Amazon Final Mile - It is All About The Brand

I keep being asked why in the world would Amazon start their own home delivery / final mile service (See Amazon Logistics)?  Everyone questions this as a stretch and even Fed-Ex could not help themselves when they stated Amazon (they did not specifically say Amazon but we all knew who they meant)  does not understand what it takes to have a dense delivery network like Fed-Ex or UPS. 

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:

1. Branding
2. Capacity
3. Drop Ship
   

Branding:  When a final mile company delivers to the consumer's home the consumer sees it as an extension of the company the item is purchased from, the product and the purchase experience.   The consumer does not see "Fed-Ex", "UPS", "JB Hunt Final Mile" or "XPO" and certainly they do not separate the delivery from the entire purchase experience.  If the product is late, damaged, delivered in a truck that looks like a get away vehicle from a crime, is handed to you by a person who is a felon, etc. etc. the consumer will be very disappointed and will always relate this experience to the store (whether on line or physical).  If Amazon is to protect their brand they need to own more and more of the fulfillment chain  This allows them to do that. 

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

Why Do Supply Chain Transformations Fail - The Case for Change Management

I have been thinking and reading a lot lately about supply chain transformations.  I have also been involved in many of them throughout my career including the integration of a $5bl supply chain with a $10bl supply chain in the durable goods area and the complete redesign of a major automotive service parts supply chain.

What makes a transformation action great and what can cause them to fail?  Obviously, you have to get the "supply chain technicals" correct.  If you are redesigning the network, redesigning the fulfillment methods or moving to modern leading edge technology you will need to get the technicals right.  However, my thesis is this is less than 1/2 of the success criteria.  Once you have this right, the biggest challenge is change management.  You will need to lead an entire company and team into the new environment and if this is not done well, all the technical genius in the world will not make your supply chain transformation work.

I am going to address this in a series of posts and this first post is going to cover the definition of change management.  Daryl Connor in his book "Managing At The Speed of Change" defined it this way:

"Change management is a set of principles, techniques, and prescriptions applied to the human aspects of executing major change initiatives in organizational settings."

For me, the key words for this are the "human aspects" of change.  While we tend to be deep into the technology, more and more supply chain managers are forgetting the human aspects of change. When you try to transform a supply chain (or dare I use the term "disrupt") every person around you is thinking:

1. Why do we have to change?  Everything is working fine now and I like what "is".  Why the change?
2. What is my new role in the new environment?  What skills will I need in this new world?
3. Do we have the fortitude to "stick with it" or is this just another "flavor of the day"?
4. Will this really make us industry leading?
5. Is the rest of the enterprise supporting this change?

There are many methods which you can use to answer these fundamental questions (ADKAR, Kotter etc.) and it almost does not matter which method you use as long as you are honest with yourself and understand the questions above are being asked (whether spoken or unspoken).  I once saw a model for change which displayed the following equation:

E=T*A

Where E=Effectiveness (of the change), T=Technical Aspects and A = Acceptance.  The easiest way to understand this is if A = 0 and T = 100 (Meaning your change is perfectly designed and perfectly implemented however the human acceptance is non existent) the effectiveness of the change will equal 0.  Completely ineffective!

So, given this is there no wonder why most transformations are less than fully effective?  If you are a technical supply chain manager and you are thrilled you got the "technicals" right but you totally forgot about the "A" then your project will fail.  It is that simple. 

Here are some great resources to help with your change management portion of anything whether it be a small project, a larger program or a complete transformation:

The Kotter Change Model

ADKAR

HBR Change Management Resources