Is the Amazon supply chain the most innovative in the world?\u00a0 A very strong argument can be made that they are despite some announcements that were pie in the sky \u2013 like the patent they won in January for floating warehouses<\/a><\/span> that use drones for deliveries and replenishment. Or for that matter, Jeff Bezos\u2019 drone prediction<\/span><\/a> made five years ago on 60 Minutes.\u00a0 Drones for home delivery are still too dangerous, as opposed to using drones for inventory management<\/span><\/a>.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n But other events are both innovative and meaningful. Let\u2019s just review some of their activities over just the past year.<\/p>\n Relay, quietly released in October, is Amazon\u2019s first trucking app, and is designed to make trips to Amazon warehouses faster and more efficient. Drivers can enter cargo information into the app before they arrive. Once they have entered the information, they are given a QR code which they will use at the security gate. The idea is that by pre-checking in, they use the QR code to pass through security instead of the manual process of showing and scanning a badge at the gate. With the pre-check in process, it gives Amazon better visibility into the current location of its deliveries, and can better prepare for arrivals. Some of Amazon\u2019s warehouses and fulfillment centers have built lanes that are dedicated solely for Relay users.\u00a0 Relay aims to speed up the process of making deliveries to warehouses. Additionally, it can help to reduce manual processes.<\/p>\n The actual application of Relay is narrow, as it is only used for deliveries to Amazon facilities. However, the vision may be bigger<\/a><\/span>. It may be a way for Amazon to make inroads for a much larger future Uber-type \u00a0freight matching service.<\/p>\n Amazon\u2019s acquired Whole Foods<\/a><\/span> in June for $13.7 billion in cash.\u00a0 The move finally puts Amazon in the position that it has been working towards for years in the grocery space. Grocery has been one area that Amazon has not been able to crack, even with the launch of Amazon Fresh. By bringing the Whole Foods brand into the Amazon family, the company immediately gets a boost for its grocery business.<\/p>\n Of course, Walmart is the goliath in this space. But Amazon seeks to use convenient deliveries and technology to begin to make up the difference.\u00a0 Amazon\u2019s Dash buttons, introduced before the acquisition, are a great complement to the acquisition. The Dash Button is a small wireless device about the size of a pack of gum. When a customer presses the button, the device uses Wi-Fi to order items the customer has pre-selected from Amazon.\u00a0 Amazon\u2019s vision is that people will mount their buttons in their kitchen, pantry, laundry room, and bathroom using the attached adhesive strip on the back of the device.\u00a0 Then, for example, when they run out of Tide laundry detergent, the consumer pushes the button and Tide is automatically ordered.\u00a0 A consumer would purchase a Dash Button for $4.99 on Amazon.com for each of their favorite brands.\u00a0 With each purchase comes a $4.99 instant credit after the first purchase.<\/p>\n Amazon brought its supply chain expertise as well.\u00a0 Whole Foods was notorious for holding too much inventory at their stores.\u00a0 When a client asked for something, a helpful associate would go to the backroom and search for it, and perhaps in ten minutes would return with the item, or perhaps not.\u00a0 Now they have gone to a lean, JIT grocery supply chain with virtually no inventory in the back.\u00a0 But the store shelves are as full, or fuller, than they were previously.<\/p>\n But much work remains to be done to build out a profitable<\/u> home delivery network.\u00a0 In theory, the Whole Food stores could be used as forward warehouses, in addition or instead of being stores.\u00a0 But even after decluttering the back rooms, most of the Whole Foods locations do not offer the right layout to switch over to a delivery warehouse, as they do not have the required docks or quite enough back room space.<\/p>\n In February, Amazon announced plans to build its first air cargo hub at Cincinnati\/Northern Kentucky Airport.\u00a0 This is based on sound economics.\u00a0 When the 2-million-square-foot facility opens, it will reduce the company\u2019s dependence on UPS and FedEx. But Amazon was already moving away from reliance on the parcel giants by giving an increasing share of its parcel business to lower cost regional providers.\u00a0 And many e-commerce shoppers have seen their orders delivered by the company\u2019s fleet of private trucks.<\/p>\n Amazon had already moved into the ocean freight business for similar reasons. But this year, Amazon began taking greater control over shipments from China. Specifically, Amazon has started handling the shipment of goods from Chinese retailers that sell on its platform. For this line of business Amazon is acting as its own freight forwarder by reserving space on ships and clearing customs itself. This also reduced the fees it pays to outside logistics providers.<\/p>\n The company plans to use this new air hub to house its current and future fleet of planes. It\u2019s expected to cost Amazon over $1.5 billion which means this will be a highly automated facility, just as UPS\u2019s and FedEx\u2019s are. It is reported the company will initially employ 2,000 people, which means this hub will work at scale.<\/p>\n It is speculated that Amazon\u2019s end goal is to deliver packages for itself and other retailers.\u00a0 Large retailer competitors are very unlikely to ever use Amazon in this way; those companies see Amazon as their toughest competitor and will do nothing to help them achieve additional logistics scale.\u00a0 But small retailers could find this an interesting service.\u00a0 Many smaller retailers already sell through the Amazon marketplace. There could be bundled deal for marketing and logistics.<\/p>\n In January it was reported that Amazon had 45,000 robots across 20 distribution centers.\u00a0 Today, they have roughly 100,000 robots in use across the world. Amazon has made huge investments in automation. The company spent $775 million to acquire Kiva Robots in 2012, now called Amazon Robotics. According to one report<\/a>,<\/span> worldwide Amazon has 493 warehouses covering about 180 square million feet. Their investment in autonomous mobile robots has certainly paid for itself in increased productivity with many more warehouses still ripe for the deployment of autonomous mobile robots.<\/p>\n But it looks smart for a second reason, warehouse workers are getting increasingly hard to find. We (ARC Advisory Group) had the CEO of a large North American logistics service provider in to visit us recently.\u00a0 He told us that a few years ago they had ten applicants for every open warehouse job they had; today it is just one.\u00a0 \u201cIf an ex-con with a burglary record shows up, we say \u2018We know you will steal from us, but we can really use the help. You\u2019re hired!\u2019\u201d<\/p>\n There is a greater need for warehouse workers because of ecommerce.\u00a0 Historically, consumers went to stores and picked their goods off the shelves.\u00a0 Now warehouse workers are increasingly doing the labor consumers use to do for themselves. Not surprisingly, this CEO also believes warehouse wages are poised to rise significantly.<\/p>\n In conclusion, while Amazon runs the most innovative supply chain, that doesn\u2019t mean it is the best. Amazon is a much smaller and less profitable company than Walmart<\/span><\/a>. \u00a0Last mile deliveries are expensive, which kills profits. Amazon remains lucky that Wall Street values high growth so much more than profitability.<\/p>\n <\/p>\nRelay<\/h3>\n
Whole Foods and Dash<\/h3>\n
Amazon, the Carrier<\/h3>\n
Amazon, the Warehousing Giant<\/h3>\n
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