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amazon prime logistics

Amazon Prime’s Logistics Strategy

A few months ago, I joined Amazon Prime.  That’s a $79/year program that Amazon developed that gives members free 2 day shipping on Amazon-stocked products (which is most of the stuff that they sell).  For me, having nearly anything I want conveniently delivered anywhere I want in two days is fantastic.  However, the second time I bought from them, I was given a choice:  Free 2 Day Shipping, as I had signed up for, or Free No Rush (5-7 day) Shipping with a $1 credit to their Amazon MP3 Music Store (with most songs priced $1 or less).

Now the offer isn’t a huge incentive, but you have to appreciate the strategy behind it:  Many times customers just don’t need things as fast as we’re able to deliver them.  By effectively “polling” my needs, Amazon just created an amazingly flexible logistics model.  Can you imagine having a pool of pending deliveries that you can pick and choose when to fill and when to ship based upon your labor and transportation capacities?  That’s what Amazon has accomplished.

The strategy is absolutely brilliant:

  1. They’ve got customers to pay a premium for shipping (most orders over $25 ship free 3-5 day anyway).
  2. They’ve created a membership organization which builds loyalty – if you’re in the Prime program, you’re likely to buy from Amazon or at least check there first.
  3. They are determining customer’s true time requirements, and thanking them for the flexibility with a token MP3 song – a near universal currency in today’s world.
  4. By having up to 7 days to select orders based on size, weight, or delivery area,they are able to optimize shipping strategy to lower costs.

Now, based around the requirements of their 2 day must-deliver products, they can fill trucks and planes based on available capacity.  They can have geographically revolving flights (Pittsburgh on Mondays, Cleveland on Tuesdays, for example).  They can lower inventory based on order time.  If their suppliers can supply them with inventory in just a few days, perhaps they don’t carry the inventory at all!

If your business delivers products, think about how you might apply this to your business:  A brand loyalty program, rush delivery when your customers need it, flexibility when they don’t, a small reward to thank them for both the information and permission to be flexible.

It happened that, as I was placing my order I was about to leave town for a week so certainly didn’t need it in a rush.  I took the credit.  A handful of times since then, I was in less of a hurry so received more credits.  Less = More.  I recently used $6 in credits to buy a $5.99 MP3 download of the Rolling Stones’ Sticky Fingers.  Thanks Amazon.

key performance metrics

Corporate Real Estate Best Practices: Key Performance Metrics

Every business has a learning curve as it grows, and the collective wisdom learned along the way becomes an invaluable knowledge base.  This is especially true in regard to your facility strategy.  By analyzing  what was done right and what could be improved in each new location or lease renewal process, you can develop rules to achieve the greatest return and avoid pitfalls.

If your firm has multiple branch locations, try this simple exercise:  Take your annual Total Occupancy Costs (Rent + all Operating Expenses) and divide by an annual revenue metric such as Adjusted Gross Profit or Gross Sales.  For example, if a location has $240,000 in TOC and AGP at that location last year was $5M, then your real estate costs represented 4.8%. Now do that for each site.

What you’ll find, of course, is that each location has a different real estate cost as a percentage of revenue.  The magic question is:  WHY?

Some locations will be more efficient than the others.  You need to dig out the reasons behind that efficiency. Likewise, some locations will be grossly inefficient.  You can also learn from them what not to do.

If you are a sales organization, perhaps one facility has more seats/SQFT than the other.  If each sales person brings in an average of $200K per year, then every 5 extra seats in that facility represent $1M in revenue.  Fit them in without increasing the square footage, and you’ve just added some real value for your organization.

You can be certain that there are more savings to be had by developing best practices for your unique business operations than in negotiating another $1/SQFT off of the rate.

The same is true when it comes to using a real estate representative.  While local market knowledge is always important, it is more critical that they have a detailed understanding of these nuances of your company:

  • WHY renew or relocate?
  • WHERE is the ideal location?
  • WHO will use the space and in what way?
  • HOW does the space compare to your competitors?
  • WHAT makes a layout efficient? and most importantly, 
  • WHAT is the long term objective for this part of your business and how can you structure a lease that will help accomplish those goals in the most cost-effective way?

Using metrics like the one described above, and taking the time to understand what makes your space efficient for your operations or not, will ultimately deliver more cost effective space solutions.