Amazon has a strong advantage over other retailers when it comes to prices, and a new report from The Wall Street Journal shows one reason why. In addition to not having to maintain expensive, huge retail stores like competitors including Best Buy and Walmart, Amazon is also now experimenting with opening up for business within the warehouses of its suppliers themselves, like some kind of symbiotic retail being.
The WSJ details what it calls an “ambitious experiment” by Amazon in a report this week, describing how Amazon maintains a fenced off region within a much larger Procter & Gamble Co. facility, which is staffed by its own employees. The P&G workers load palettes with products destined for Amazon customers, and those then go to the Amazon warehouse-within-a-warehouse, where the online retail giant packages and ships them direct to their customers.
Supply chain management is a defining advantage of most successful modern consumer product companies, including Apple and Walmart. Apple has managed to streamline its supply chain so much during the past few years that it almost never maintains any on-hand stock in its own facilities, instead arranging just-in-time production and shipping direct from its supplier assembly facilities to consumers and to its retail partners. Walmart has been criticized and lauded for its ability to get the lowest possible price out of suppliers, and its “kanban”-style stock monitoring and replenishment system for those same partners.
Amazon’s new program is called “Vendor Flex,” and it will especially help with offsetting the cost of selling low-price, high volume staples like diapers and household papers, which have traditionally been considered “too bulky or cheap” to make shipping direct to customer a viable option, according to the WSJ. But Amazon has been working on expanding that side of its business, and a big part of continuing its expansion in that area involves engineering the cost-benefit arrangement to make that growth economically viable.
While this program appears to be dealing mostly with non-perishable items, it’s an ambitious pilot of a type of operations model that could have far-reaching benefits. AmazonFresh is currently operating in markets outside its launch theatre of Seattle, with further growth planned. Maybe Amazon can make sure the next time it hitches a ride with supply partners, that happens at large-scale industrial farms and food suppliers or bakeries.
Photo courtesy flickr user jkirkhart35.