Strategic Insights 39
AMAZON.COM UPDATE: INNOVATIVE PREDATOR AND ROLE
MODEL
August 2015: Two News Stories:
Many publicly-traded
retailers report sad Q2 numbers. And, the New York Times (NYT) prints a
scathing article on Amazon’s (AMZ) brutal, Darwinian work environment (based on
interviews with 100+ disgruntled, ex-employees).
My interpretation: AMZ has
both tech and warehouse workers. They pay techies: the most, to get the best,
and expect innovation brilliance in a constantly measured way. Like elite
military programs, AMZ has no shortage of applicants. Few are chosen. Many hired
don’t last, because standards are not compromised. How else could AMZ’s
innovative execution continue to chomp away at the egalitarian, tenured workplaces
that the NYTs favors?
For warehouse workers, AMZ
apparently pays enough to give me “Prime”, perfect-service satisfaction. Better
question (?): how does AMZ treat warehouse workers in comparison to the average
distributor?
More News On: AMZ v. Retailers (and Independent
Distributors!)
AMZ will continue to steal more
of the most net-profitable goods and customers that every retailer sells.
Expect more: sad retail company earnings; store closings; and eventually entire
malls. When and what most, net-profitable sales will AMZ start nibbling from
your distribution firm?
Not worried? Consider the
following:
·
Why have major-publication “experts” consistently underestimated AMZ over its
20 years of existence? Derisive labels
have been: Amazon.com (’96); Amazon.toast (”97); Amazon.bomb (’99); Amazon.org
(it’s a non-profit); and most recently Amazon.bubble and “dystopian… Darwinism”
(NYT). “AmazonSupply” recently disappeared, so aren’t distributors safe? Why do
entrenched competitors wish these AMZ slams were true? Instead of wishful denial,
consider:
·
How fast
and affordably will AMZ be able to deliver goods to your customers in two-hours
or less? What do these
astounding facts and trends suggest?
§ 28 to 90 Distribution Centers (DCs) within the US
in the past 5 years (15MM sq. ft. to 65MM).
§ Simultaneously, AMZ’s picks per sq. ft. have
increased innovatively by 400%.
§ AMZ deployed 12,000+ warehouse robots in the past
12 months. A $20K bot yields $2MM in human labor value.
§ 23% of the US population can get same day delivery
now; 29% by year end 2015.
§ In less than 2 years, the USPS has gone from making
negligible deliveries for AMZ to 40%, seven days a week for $2 per delivery
which is half of what AMZ pays UPS and FedEx.
§ AMZ has multiple, additional, new-delivery
experiments going on.
§ If AMZ can fulfill ever-increasing orders (on an
hourly basis) for every zip+4-area in a target city, when will they be able to
deliver – an hour later – many more packages per block (at a lower cost per
delivery) than anyone?
§ Do you think AMZ’s innovation and build-out of a
logistical infrastructure to serve growing - (mobile) on-line, one-click
ordering - will slow?
·
AMZ knows
the Operating Profit (or loss) that they make on every line-item, SKU and
customer; do you?
§ To know the Profit Dollars (P$s) on every line
item, you need to know the Cost-to-Serve Dollars (CTS$s) for every line item. What
is your current, good-enough CTS model? (Need one? Rent one by the month
from www.waypointanalytics.net.)
§ AMZ calculates the entire “Value Exchange Equation” (VEE)
for each line item:
§ GM$s (less) CTS$s
(equals) P$s.
§ Line-item VEEs can then be summed up to higher
level VEEs for: each order, customer, customer niche; SKU, product group,
supplier; etc.
·
We’ve watched AMZ
steal too much “PRIME Buyer” business from – book stores; Best Buy; Radio
Shack; Whole Foods on nutraceuticals; etc. – while the besieged overestimated their
customers’ loyalty to traditional service models?
·
When will AMZ
target your most popular, profitable (over-priced) SKUs with price discounts? And, how do they get away
with selling the small-dollar-pick SKUs (your losers) at higher prices in bundled quantities with conditions: “add-on”, “pantry”?
(Did you know, BTW, that your top 200 most net-profitable items (with big
GM$s/pick) massively cross-subsidize your 200 biggest losing items? Losers have
high GM%, but too little GM$s per line to cover your CTS$s.)
·
In the bigger
picture, AMZ’s overall objectives
are to be: (1) “the world’s most customer-centric company”; (2) with the most
efficient, distribution infrastructure footprint; (3) that is specifically tuned
to servicing electronic orders (increasingly from mobile devices); while (4)
nudging Prime Buyers to first at home and then at the office (?) migrate to a “dash”,
replenishment-demand system for consumables.
Conclusions:
Stop hoping and start
copying AMZ. Get savvy about Cost-To-Serve
(CTS) Math to then partner the highest net-profit customers before and better
than AMZ can do remotely? Don’t try harder at your past beliefs and
practices to fend off new, improved, supply-chain-math realities.
(For more on CTS Math
Insights and Training: contact me about my new, video-based, CTS-Math course
(for all distributor employees).
