Paired with Warehouse Replenishment, This Move Will Ruin Supply Chain Resiliency
Amazon just announced a new distribution service where partners can use the online behemoth to restock physical stores and warehouses.
What could go wrong with a one-stop supply chain solution? Just let Amazon replenish your stores, fill warehouses and handle the final mile to your customers.
In my view, Amazon’s strategy is a lot like the One Ring of Power in the sci-fi classic Lord of the Rings: One ring for the Dark Lord Sauron to rule us all. One ring more powerful than the nine rings of power that turned kings into wraiths.
The strategy, combined with Amazon’s fight against the FTC, is another example of Amazon’s culture: Big, brassy and bold.
I call it a three-ring circus designed to make you dependent upon Amazon for supply chain resiliency.
Ring 1. Big: Relax – We Have Your Full End-to-End Supply Chain
Big: Amazon is aiming to handle your complete end-to-end supply chain. Once you (or your customers) place orders at the sourcing firm, Amazon handles everything.
Amazon handles the first mile. Amazon handles customs clearance. Amazon handles warehousing of bulk product. Amazon handles middle mile transportation for warehouse fulfillment to distribution/fulfillment centers.
Amazon handles multi-channel inventory replenishment at wholesale, retail and online sales. Amazon handles the last mile delivery to Amazon customers, your retail customers and your multi-online customer channels.
Amazon, of course, even handles the returns process.
Sounds great. Put on the ring. Sit back. Lay off your current logistics solutions. Enjoy the savings and rake in the cash.
After all, Amazon delivery gets rave reviews from customers.
Ring 2. Brassy: The Downsides of a Single Source Supply Chain
Brassy: This, of course, means giving up a lot of control over your business.
A one-stop supply chain solution could spark innovation. Think of small companies with few employees. They design the product, find the best sources and do marketing.
Amazon handles everything else.
Look, we’ve all seen the problems over the last few years with single, low-cost sourcing in China. Supply chains still have not recovered from the pandemic. Supply chains have not recovered from whipsawing consumer behavior. Supply chains have not recovered from years of continual disruption.
Single sourcing your supply chain carries all those risks and more. It’s kind of like relying on a sole supplier for all your raw materials or products. Which, incidentally, is where many supply chains found themselves before the disruptions of the last few years.
If you put on the ring of Amazon’s new fulfillment services, you lose control of your destiny. In fact, Amazon has a ring around your operations.
If you displease Amazon, or if the doyens in Seattle change their mind, watch out.
Transportation costs could increase without warning. The amount of inventory levels you need increases. Final mile delivery costs during peak significantly increase, etc. You have no control.
Once you put on the ring, Amazon essentially has a ring around your operations.
They have a ring around you. And if worse comes to worse, Amazon could withdraw their fulfillment services. You would have no supply chain, no logistics and no business.
3. Bold: Taking on the Federal Government
Bold: The FTC has filed a complaint that Amazon uses “dark patterns” to trick consumers into renewing Prime subscriptions automatically.
The FTC, under Chair Lina Khan, has several complaints against Amazon. Many of us who have followed Khan for years believe her goal is to break up Amazon via antitrust action.
Amazon, for its part, has come out swinging:
“The truth is that customers love Prime, and by design we make it clear and simple for customers to both sign up for or cancel their Prime membership,” according to a company statement in Retail TouchPoints.
According to CNN, the FTC announced the lawsuit without notice, “in the midst of our discussions with FTC staff members to ensure they understand the facts, context, and legal issues, and before we were able to have a dialog with the Commissioners themselves before they filed a lawsuit.”
That may all seem like a corporate boilerplate response. And it is.
But the online behemoth has accused the FTC of harassing company executives. Amazon also sought to remove Khan from the case.
Amazon has pushed back against the FTC during its probe. Not only did the company accuse the FTC of harassing Amazon founder Jeff Bezos and CEO Andy Jassy with document and interview requests, but Amazon has also sought to recuse Khan from the case.
Khan has long considered Amazon a menace. After all, she wrote “Amazon’s Antitrust Paradox.” That article for the Yale Law Journal shot her to fame.
I do not believe the FTC will be able to break up Amazon. However, it is clear that the “Lina Khan FTC” views the old standard of antitrust standard of “hurting the consumer” as outdated. Their standard is “interfering with competition.”
Eventually, the issue will be settled in court or via some sort of negotiation.
Amazon Will Not Offer Supply Chain Resilience
Say what you will about Amazon. They always go big, brassy and bold.
I’ll let them duke it out with the FTC. My concern is your supply chain – and your future.
Think about what it means for Amazon to handle your warehouse and store replenishment.
Amazon will handle your sourcing, interfacing with your product suppliers. Amazon will handle your entire supply chain. Amazon will interface with your customers, your warehouses, your stores.
Who’s to say Amazon needs you at all? Instead of withdrawing their support for your supply chain operations, they could just replace your storefront. They certainly have the capital and plenty of warehousing and logistics operations.
Again, you would be out of business.
For my money, I would avoid such a single-source supply chain solution. Sure, maybe the FTC will break up the company and save you. But again, maybe not.
True supply chain resilience requires optionality. You need multiple sources in multiple locations. You need multiple transportation solutions, the ability to switch carriers when one goes down.
Don’t count on the federal government to take off a ring that you put on your finger, only to realize that it is wrapped around your company’s neck.
Want to learn more about supply chain optionality that offers true resilience and flexibility? Let’s have a conversation and explore how to future-proof your business.
Jim Tompkins, Chairman of Tompkins Ventures, is an international authority on designing and implementing end-to-end supply chains. Over five decades, he has designed countless industrial facilities and supply chain solutions, enhancing the growth of numerous companies. He previously built Tompkins International from a backyard startup into an international consulting and implementation firm. Jim earned his B.S., M.S. and Ph.D. in Industrial Engineering from Purdue University.