How Amazon is boosting its supply chain portfolio

Earlier this week, global e-commerce giant Amazon introduced a new offering geared towards helping sellers on its platform utilize new purpose-built technologies for bulk inventory storage and automated distribution.

Entitled, Amazon Warehousing & Distribution (AWD), the company said its objective is to address critical supply chain challenges and help sellers grow and manage their businesses while cutting costs by a significant amount.

And it explained that AWD is a “pay as you go service,” freeing sellers from time-consuming and cumbersome processes focused on moving inventory from upstream facilities. What’s more, the company said it puts the promise of supply chain as a service into reality, with the goal to solve inventory management challenges and deliver operational efficiencies.

“For many businesses, managing logistics and operations—such as inventory storage, distribution and order fulfillment—is a source of complexity and cost,” wrote Gopal Pillai, vice president of Amazon Distribution and Fulfillment Solutions, in a blog posting. “These challenges have only been amplified in recent years as constrained supply chains caused global inventory backups and fulfillment challenges. In fact, a recent survey of U.S. Amazon sellers showed the three biggest pain points for sellers in upstream warehousing and distribution operations are high prices for storage, complicated fee structures, and insufficient storage capacity.”

Pillai noted that Amazon sellers can send their inventory to Amazon Distribution Centers with a single click, and reduce storage costs, as well as also eliminate complex pricing schemes and long-term contracts that are commonplace on an industry-wide basis.
And he said that sellers can integrate their upstream inventory storage operations with the Amazon Fulfillment Network to ensure the “right amount of inventory is in stock and in the right places at the right times.”

Other key benefits of AWD cited by Pillai included:

• AWD sellers can consolidate their global inventory, which they can view and manage on Seller Central, to simplify their operations with one pool of inventory;
• In 2023, sellers will be able to use AWD to send their inventory to any location, including wholesale customers and also brick-and-mortar stores.

Rick Watson, founder and CEO of New York-based RMW Commerce Consulting, observed in a LinkedIn post that AWD signals Amazon’s intention to be the sole supply chain provider for retailers and brands. And he added that it is similar to the way that Amazon can offer lower parcel rates than anyone in the industry, with more volume equaling lower costs per label, and Amazon being likely to have lower storage rates than any other company, with more volume equaling lower cost per square-foot.

“I’ve been waiting a long time for Amazon to bring this idea to supply chain,” wrote Watson.

“FBA has been limited FOREVER, and Amazon needed to expand its storage options for its Buy With Prime launch, as FBA only really works from a storage or profitability point of view for small, very fast-moving items. This changes the game there. Most people are missing Buy With Prime angle here. It is a requirement for this service to be successful. The biggest threat is to existing 3PLs in my point of view. 3PL has been consolidating lately, this will help turn that trend into hyper-gear.”

Watson said that a big challenge for AWD is if this inventory is optimized for curbside and BOPIS scenarios, pointing out that a retailer like Target has optimized its entire supply chain to make its stores more efficient whereas, most have not adding it is very difficult for Amazon to cover this use case in an optimized way.

“For Amazon, major competitors are nipping at their heels in various parts of the supply chain: Shopify, AEO, Flexport, and Maersk, to name a few,” he said. “This removes some oxygen from the room in this space. At this point, no one carries more parcels than Amazon, ensuring they continue to extend their lead rather than rest on their laurels to leverage their volume and tremendous investments.”

Jerry Hempstead, president of Hempstead Consulting, said that AWD puts what he called “golden handcuffs on sellers.

“Once a seller makes this commitment it will be difficult to revert back to fulfilling oneself,” he said. “It also takes packages out of play for the carriers and puts more critical mass into the Amazon delivery network. None of this is good for FedEx, and it may be a plus (depending on what sellers sign up) for UPS. Obviously, if a seller is using UPS and buys into the Amazon program then UPS ends up with fewer packages at a lower revenue per piece because of the discount Amazon’s leverage commands. As the economy shrinks this may be an effective way for sellers to deal with too much storage or too many employees and just make it Amazon’s headache and allows the sellers to just focus on selling.”

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