Amazon is making major changes to it’s supply chain, especially when it comes to distribution. Because of Amazon’s changes, experts say both competitors and Amazon suppliers need to prepare for the “Amazon effect.”
In the past few months, Amazon has succumbed to paying state sales tax in some places, in exchange for gaining tax incentives for fulfillment centers. It’s possible Amazon is gearing up for same-day delivery, but at any rate, Amazon is definitely preparing to become a major contender against retail stores.
Within the next three years, the online retailer plans to have 20 million square feet of distribution and fulfillment capability — that’s more than big box retailer Wal-Mart currently holds, according to Bob Ferrari, who writes the blog Supply Chain Matters. One of the reasons for this investment is to leverage distribution and transportation costs, the piece notes.
What this means is that every company and its associated supply chain arm need to have a strategy that addresses Amazon’s aggressive plans, states Ferrari, quoting a warning he first heard from Jim Tompkins, President and CEO of Tomkins International.
“We may well view more corporate casualties in the coming months as a result of the ‘Amazon effect,’” Ferrari writes.
He offers a detailed analysis of Amazon’s key supply chain metrics, including it’s year over year inventory investment by percentages and turns. He also offers a link to another piece on Amazon’s KPIs.
The short version: Amazon’s numbers are iffy at times, and it’s possible the online giant may be pushing it’s market reach. But it’s definitely not something to bet on.
Ferrari offers five considerations for Amazon competitors and suppliers, including:
- Amazon is preparing to disrupt “last mile” delivery models, and you can’t underestimate it’s move toward same day and localized fulfillment.
- If you’re a supplier, be aware that Amazon’s time to payment increased by two days last year.
Ferrari’s piece is definitely worth a read. If you’d like to learn more, you might also want to check out Spend Matter’s take on the Amazon supply chain and Seeking Alpha’s piece by Timothy Phillips, “Amazon Missed On All 5 Key Metrics.”