By opening up its vast logistic network to external businesses Amazon has made a bold move into a new stage of growth and given the long-established industry leaders UPS and FedEx direct competition. This relocation is part of a larger change that has been happening within the company, as it is now no longer only e-commerce giant, but is increasingly becoming a force to reckon with, in terms of global supply chain infrastructure. Amazon is transforming the way logistics services are accessed and delivered by other companies across industries by enabling other companies to store, transport and deliver goods using its systems.
The epicenter of this change is a new service known as Amazon Supply Chain Services. The program allows companies in industries like retail, health, and industry to take advantage of the vast logistic platform offered by Amazon. They consist of transportation by ocean, road, rail, and air, warehousing, inventory management, and last-mile delivery. What used to be developed to support the Amazonian marketplace and third-party sellers are now being positioned as an independent service to companies who might not even sell on the Amazonian marketplace.
This development is not as abrupt as a derailment and more as a natural development. Amazon has over the years quietly developed one of the most advanced network of logistics in the world. What started as a need to manage its increasing e-commerce need has become a competitive advantage that not many companies can achieve. Having over 100 cargo carriers, thousands of delivery trucks, and an expansive network of warehouses and sorting facilities, Amazon has created a system that could move goods with the remarkable speed and accuracy. It will be a rational continuation of that investment to open this infrastructure to external businesses.
The reaction of the market to the announcement was quick. The shares of both UPS and FedEx fell by over 9 percent as investors continued to be worried about the increasing threat that the entry of Amazon into their main business was posing to them. At the same time, the stock of Amazon slightly increased, which indicates the trust in the company and its further ability to diversify its sources of revenue. The reaction sheds light on how serious the market is to the ambitions of Amazon in the field of logistics, which has long been monopolized by a few large players.
The attractiveness of Amazon to businesses is its efficiency, and technological advantage. The delivery timelines of two to five days that has become the standard of the world that has been formed by the fast online shopping expectations can be used by companies using the new service. In addition to speed, another feature of Amazon that is beneficial to businesses is improved inventory forecasting tools, which help businesses predict demand and manage the stock levels more efficiently. Such capabilities are not merely conveniences, but can have a significant impact on the bottom line of a company because they can reduce delays, minimize excess inventory, and enhance customer satisfaction.
Operationally, this step would redefine the way businesses go about their logistics relationships. Given that warehousing, freight, and last-mile delivery are separate services, businesses traditionally have used distinct providers. The integrated model of Amazon has unified all these factors under one roof making what is usually a complex and disjointed process a lot simpler. Access to such a well-developed system could even the playing field between smaller companies, who may have a more established supply chain, than larger companies that may not have such a well-developed system.
This development also has a strategic layer, which extends beyond the immediate financial benefits. Integrating further into the processes of other companies, Amazon becomes stronger in its presence in the larger economy. Not merely a retailer or a marketplace, it becomes a vital collaborator in the flow of goods. Such integration may lead to long-term dependency, which is why it may become more difficult to switch the provider once the companies are fully integrated into the Amazon system.
Simultaneously, the growth poses critical issues concerning competition and market forces. UPS and FedEx have a long history and extensive network of networks, but when Amazon enters the scene, the pressure has taken on a new dimension. Innovation in pricing, speed and service are likely to be even more competitive as these companies act in response to the increasing presence of Amazon. To the customers, it might result in improved services and reduced costs. In the case of the industry, however, it can usher in a phase of severe competition and accelerated change.
Another issue is the question of trust. Although the services offered by Amazon are quite impressive, some companies might be reluctant to use the services of the company that might also be perceived as a competitor, in particular, in the retail sector. Outsourcing logistics business implies exchanging delicate information regarding inventory, demand trends, and distribution plans. To be able to attract a larger variety of clients Amazon will have to prove that it can deal with this responsibility in a transparent and fair way.
There are initial indications of a readiness of major companies to test this new offering. Some of the first companies to join as clients include Procter & Gamble, 3M and American Eagle, which would mean they have some trust in the logistics prowess of Amazon. Their involvement not only legitimizes the service, but also provides an example that may persuade other companies to do the same.
In a larger sense, this trend can be seen as a transition towards a more modern way of creating value in the contemporary economy. Once perceived as a back office operation, infrastructure is starting to emerge as a major point of differentiation. Companies with the ability to move goods efficiently, quickly, reliably are getting an edge that goes beyond logistics to the general performance of the business. The move by Amazon to open its network is a clear acknowledgement of this fact.
