{"id":3679,"date":"2017-02-24T16:03:34","date_gmt":"2017-02-24T21:03:34","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/ups-prepares-to-take-on-amazon\/"},"modified":"2017-02-24T16:07:39","modified_gmt":"2017-02-24T21:07:39","slug":"ups-prepares-to-take-on-amazon","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/ups-prepares-to-take-on-amazon\/","title":{"rendered":"UPS Prepares to Take on Amazon"},"content":{"rendered":"

\"\"<\/a><\/p>\n

Last mile logistics has been an expensive segment of the ecommerce value-chain, and Amazon has decided to take matters into its own hands. The company has acquired its own delivery trucks, plans to deploy 40 jetliners out of a Kentucky airfield, and we have all heard of the drones1<\/sup><\/a>. Amazon ships about 3.5 million packages a day. In contrast, UPS, the largest package shipping company in the US handles 15.8 million packages a day2<\/sup><\/a>. UPS claims that no single customer (a.k.a. Amazon) accounts for more than 10% of its revenues. However, UPS has been reconfiguring its operations to focus on retail ecommerce for many years now, and with the platform disruption heading its way, UPS must now figure out a plan to compete with Amazon logistics. The competition may focus on ecommerce in the short-run, but Amazon would surely attempt to go after the prized B2B business in the long-run.<\/p>\n

Let\u2019s begin by taking stock of UPS\u2019 capabilities. The company has a massive distribution network consisting of warehouses, planes, delivery trucks, and store fronts. The company has been reconfiguring its store front location and layouts to be more ecommerce friendly, leading to a better customer experience and \u201cstop economics.\u201d3<\/sup><\/a> But while UPS has 27% market share in the US, it only holds about 8% market share in the next-day delivery business.4<\/sup><\/a> Amazon has deep pockets, but deploying new physical assets to reach UPS\u2019 scale will take some time.<\/p>\n

So where should UPS choose to compete with Amazon? We have all experienced the seamless service of the \u201cFulfilled by Amazon\u201d model. But we ultimately do not care who delivers that package. In this case, multi-homing could actually help UPS. Let\u2019s consider a scenario where vendors selling online, either through their own website or through Amazon, store their inventory in UPS warehouses. UPS can present a value proposition where it would innovate to provide a seamless access to not only domestic but also international shipping services. The company would also promise NOT to become a direct competitor with the vendors. UPS also has the advantage of pre-existing relationships with its customers who make B2B as well as B2C products. Bundled deals with access to UPS warehouses would create a win-win situation for both vendors and UPS. In particular, the vendors still benefit from the Amazon marketplace, they get a partner who has the resources to deliver just as quickly as Amazon, and the partner promises not to compete. In the meantime, UPS could invest in further optimizing its logistics network and developing automated solutions for its warehouses. UPS would also have to invest in increasing warehouse capacity, but this effort would be well within the company\u2019s current realm of expertise. As vendors attempt to multi-home between Amazon and UPS, UPS would hold a significant advantage because of its 3.5x scale. Even if UPS accepts low-to-zero returns on increased inventory risk, growth in the shipping volumes should be attractive. UPS could also leverage its retail locations to improve upon the HK-stores concept \u2013 display high-touch products, accept orders in the store, and guarantee quick delivery.<\/p>\n

UPS is fortunate to be in a position where it already holds many pieces of the architecture required to compete with Amazon. But it must move quickly to reconfigure its business model, and present a new value proposition to the ecommerce. Delivery has been UPS\u2019 bread-and-butter. If it takes one more step towards integrating one more level up the value-chain through fulfillment services, it would be able to present a strong defense to Amazon logistics. If Amazon later tries to target the B2B shipping industry, UPS would have created a barrier-to-entry through pre-existing bundled deals.<\/p>\n

Sources:<\/strong><\/p>\n

    \n
  1. http:\/\/www.andnowuknow.com\/quick-dish\/amazon-steps-sea-transport-and-logistics\/robert-schaulis\/52412#.WLCKcRiZORs<\/a><\/li>\n
  2. http:\/\/www.citylab.com\/work\/2012\/12\/how-ups-delivers-millions-more-fedex\/4226\/<\/a><\/li>\n
  3. http:\/\/www.pymnts.com\/in-depth\/2015\/how-ecommerce-shipping-has-been-disrupted\/<\/a><\/li>\n
  4. http:\/\/csimarket.com\/stocks\/competitionSEG2.php?code=UPS<\/a><\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

    Has UPS thought of “Fulfilled by UPS?” It could be its best bet to defend against Amazon.<\/p>\n","protected":false},"author":1023,"featured_media":3681,"comment_status":"open","ping_status":"closed","template":"","categories":[550,1187],"class_list":["post-3679","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-incumbent-platform","category-logistics"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-digit\/assignment\/growing-businesses-in-the-age-of-platforms\/","yoast_head":"\nUPS Prepares to Take on Amazon - Digital Innovation and Transformation<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-digit\/submission\/ups-prepares-to-take-on-amazon\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"UPS Prepares to Take on Amazon - Digital Innovation and Transformation\" \/>\n<meta property=\"og:description\" content=\"Has UPS thought of "Fulfilled by UPS?" 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