{"id":21079,"date":"2017-11-07T23:50:27","date_gmt":"2017-11-08T04:50:27","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/is-amazon-also-a-last-mile-delivery-company\/"},"modified":"2017-11-07T23:50:27","modified_gmt":"2017-11-08T04:50:27","slug":"is-amazon-also-a-last-mile-delivery-company","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/is-amazon-also-a-last-mile-delivery-company\/","title":{"rendered":"Is Amazon also a last mile delivery company?"},"content":{"rendered":"

Adoption of digitalization across the retail industry has been accelerating across every part of both the supply chain and the point of sale itself. With Amazon leading the charge driving e-commerce, which now accounts for nearly 10% [1] of the total retail volume in the US, all retailers have had to reinvent both the way they sell to customers and they way they fulfill said sales.<\/span><\/p>\n

Interestingly enough, Amazon, moving faster than anybody else in the market has had to reinvent itself too to be able to cope with its own growth and constantly changing assortment of products – and yet, if there\u2019s one company that has built the capabilities to change their business model over and over again, it\u2019s Amazon. The Seattle behemoth, known for its transformation from an online bookstore to the \u201cretailer of everything\u201d is now entering a new market: last mile logistics.<\/span><\/p>\n

Amazon currently accounts for 53% of the total revenue generated online in the country, and accounted for 47% [2] of total growth in 2016. Traditional last mile logistic companies that have served Amazon in the past (USPS, UPS, Fedex) are no longer being able to sustain the level of service or the price point required by Amazon to make a profit on this very low margin industry. Another challenge arose with the Q2 2017 acquisition of Whole Foods, which required new capabilities of fresh food deliveries that traditional last mile logistic companies simply do not have.<\/span><\/p>\n

The solution to this challenges? Amazon is piloting several. In the short term, Amazon is already ramping up its own fleet of hired couriers, and using them primarily to deliver groceries and for same day deliveries out of their own operated warehouses. However, to enhance this operation, since early October they are piloting a program called \u201cseller flex\u201d, where retailers currently selling on Amazon can select shipping out of their own warehouses using the Amazon fleet to fulfill same day and 2-day orders. Both UPS and Fedex\u2019s stock dipped (2.1% and 1.3% respectively) as the news broke out. [3]<\/span><\/p>\n

In a more of a medium term play, Amazon is starting to pilot a \u201cgig-economy\u201d based model, outsourcing deliveries on demand to independent non commercial drivers (Uber for last mile deliveries) and calling the program Amazon Flex. [4]<\/span><\/p>\n

On the long term, Amazon has been experimenting with drone deliveries, with a pilot in the UK already underway. While there are regulatory hurdles to be cleared before unmanned deliveries can be achieved this is definitely a major bet that the company is undertaking.<\/span><\/p>\n

While relying on its massive scale and market liquidity to self build last mile capabilities in developed markets, Amazon faces a different challenge in the developing markets where they only started operating recently. Take for example Mexico, where despite entering the market in the summer of 2015, Amazon is already a top 3 player in terms of market share in e-commerce. [5] In order to accommodate and fuel growth in the country they are building smart infrastructure in form of an intelligent new mega-warehouse in the outskirts of Mexico City, as they have done in so many different markets. However, Amazon is still trying to figure out how to tackle last mile delivery in a country with very unsophisticated infrastructure. A job opening available on November 2nd (which has since been closed) for Sr Program Manager had job description specifically tailored to develop last mile capabilities within the country in innovative ways.<\/span><\/p>\n

Being at the forefront of innovation in so many different fronts allows Amazon to design new creative solutions to the last mile problem. I would encourage management to pilot a \u201cself pickup\u201d from a convenient location program. With the level of automation already happening in their warehouses, Amazon could quickly pivot into a fully automated \u201cmini warehouse\u201d in a convenient location in the middle of the city where people could drive through to pick up their packages. This could potentially improve margins by reducing the requirement for last mile delivery that could be passed on to the final customer.<\/span><\/p>\n

While the trend of digitalization sweeps the retail world no company in the world seems to be better prepared for this than Amazon. Still, risks always loom in the horizon, even for Amazon. As the company keeps growing and entering new markets, will regulators eventually declare it a monopoly and force it to divest? Is there a looming clash with Alibaba the Chinese giant that will finally put Amazon to the test? We\u2019ll have to wait and see\u2026.<\/span><\/p>\n

Wordcount (753)<\/span><\/p>\n

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[1] US Department of Commerce \u201cQuarterly Retailer E-Commerce Sales, Q2 2017\u201d. August 17, 2017. \u00a0<\/span>https:\/\/www.census.gov\/retail\/mrts\/www\/data\/pdf\/ec_current.pdf<\/span><\/a><\/p>\n

[2] Eugene Kim \u201cMore than half of online sales growth in the US came from Amazon last year\u201d. \u00a0Feb 2, 2017. Business Insider. \u00a0<\/span>http:\/\/www.businessinsider.com\/amazon-drives-more-than-half-us-ecommerce-growth-2016-2017-2<\/span><\/a><\/p>\n

[3] Spencer Soper \u201cAmazon Is Testing Its Own Delivery Service to Rival FedEx and UPS\u201d. October 5, 2017. Bloomberg Technology. <\/span>https:\/\/www.bloomberg.com\/news\/articles\/2017-10-05\/amazon-is-said-to-test-own-delivery-service-to-rival-fedex-ups<\/span><\/a><\/p>\n

[4] Amazon Flex website. \u00a0<\/span><\/p>\n

https:\/\/flex.amazon.com\/?cs=A3&c=Boston&cid=BOSA3CARRATE_+amazon%20+deliver_226494319874_c_b_g&uuid=ses1510112678167-114742f6-f43a-482e-a9ff-e3df03ca9767<\/span><\/a><\/p>\n

[5] Daina Beth Solomon. \u201cAmazon plans mega-warehouse for Mexico growth spurt\u201d. September 13, 2017. Reuters. <\/span>https:\/\/www.reuters.com\/article\/us-amazon-mexico-exclusive\/exclusive-amazon-plans-mega-warehouse-for-mexico-growth-spurt-idUSKCN1BO1RD<\/span><\/a><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

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