October 23, 2017


















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).