How Amazon Could Flex Supply Chain Deliveries

Amazon's near real-time logistics and delivery service could move the electronics industry's supply chain deeper into real-time manufacturing. It would create a real-time delivery model taking advantage of data-driven robotics at manufacturing plants that send signals to automatically replenish inventory.

While Amazon's drone delivery service may not be ready to take flight, the company is building its logistics and transportation arm in what some believe will allow it to create a third-party service to take on the likes of DHL, Federal Express, and United States Postal Service.

Source: Amazon

Source: Amazon

Colin Sebastian, analyst at Baird Equity Research, in a published note points to Amazon's complex, technology-centric logistics and delivery platforms to power the service. Most of Amazon's logistics business supports deliveries of consumer goods, but the company has an opportunity to tap unused capacity at fulfillment centers from its retail business.

Short term ordering and delivery of electronic components within one to two hours after submitting an order would forever change the supply chain and bring it more into focus with real-time inventory ordering and delivery, if Amazon made this available.

Sebastian doesn't explore the possibility of streamlining a components supply chain for Amazon Kindle, Fire Tablet, or for other electronics original equipment manufacturers, yet Amazon has the infrastructure to see it through, becoming a third-party service to support electronics manufacturers.

Calling it Amazon Transportation and Logistics (ATL), Sebastian writes that Amazon will find the incremental opportunity in the estimated $400 billion to $450 billion transportation and logistics sector too good to pass up. He believes the ideal customers will range from small and medium size businesses (SMBs), to enterprise businesses lacking “financial resources, expertise, or technology horsepower to manage fulfillment/logistics internally, and with an offering that raises the competitive bar vs. incumbent service providers.” 

To quicken deliveries, Amazon logistics network is testing Amazon Flex in Seattle, but in a research note Baird Equity Research explains the service soon will come to Manhattan, Baltimore, Miami, Dallas, Austin, Chicago, Indianapolis, Atlanta, and Portland. Overall, Sebastian estimates Amazon's fulfillment revenue from services at $5.4 billion in 2015, up 21.7%, compared with the prior year.

Scot Wingo, executive chairman at ecommerce software company ChannelAdvisor, describes the service as an “Uber-like program where third party drivers deliver Prime Now packages from Amazon facilities to your house in 1-2 hours,” but the service could just as well work for B2B purchases, last minute electronic parts delivery to complete a manufacturing run or special order of engineering.

During the past 12 months, Amazon has added about 21 logistics facilities for a total of more than 170 worldwide, such as fulfillment, sorting and packaging centers. About 104 of these facilities are in North America; the rest in Europe and Asia.

Further, Amazon may is building toward air freight in 2016. A media report from Motherboard released earlier this month suggests Amazon has launched an air cargo operation in Ohio on a trial basis called Aerosmith, and that media agencies are reporting Amazon is recruiting senior executives within the small package industry to support the launch of a shipping service in 2016, Sebastian wrote.

Amazon may be using the services of a third-party air cargo operation in Wilmington, Ohio, along with four leased 767 aircraft to transport products between East Coast and West Coast fulfillment operations, Sebastian wrote, citing Motherboard. “Whether the report is accurate or not, our assessment of Amazon's broadening fulfillment ecosystem, internal domain expertise, and early initiatives with Prime Now to offer delivery services suggests Amazon may ultimately pursue more comprehensive third-party services,” he wrote. “Similar to the gradual rollout of AWS, we would expect Amazon to introduce competitive transportation and logistics services on an incremental basis, with a long-term focus” in a global fulfillment market representing about between $400 billion and $450 billion incremental market opportunity.”

Wingo thinks Amazon's move into logistics and transportation supports sales. He says the company continues to invest in automation, retooling and renovations, and other areas to get more performance out of its existing infrastructure for a variety of businesses. “As Amazon builds out the logistical network, we are hearing more and more stories of Amazon employees delivering packages to businesses and houses,” Wingo wrote in a blog post.

It could help Amazon reduce the cost it takes to deliver shipments and drive the electronics manufacturing industry into greater profitability as it finds a place in “real” real-time supply chain visibility and manufacturing. 

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