Stack Them High, Sell Them Cheap

17 December 2019 | Blog Post

Having spent billions of dollars building a clever network of automated warehouses using robots, conveyor belts and a large workforce of people to speedily pack and ship products, Amazon has stumbled onto something of an old school concept: cheap warehouse space.

Bloomberg revealed that Amazon has capacity challenges during the holidays. It shares warehouse space with merchants that sell their products on its marketplace, and the company has already hiked its storage fees during peak season to discourage those partners from cluttering facilities with too many products.

But that presents the risk of merchants being overly cautious and Amazon losing sales when items run out. It can also frustrate the company’s partners when they get landed with a big bill to store products that aren't selling. The new service is an attempt to solve both problems by de-cluttering expensive facilities while having backup inventory near by.

The service is Amazon’s latest effort to reach further up the supply chain to control the flow of goods from factories where products are made to customers' homes. By taking more control of logistics, Amazon feels it is less susceptible to the costly delivery chaos it has faced in the past.

Amazon plans to become less of an online retailer and more of a platform and delivery pipeline for online commerce. For Amazon, every Christmas presents an opportunity to find new capacity. U.S. shoppers will spend $135 billion online in November and December, representing 13.4% of all holiday sales, according to EMarketer. The 2019 shopping season is also shorter this year with six fewer days between Thanksgiving and Christmas than last year.

Most attention on Amazon's logistics ambitions to date has focused on the “last mile” delivery of packages to customers' homes. The new storage experiment shows Amazon trying to control the “middle mile,” a critical stage of logistics connecting factories and ports with stores and shoppers’ homes. As Amazon and other retailers seek to shorten delivery times, the middle mile has to be reconfigured with more inventory stored closer to shoppers.

Amazon’s push for next-day delivery is costing more than the company expected, tempering the expectations of investors who had become accustomed to Amazon delivering bigger profits. The cheap storage experiment is a way for Amazon to make the most of its existing facilities while it continues to invest in next-day delivery, said an analyst at Pivotal Research Group.

The ultimate goal is a future where buying something online is as fast and affordable as a quick trip to the store — even during the holiday season rush.

An increase in the frequency of product recall, product malfunction, product hazard, food contamination, and product liability has also led to increasing business interruption within the supply chain.

According to New Food Magazine the food and drink industry is the second most affected industry by product recalls, new research shows. The festive season is always a busy time of year for food and drink industry. Defective products and work-related incidents have together caused insured losses in excess of US$2 billion over the past five years. Research has found that the food and drink industry is second only to the automotive industry, when ranked by revenue lost through product recalls.

Analysis revealed 367 insurance industry product recall claims from 28 countries across 12 different sectors between 2012 and the first half of 2017. Overall defective product or work is the major cause of recall claims, followed by product contamination. The average cost of a significant incident is in excess of US$12 million (€10.5 million), with the costs from the largest events far exceeding this total. Over 50 per cent of losses arise from 10 incidents.

At the same time there are a number of factors in sourcing a supplier in one country as opposed to another.

FM Global’s Global Resilience Index is designed to guide business leaders in finding new investor opportunities, selecting stable suppliers and identifying customers that could be vulnerable. The company assesses countries on a litany of factors including productivity, local supplier quality, inherent cyber risk, urbanization rate and eight other components that could pose a threat to its supply chain or make it more efficient.


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