commerce company in India) has identified the fulfilment centres and maintain enough inventory to handle high traffic occasions and build the logistics teams to prepare highly optimized Network to perform last mile delivery. That way Amazon can keep the cost low and efficiency high.

  6. Amazon can create its own fleet of dedicated delivery trucks but there are disadvantages about this idea. First, utilization of trucks would not always near 100%. Since a delivery truck has to visit many places, it is difficult for the truck to have full load and as a result, delivery cost would keep high. Second, inventory in Amazon increases if it creates its own fleet. This idea requires warehouses around the U.S. to deliver with short lead time. Also, it would cost high for Amazon to have all warehouses to keep large number of SKUs for a wide range of customer’s demand. As a result, Amazon cannot leverage pooling effect of inventory.
    My idea to get over the first disadvantages above is that Amazon can collect packages from customers. It enables delivery trucks to have higher utilization for a round-trip. For the second disadvantage, I recommend that Amazon have central warehouse in each region to manage warehouses in it. These central warehouses can keep high SKUs and reduce lead time to deliver items which have low demand.
    In summary, Amazon can create its own fleet but it needs to think about disadvantages which require cost. Only if Amazon’s revenue increase is larger than the required cost, it can create the fleet.

  7. Wei QIAN says:

    Encountering the delivery delay problem during last Christmas holiday, Amazon is more than motived than ever to launch its own delivery service to address ‘the last kilometer’ problem and to let its consumers have better shopping experience. Through establishing its own logistics system, Amazon will gain greater flexibility and initiative on the parcel delivery time; meanwhile, managing logistic system itself will also help Amazon to control delivery costs under the background of rising cost of the logistic service provided by their partner UPS, Fedex and other courier companies. And, more importantly, once the service is taken into force, it will certainly shape Amazon a better brand image as a perfect e-commerce company, not only own hundreds of thousands products, but also with prompt and accurate delivery service and with no doubt that sales will further boosted.
    However, the transportation cost generated from different routing for ‘the last kilometer’ is an important point for Amazon to balance when considering start up its own personal courier. After all, to deliver the order exactly to the consumers’ cannot be an easy thing since it requires large amount investment in transportation, labor etc. Also, information system run by Amazon should be established to reach the end-user is another key question. Since the initial motivation of set up own delivery system is largely due to better consumer shopping experience, to let consumers know where their products currently are and when will them delivered is important in terms of shopping experience. Maybe Amazon could learn from its partner UPS for the routing problem and delivery information system.

  8. Gildardo Salas says:

    As we can see, there is a lot of vulnerability have a third party control their last mile, either way, there would also be vulnerability if they had their own fleet, I don’t third party wouldn’t make the best effort they could, considering that is their area of expertise. So even if they vertically integrate, they will not be as experienced in that area as transportation companies. So what I would recommend them to do is to start slow and have their own fleet in certain areas, and check if it works OK, and start growing little by little so they can have certain control of the expansion. Besides, if the vertical integration does not work, and they started with a lot of expansion, they could create commercial problems with third parties and risk contracts already made with them.

  9. Nardeep Singh says:

    I think Amazon should go for its own network for the last mile. I completely agree with the fact that it is going to be difficult at first because some of the traditional providers such as UPS have a head start of more than a century, but Amazon is growing at a very fast pace and at this rate it cannot continue to rely solely on the solutions provided through traditional logistics providers, as was evident from the Christmas slippage last year. During its initial stages of expansion, It can think of relying more on cheaper, more flexible regional carriers such as West Coast’s OnTrac and East Coast’s LaserShip Inc and ultimately can transform itself into a full fledged service logistics provider which can deliver packages for others, although it could take years. Also, UPS and Fedex ground rates have increased 3-5 % annually over the last 5 years.which is another incentive for Amazon to develop its own delivery service as UPS and Fedex account for 47 % of their shipments. Amazon can learn from its mistakes in the UK market where it has already started testing its last mile delivery services. So, in the short run it can think of relying more on regional providers and US postal services but in the long run, developing its own fleet of last mile delivery options makes sense.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s