2019

KEEPING CURRENT

SUPPLY CHAIN MANAGEMENT

Amazon’s Going the ‘Last Mile’

Could online retailer’s delivery service
change e-commerce expectations?

In 1994, Amazon.com was launched as an online bookstore operated out of the Bellevue, WA, garage of founder and CEO Jeff Bezos. It’s since grown to become the largest online retailer in the world, selling everything from beauty products to lawnmowers.1

Technological innovation has powered much of Amazon’s growth—from one-click purchases, which dramatically speed up the ordering process, to recommendations based on previous purchases and rated items. Its grocery service ships 45 pounds of nonperishable items to customers’ homes at a flat shipping rate of $5.99.2 Recently, the retail giant unveiled a new service in the form of a delivery method that could change the online shopping experience and influence consumer expectations.

After rolling out the service in the United Kingdom earlier this year, Amazon is piloting its own private fleet of delivery trucks operated by contract drivers in three U.S. markets—New York City, Los Angeles and San Francisco. Amazon also built its own parcel tracking system, similar to those used by the United Parcel Service (UPS) and FedEx.3

How exactly this works isn’t yet clear. It focuses on the "last mile" of deliveries, however—the part that ends at your doorstep and is typically handled by large carriers such as UPS, FedEx or the U.S. Postal Service.

"One thing Amazon has done very successfully is they’ve owned the entire value chain," said Sucharita Mulpuru, a retail analyst at Forrester Research. "They’ve owned the last mile, the moment that matters. That moment is when the package arrives. Once you can own the moment that matters, you build a loyal customer base."4

Race for the last mile

According to the Network Effect, a blog that analyzes supply chain trends, the supply chain used to be a relative backwater for retailers. Historically, retailers only needed to keep pace with industry averages. But the status quo might not be enough in today’s increasingly competitive marketplace.5

A recent large-scale consumer survey by Ernst and Young found that the top influencer in consumer purchasing decisions was delivery terms, trumping the power of promotional offers, physical store design and website strength. Almost a third of consumers surveyed said they were willing to pay a premium for instant or swift product availability.6

Greater demand for convenience helps explain the strategy that Amazon is following. Its massive expansion of building fulfillment centers (adding 50 new facilities since 2010) could position Amazon to eventually offer same-day delivery throughout the United States.7

In a widely publicized announcement, Amazon detailed its plan to eventually use pilotless flying drones to deliver packages to customers within a half hour of placing an order. Even if delivery by drone turns out to be a pipe dream, Amazon’s recent moves could be a game changer.8 Taking control of delivery could allow Amazon to better control consumer experiences. Over time, online shoppers may become accustomed to accelerated delivery options without a lot of extra expense.9

"Retail is at a crossroads," said Jim Tompkins, president of Tompkins International. "The reality is that Amazon is so big that they are now mandating what the customer satisfaction requirements are for everyone, even if you don’t think that you compete with Amazon."10

Other retailers are using similar delivery strategies. EBay offers local delivery in less than two hours for $5 in several urban regions: Chicago, Dallas, Manhattan, Brooklyn and Queens in New York, and San Francisco. Google Shopping Express, available in San Francisco and San Jose, delivers packages the same day for $4.99 per order.11

Logistics

For now, Amazon will still rely on FedEx, UPS and the U.S. Postal Service to move goods elsewhere in its supply chain. Shipping costs are a major line item in Amazon’s cost structure and are rising.12 In its first quarter earnings report, Amazon’s sales were up 23%, but shipping costs were up 31%. Sanford C. Bernstein & Co. analysts estimate Amazon shipped about 608 million U.S. packages in 2013. The Postal Service handled 35%, UPS 30%, regional shippers 18% and FedEx about 17%. The distribution hasn’t changed much in recent years. Amazon typically pays between about $2 and $8 to ship each package.13

Amazon began planning the delivery network several years ago. Shipping issues experienced by UPS and FedEx last holiday season added urgency to rollout of the service.14

Amazon shipments should account for less than 1% of revenue for FedEx and UPS, said Jack Atkins, an airfreight and logistics analyst at Stephens Inc. This suggests Amazon’s delivery network would have a marginal effect on the shippers’ profits, unless it becomes a direct competitor.15

In a recent posting on its website, Amazon noted, "Amazon is growing at a faster speed than UPS and FedEx, who are responsible for shipping the majority of our packages. At this rate, Amazon cannot continue to rely solely on the solutions provided through traditional logistics providers. To do so will limit our growth, increase costs and impede innovation in delivery capabilities. Last Mile is the solution to this. It is a program that is going to revolutionize how shipments are delivered to millions of customers."16

Will quality suffer?

U.K.-based online forums are rife with customer complaints on missed, late or inaccurate deliveries. And a consumer in San Francisco who now receives packages delivered by Amazon says two recent orders have repeatedly missed their delivery deadlines.

