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OM in the News: Amazon Revamps its Logistics Chain

March 11, 2016

amazon“Amazon,” writes The Wall Street Journal (March 10, 2016), “is taking to the air with a fleet of planes, part of a broader effort to reduce its inflated shipping costs.” The Seattle retailer plans to shuttle merchandise around the U.S. using 20 Boeing 767 aircraft. Amazon has also taken steps to reduce its reliance on carriers such as UPS and FedEx by building out a ground network of couriers and new warehouses near urban centers for faster and cheaper delivery. The new logistics chain would give Amazon control over roughly 15% of the packages it ships annually.

“Amazon clearly wants to grow, and they need capacity to do so,” said an industry expert. “UPS and FedEx are hesitant to build it out solely for one customer.” The firm has been planning an in-house logistics network for years, but the project took on added urgency when customers received gift orders late after the Christmas holiday in 2013. Amazon blamed the carriers for the embarrassing episode.

Amazon feels UPS’s traditional hub-and-spoke system is growing obsolete and is a particular liability during the crucial holiday selling season. The effort is already visible. White delivery vans with Amazon’s logo are an increasingly common sight, and customers say they are receiving more packages directly from uniformed Amazon deliverymen. The online retailer has added thousands of semitrailer trucks for delivery between warehouses and is experimenting with citizens making deliveries. Over time, Amazon is likely to turn its delivery network into a business in its own right, charging other shippers to ferry packages and drop off merchandise.

Classroom discussion questions:

  1. Evaluate Amazon’s new strategy.
  2. What are the advantages of third-party logistics (3PL)?
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