Amazon’s Achilles Heel
How connected inventories and mesh delivery networks could take down a behemoth
Amazon has become the go-to platform for online ordering. They have successfully shifted millions of customers to online ordering by offering a wide selection of products, an amazingly fast delivery experience, and prices similar to those found at large retail outlets. They are so good at what they do that the tendency is to think they are unbeatable. But, there is an even more efficient consumer shopping experience within reach that can give Amazon a run for its money.
The Amazon Operation
As it now stands, you place an order for certain products today on Amazon and they can be delivered in windows ranging from 2–3 days to same day. Amazon does this by using consumer forecasting models to stock the product you ordered in one of their rapidly growing number of distribution centers located near areas where most consumers live. However, for the “final mile” of the delivery process, taking your product from the distribution center to your home, Amazon still relies on a network of local delivery companies ranging from UPS to small independent, local couriers. This final mile of delivery is a particularly expensive part of the total Amazon operation. And, precisely because final mile delivery is so expensive, any system that shortens the distance between the distribution center and the customer’s home/office has the potential to improve upon the efficiency of the current Amazon operation.
“Hidden” Inventory
Focusing on shortening the geographical distance between product inventory and a customer’s home/office leads one to think about product inventory and distribution points differently. There are already several potential distribution points in the typical metropolitan area that are closer to the customer than the Amazon distribution center. The same product ordered from Amazon is likely sitting on the shelf at Walmart, Target, Best Buy, or some other large scale retail outlet located a short distance from the customer. Each of these retailers can be looked at as a miniature distribution center, the sum of which contains as much, or more, inventory than any single Amazon distribution center. The challenge for anyone looking to compete with Amazon is to figure out how to weave the inventories found in these large, local retailers into a series of integrated distribution points.
Weaving these large local retailers into a coordinated system of distribution points without damaging their existing retail operations is a significant challenge. These large retailers need to change their store layouts to facilitate a distribution style operation while simultaneously supporting in-store customer traffic. Operationally, brick-and-mortar retailers would need to integrate traditional retail sales functions with the pick-and-pack functions of large distribution centers; but, groups like Google Express are helping retailers do this.
The next task is to connect these independent inventories digitally and track/predict purchases just the way Amazon does. The difficulty comes in integrating and optimizing the different tracking and forecasting systems already in use at large box retailers. Again this is no easy task. But, the reward for solving this puzzle is large. It allows a distribution network competitor to connect a customer’s order to a location that is geographically much closer than the Amazon distribution center. This geographical proximity is important because final mile delivery is expensive. By locating inventory closer to the customer an Amazon competitor can beat Amazon on both delivery cost and speed.
Efficient “Final-Mile” Delivery
The last step is the movement of goods from these local distribution points to the customer. Since Amazon itself relies on existing local delivery services to move their order the final mile, we can assume that these local delivery services would be at least as efficient in moving goods around a new, more tightly knit local network. It also seems reasonable to assume that by utilizing sophisticated logistics software and infrastructures already employed by companies like Homer, OnFleet, and Bringg, an Amazon competitor may be able to improve the efficiency of their final mile delivery operations.
Amazon is at a point where no single retailer, even one as large and sophisticated as Walmart is able to challenge it. However, a business that partners with multiple retail outlets, tracks their interlaced inventories, shortens the geographical distance between customers and the products they buy, and relies upon sophisticated urban logistics to deliver these products has a genuine opportunity to bring down a behemoth.
