Adrian GonzalezPresident

Adelante SCM

A–Z: The Emergence of Amazonas a Global 3PL

SMC3 Connections ConferenceJune 28, 2016

Disruptor or Distraction?

As E-Commerce Goes, So Goes Amazon

CAGR = 14.1%

Data Source: U.S. Commerce Department

CAGR = 28.3%#1 E-commerce Retailer

E-commerce: 7.3% of total retail sales,60.4% of total retail growth in 2015.

Amazon’s Killer Weapon: Amazon Prime

“This analysis indicates that Amazon Prime now has 54 million US members, spending on average about $1,100 per year, compared to about $600 per year for non-members.”

We’ve grown Prime two-day delivery selection from 1 million items to over 30 million, added Sunday Delivery, and introduced Free Same-Day Delivery on hundreds of thousands of products for customers in more than 35 cities around the world…

Prime Now offers members one-hour delivery on an important subset of selection [and serves] members in more than 30 cities around the world.

Prime has become an all-you-can-eat, physical-digital hybrid that members love. Membership grew 51% [in 2015]– including 47% growth in the U.S. and even faster internationally – and there are now tens of millions of members worldwide.

Source: http://files.ctctcdn.com/150f9af2201/ae0b58e0-f4a5-4d83-916b-ec0757dc95db.pdf Source: Amazon Annual Report 2015

Amazon’s Growing Distribution Network

Source: MWPVL International (http://www.mwpvl.com/html/amazon_com.html)

Already a 3PL to Millions of Sellers

In 2015, Fulfillment by Amazon (FBA) shipped over one billion units on behalf of sellers. The number of active sellers using FBA grew more than 50% [to approx. 3 million sellers]. In Q4 2015, FBA units represented nearly 50% of total third-party units.

Source: Amazon Jan. 28, 2016 press release

Amazon: The 3PL Inside P&G Warehouses

“The Amazon-P&G alliance is still running strong. According to data from L2, P&G ranks on the first page of results in Amazon for over 40% of its individual products, and close to a third of its products are among the top 50 in their category in the number of reviews per listing on Amazon.”   

Source: http://www.fool.com/investing/general/2015/03/06/pg-gets-caught-in-rivalry-between-amazon-and-targe.aspx

Shipping is a Loss Leader for Amazon Shipping costs exceeded

shipping revenue by $5B in 2015

Shipping revenue YoY Growth (2015): 45%

Shipping cost YoY Growth (2015): 32%

$13.4B in Fulfillment operating expenses in 2015 (25% YoY growth)

Expanding Logistics Footprint – and Ambitions?

The Big Questions Why is Amazon investing so heavily

in expanding its logistics footprint and capabilities?

Why should you care? What are the takeaways?

What, if anything, should you do about it?

Jeff Bezos: “Supplement [Capacity] Heavily”

“Amazon isn’t aiming to take over the last mile of delivery from the likes of FedEx, United Parcel Service or the U.S. Postal Service, but rather to ‘supplement it heavily’ chief Jeff Bezos said [May 30th] at a conference hosted by technology website Recode.” 

Christmas 2013 was a wake-up call

Source: “Delivery Won’t Be the Driver at Amazon,” WSJ, June 1, 2016

Wall Street: Amazon the Disruptor“We believe that global logistics is a highly competitive and fragmented market that has yet to capitalize fully on the emergence of web-based technologies such as cloud computing and data- centric analytics and optimizations that can reduce inefficiencies within the supply chain.

As such, we believe certain segments of the logistics market, namely last-mile parcel delivery as well as the much larger contract logistics space, are areas in which Amazon could provide a compelling alternative to traditional shipping/logistics providers.”

Source: Baird Equity Research report, October 19, 2015

My View: Directly Control Customer Experience

Amazon wants to own and control the innovation cycle — from the front end of its operations (website) to its back end (order fulfillment, DC automation systems, and final delivery) — in a holistic and integrated manner.

In essence, Amazon is taking the same “owning the ecosystem” strategy that Apple took in the computer industry.

Takeaway: End-Customers Must Become Center of Your Supply

Chain Universe

How must you transform your supply chain

processes, technology, resources, and

relationships in response?

Customers

Takeaway: Logistics Must Become a Competitive Weapon

Cost management is still important, but leverage logistics to drive top-line growth and profits, increase market share, and improve customer service, experience, and loyalty

Takeaway: Last-Mile Delivery Becoming New Logistics

Battleground

Takeaway: Logistics, Commerce, and Technology are Converging

What Should You Do in Response?Do’s

Put customers at the center of your supply chain. How must your supply chain processes, technology, and relationships change?

View logistics as a strategic weapon, not just a cost center, to drive revenue growth, improve customer loyalty, and increase market share.

“Walk the talk” on breaking down functional silos and collaboration.

Don’ts

Blindly copy Amazon or operate solely in reactive mode

View technology as a “silver bullet” solution

Take upstarts for granted or become complacent. Past performance is no guarantee of future results.

Disruptor or Distraction?

If you ask Travis Kalanick, he might say…

Amazon is just a distraction;

we’re the true disruptor!

Thank You!

Adrian GonzalezPresident

Adelante SCMadrian@adelantescm.com

www.talkinglogistics.com