Worley Blog

THERE IS LIFE AFTER AMAZON

Posted on: February 15th, 2022 by Clifford F. Lynch

 

Several years ago, I wrote that the four major impacts on the supply chain during my career were deregulation of transportation, technology, globalization, and Wal-Mart. Recently, a colleague asked me if I was ready to add a fifth, which of course would be Amazon. A good question, but I am not so sure. Let’s take a look at Wal-Mart. When Sam Walton opened the first Wal-Mart store in 1962, he probably had no inkling of the way he would be changing the retail landscape of the country. Building on the success of that first store, by the 1970’s, Wal-Mart had begun its march through small-town America, then not-so-small-town America, and the world. In 2021, the company had 2.2 million employees, serving over 200 million customers weekly, in 11,000 stores in 24 countries. In its wake, it left thousands of casualties as neighborhood hardware, appliance, apparel, and other local businesses collapsed under the weight of the competition from Walmart’s selections and lower prices. Thousands of workers were displaced, but every new Wal-Mart brought new job opportunities; and to many, the lower prices justified the job losses.

But as Wal-Mart and the local competitors and customers settled into new relationships, the company turned to its supply chain as a major factor in holding down prices and has been a true pioneer in the supply chain industry. Automated warehouses, huge cross dock facilities, top notch technology, sustainability programs and modern truck fleets have not only improved Wal-Mart’s operations; but the techniques and processes they have introduced have made major impacts on the operations of others.

To state that Amazon has changed the face of on-line buying is unnecessary. Electronic commerce was up 19% in 2021. Much of that increase went to Amazon, and their share of the pie is expected to grow. Just as Wal-Mart did in the 1970’s, Amazon has had a major impact on the competition and employment. Even major U.S. retailers, including Macy’s and Sears closed thousands of physical stores because of shifts to on-line purchasing.

Last year seemed to strike a balance between brick-and-mortar stores and electronic purchasing, however. While there were 5079 retail store closures, there were 5083 openings. Store sales were up 4.8 %. Competitors such as Target, Home Depot, and others have developed competitive distribution systems, although none as powerful as Amazon.

What Amazon has done is speed up the entire selling and delivery process, and through their reselling of others’ products, are to some extent, helping their competition. Amazon now has 500 distribution points to shorten the “last mile”. Through its purchase of Kiva, a robotics company, most of these buildings are equipped with robots to assist in product movement. They also employ thousands of order pickers; and like Wal-Mart, they are not known for their high wages and sensitivity toward employees.

As far as new contributions to the body of supply chain knowledge, I do not see much. While they have added volume to existing systems and privatized much of their transportation, some of their publicized innovations seem to be solutions looking for a problem. Drones certainly a part of our future, but I do not see delivering pizzas or Zappo’s shoes their highest and best use. Their distribution center in the sky and skyscraper distribution centers are pretty exciting stuff and have Star Trek fans salivating as they await the assumption of command by Captain Kirk. But a practical contribution to the supply chain? I don’t think so.

It is a rapidly changing world for the supply chain manager. Amazon and others are not just accommodating change but are part of it; and supply chain managers must reeducate themselves accordingly. At the same time, we must separate the hype from the reality. This is not the first change we have seen in customer ordering preferences or delivery demands, nor will it be the last. I am confident that as they have done in the past, supply chain managers will be able to adapt to and meet whatever requirements are thrown their way.