"After the first time, I asked them not to ship me anything using that service, but they did it again anyway," said the customer. "I don’t want to be Amazon’s test market for their new shipping idea—that’s not what I am paying for."17

While execution of its delivery fleet hasn’t been flawless, Amazon’s ambitions signal that it wants to be even more integrated in its customers’ lives and that the organization believes it must continually change and evolve to attain long-term success.18

—Compiled by Megan Schmidt, contributing editor

References

  1. Sophie Curtis, "The Innovations That Took Amazon From Online Bookseller to Dominant Global Marketplace," Business Insider, Oct. 15, 2013, http://tinyurl.com/lggoex7.
  2. Laura Hazard Owen, "With Prime Pantry, Amazon Offers Slow Grocery Delivery on the Cheap," Gigaom, April 24, 2014, http://tinyurl.com/mccxaes.
  3. "Supply Chain News: Amazon Rolling Out Its Own Fleet of Trucks," Supply Chain News, April 30, 2014, www.scdigest.com/ontarget/14-04-30-1.php?cid=8012.
  4. Hilary Stout, "In War for Same-Day Delivery, Racing Madly to Go Last Mile," New York Times, Nov. 23, 2013, http://tinyurl.com/lmmwj77.
  5. "Amazon is Testing Same-Day Delivery … Can it Own the ‘Last Mile?’" The Network Effect blog, http://tinyurl.com/lux4ulo.
  6. Ibid.
  7. Ibid.
  8. Ibid.
  9. Greg Bensinger and Laura Stevens, "Amazon, in Threat to UPS, Tries its Own Deliveries," Wall Street Journal, April 24, 2014, http://tinyurl.com/l3dz6en.
  10. Bob Trebilcock, "Supply Chain: Amazon is Changing the Rules of the Game," Modern Materials Handling blog, Dec. 12, 2012, http://tinyurl.com/m228juf.
  11. "Amazon Takes On Delivery: How Retailers Should React," Channel Advisor Blog, April 30, 2014, http://tinyurl.com/lb7bxwg.
  12. "Supply Chain News: Amazon Rolling Out Its Own Fleet of Trucks," see reference 3.
  13. Ibid.
  14. Bensinger and Stevens, "Amazon, in Threat to UPS, Tries its Own Deliveries," see reference 9.
  15. Ibid.
  16. "Supply Chain News: Amazon Rolling Out Its Own Fleet of Trucks," see reference 3.
  17. Bensinger and Stevens, "Amazon, in Threat to UPS, Tries its Own Deliveries," see reference 9.
  18. Daniel Kline, "Amazon’s Plans for Drones, Groceries, and More," Fool.com blog, April 14, 2014, http://tinyurl.com/mlmyee4.

SUPPLY CHAIN MANAGEMENT

Survey: Lack of Leadership
Can Stall Supply Chains

The biggest barrier to the success of an organization’s sustainable supply chain practices is a lack of leadership support, according to a new report from the Association for Operations Management (APICS) that surveyed global operations executives.

About 30% of the operations executives surveyed said their organizations have a documented supply chain sustainability strategy, but only 17% of managers and those below that level in organizational hierarchies agreed with the strategy, according to the report. As a result, mid-level management is unable to take steps to drive meaningful change in supply chains.

"It is widely accepted that supply chain sustainability is a priority for many CEOs, but this is a complex business issue that brings with it multifaceted challenges at the management level," said Sharon Rice, executive director of APICS Foundation. "This study identifies patterns in the challenges that arise, helps us understand why these barriers remain and underscores how supply chain sustainability translates into measurable business value."

The report also notes that more than two-thirds of 500 supply chain executives said supply chain sustainability will play an important role in how they manage their supply chains through next year.

The 35-page report, titled "Sustainable Supply Chains: Making Value the Priority," can be found at www.apics.org/about/overview/newsroom.


ASQ Journal Spotlight

QP occasionally highlights an open-access article from one of ASQ’s seven other journals.

This month, read "Insights From the Baldrige Award Item-Level Blinded Applicant Scoring Data," which appeared in April’s edition of Quality Management Journal (QMJ).

In the article, James R. Evans and Feng Mai provide further evidence for the validity of the theoretical Baldrige framework. To access the article, click on the "Current Issue" link on QMJ’s website: http://asq.org/pub/qmj/past/vol21_issue2/index.html.


ACSI INDEX

Customer Satisfaction
With Utilities Falls

Energy utilities failed to improve customer satisfaction for the first time in eight years, according to a report released last month by the American Customer Satisfaction Index (ACSI).

Following an unusually harsh winter, customer satisfaction with gas and electric service providers was down 1.8% to an ACSI score of 76 on a 0 – 100 scale, ending a seven-year streak of consecutive gains for the sector.

