UPS chose to be in denial by having the CEO say:
"We don't believe that Amazon's strategy is to do it themselves and the reason we believe that is we have this huge infrastructure, we're investing in technology, we have a great mutual relationship with them,"I think most of the analysis, and the response from Fed-Ex and UPS miss three critical points:
- Drop Ship
Capacity: UPS and Fed-Ex have disappointed at the crunch seasons more than once and I believe Amazon is just sick of it. At some point you have to take destiny into your own hands and take control of it. Part of this is what stage the companies are at in their development. UPS and Fed-Ex are in the "protection of business" stage and Amazon is still in the "Grow.. grow.. grow " phase. What does this mean? It means UPS and Fed-Ex are big companies who only invest when they know 100% it is a "sure thing".
Amazon, on the other hand, is investing like mad. Therefore, UPS and Fed-Ex cannot keep up with the explosive growth and maintain all their other businesses. This shows itself in a lack of capacity at crunch times and so Amazon, as they always do, have taken their destiny into their own hands.
Drop Ship: In Amazon's statements what is also clear is they want to control the drop ship experience from vendor's warehouses. In this case the consumer orders from Amazon, the order is passed to a vendor, the vendor maintains the inventory and warehouses it but a Amazon truck picks it up and delivers to the customer. Think about this as the touch points the customer is directly involved in are:
- Order experience
- Delivery experience
- Payment experience
In the case I outlined above, Amazon owns all three and the burden of back room logistics (versus front room logistics - I feel like I should trademark those two terms) is kept by the vendor. This is brilliant and well outlined in this short article in Industrial Distribution Magazine.
As logisticians and supply chain people we always look to the operational aspects of a strategic move. In this case, it goes far beyond logistics operations.
Read all my postings about Amazon as I have tracked this development for years: Amazon Coverage on 10xLogistics