Amazon: Your Biggest Customer or Biggest Competitor?

If your business is industrial distribution, Amazon is either your biggest customer or your biggest competitor.  

If it’s the former, congratulations on having a great year in 2020.  If it’s the latter, you might feel like you’re playing hide and seek in the jungle with Navy Seal Team 6 using live ammo.  You could survive, but not without a very smart strategy. 

Distribution has just three cost categories:

  1. Real Estate
  2. Labor
  3. Transportation

We put Real Estate first because the decisions that you make there can impact the other two categories significantly.

First and foremost, you need to focus on facility efficiency to reduce labor costs.  

Rule #1:  Maximize the cube.  You rent space by the square foot and use it by the cubic foot.  

The cost of 30’ clear space, on average, runs only 8-9% more than 24’ clear space and you get 33% more cubic storage volume.  Amazon’s standard is either 36’ or 40’ clear, so they have done this math.  You had better do it too.

Rule #2:  Leverage fulfillment systems, conveyors, and robotics to reduce labor costs.  Amazon, Walmart, and the other large distributors are utilizing automated storage and retrieval systems (ASRS) that reduce labor costs by more than 50% and speed delivery by providing uninterrupted 24×365 processing.  You business likely can’t afford a Ferrari-equivalent system, but you better get off the bicycle and start considering a car if you want to keep up.

Rule #3:  Location, Location, Location.  One of the most overlooked opportunities for distribution businesses is to re-evaluate placement of legacy locations.  Smart geographic placement is not about where staff live, it is about where your customers live and both time and costs to reach them.  Autonomous trucking is going to turn this strategy upside down, because companies will no longer be limited by the 11 Hour Interstate Driving Rule.  Amazon is already anticipating this by rapidly focusing on last mile facilities in high population areas that can receive goods from these 24 hour continuous driving rigs and deliver in 1 or 2 hours.  Big news:  By the time your next 5 year lease ends, long distance autonomous trucks will be everywhere.  Will you?

The market is always looking for inefficient processes and opportunities to deliver the same goods or services at lower cost.  If you are providing these goods and services using best practices already, your competitors will look for other low hanging fruit first. Play defense with a Smart Facility Strategy.