"Unexpected higher cost tends to weaken customer satisfaction, but it is not the sole problem facing energy providers and their customers," said Claes Fornell, ACSI chairman and founder. "Customers not only paid more for energy this winter, but they also received less reliable service."

For more information on the rating, visit http://tinyurl.com/l2cuyu2.


CULTURE OF QUALITY

ASQ Partners With Forbes
Insights on White Paper

ASQ is sponsoring a Forbes Insights report that surveys more than 2,000 executives and quality professionals and explores the importance of the culture of quality.

The yet-to-be-released report, "Culture of Quality: Accelerating Growth and Performance in the Enterprise," will provide breakdowns by organization size, industry and by headquarters and respondent locations. The white paper also will incorporate interviews with leading corporations and experts, providing globally relevant and actionable insights.

Some preliminary key findings from the white paper include:

  • Two-thirds of executives said their organizations exhibit a culture of quality, but a closer look at the key elements of such a culture (vision, values and leadership) revealed significant opportunities for improvement.
  • About 62% of executives said their management supports the quality vision and values unequivocally—rising to 80% among those describing their organizations as world class.
  • Nearly two-thirds of executives said they are making investments in technology to improve performance against quality objectives, with customers’ needs at the forefront.

The full report also will address technology within quality initiatives—including big data and social media—and the use and effectiveness of various metrics and incentives for promoting quality goals.

The free report will be available in July at www.forbes.com/forbesinsights.


Short Runs

GS1 HEALTHCARE U.S. has published an implementation guideline for using GS1 standards to address the U.S. Food and Drug Administration’s new regulation for unique device identification (UDI). The guideline, titled "Using the GS1 System for FDA Unique Device Identification (UDI) Requirements," is designed for medical device trading partners, including medical and surgical manufacturers, and is available for free download at www.gs1us.org/udiguide.

THE INTERNATIONAL ORGANIZATION for Standardization’s (ISO) annual report is available for download. The report includes financial statements, ISO key figures for 2013, and an updated interactive map featuring ISO members and their participation in technical work. To access a copy, visit www.iso.org/iso/home/about/annual_report-2013.htm.


ASQ News

SR REPORT ASQ has published its sixth issue of Pathways to Social Responsibility. The 2014 issue explores how quality helps organizations integrate social responsibility (SR) into their business strategies. Eleven international organizations are profiled in the issue. Additional content includes articles on integrative SR, ASQ’s SR body of knowledge project and integration guide, and a profile of the 2014 Spencer Hutchens Medalist. For more details, visit www.thesro.org.

TRANSLATORS NEEDED ASQ Quality Press is looking for members who can translate books, case studies and articles from English to another language, as well as reviewers to check the translations. Translators and reviewers will be compensated for their work. If you’re interested, email Amber Boardman Martin of ASQ Quality Press at amartin@asq.org and include the languages you are able to translate. Also indicate any interest or expertise you have in quality, and include your curriculum vitae or résumé.

ON-DEMAND PRESENTATIONS  Three sessions from May’s ASQ World Conference on Quality and Improvement are available on demand for you to watch from your computer, tablet or smartphone. Speakers include Bob Pence, CEO of Freese and Nichols Inc.; Alicia Boler-Davis, senior vice president, global quality and customer experience at General Motors Co.; and Simon T. Bailey, a leadership expert. Visit http://videos.asq.org/on-demand-video-library for more details.


Who’s Who in Q

NAME: Saravana K. Nalatamby.

RESIDENCE: Melaka, Malaysia.

EDUCATION: Master’s degree in manufacturing systems from the International University College of Technology Twintech in Malaysia.

CURRENT JOB: Calibration engineer for AUO SunPower, Malaysia, a manufacturer of high-efficiency solar photovoltaic wafers since 2010. Main responsibilities include calibration program management, clean room particle control, electrostatic discharge control and conducting measurement system analysis study for metrology equipment.

PREVIOUS JOB: His career started in 2002 as a quality assurance technician at Silterra Malaysia Inc., a manufacturer of semiconductors and wafers.

ACTIVITIES/ACHIEVEMENTS: Successfully established a comprehensive calibration program management system at AUO SunPower, Malaysia. The system uses an environmentally friendly paperless calibration form.

RECENT HONORS: He was recently named the 2014 ASQ Inspection Division Chuck Carter International Inspector of the Year.

PERSONAL: Married to Sathiyah.

FAVORITE WAYS TO RELAX: Traveling and watching movies.

QUALITY QUOTE: "Customer satisfaction has always been my No. 1 priority. I continually strive to improve it." Nalatamby says that’s why he likes what Mahatma Gandhi has been quoted as saying about customers: "A customer is the most important visitor on our premises. He is not dependent on us. We are dependent on him. He is not an interruption in our work. He is the purpose of it. He is not an outsider in our business. He is part of it. We are not doing him a favor by serving him. He is doing us a favor by giving us the opportunity to do it."


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