Amazon's Global Logistics Strategy and Competitive Advantage

Introduction

When the Internet was first established, few had the foresight of Jeff Bezos to envision a world where all shopping would be done online. Bezos started Amazon in the 1990s to sell books online. Soon he began expanding the company's vision until it became the dominant force in e-commerce that it is today. However, for Amazon to function at the scale it does, it must maintain a highly effective global logistics operation. This paper discusses how Amazon manages its global logistics, business, and trade operations to maintain its competitive advantage over conventional rivals. The report also examines whether Amazon can continue to leverage or expand upon its current business strategy. The findings expose pitfalls and trade-offs that Amazon will need to consider going forward.

Background

Amazon was founded in 1994 by Jeff Bezos, who initially wanted the site to focus on selling goods that were most in demand among e-commerce shoppers: videos, books, and CDs, as well as computers and laptops. Over time, Amazon began offering more and more products, and gradually brick-and-mortar businesses began to notice a sharp decline in sales. People were now buying clothing, accessories, cosmetics, and virtually everything else through Amazon. Amazon would ship the product directly to a customer's door, and the individual would not have to deal with traffic or crowds to receive the item. Amazon began offering a membership program that allowed for free and fast shipping, along with video streaming via Amazon Prime.

Amazon also expanded into Amazon Web Services (AWS), which is what has made the company most profitable in recent years. As Lebeda, Zalatoris, and Scheerer (2018) point out, "Since 2009, plans and policies were developed for the use of cloud technology to help consolidate and reduce the number of data centers, which were expected to reduce costs, improve environmental factors, enhance information technology security, and maintain mission support for service members." AWS has consequently become a major player in providing cloud services for governments and agencies such as the Pentagon. The market is growing intensely as more and more companies rely on big data and data processing. Cloud computing provides solutions for these industries, and the sector is poised to continue growing exponentially, as AWS sales figures demonstrate. AWS is in a prime position to continue profiting substantially: its size and standing in the industry make it one of the top players, and its relationship with the Pentagon positions it to capture lucrative cloud computing service contracts over the next several years. Other players like Oracle are competing for contracts of this type, but establishing clout, reputation, and relationships is pivotal to gaining access.

The logistics and trade elements required in Amazon's business consist of a vast network of supply, shipping, warehousing, and distribution centers around the world. As Zur (2018) points out, Amazon "is building its own end-to-end delivery network, from purchase of items on its website to delivery to its customers' doors." Amazon is focusing on becoming a vertically integrated company that handles every aspect of its own business — from taking orders to shipping to warehousing to delivery. The process is ongoing: "Since 2014, the e-commerce giant has been spending heavily on airplanes (it now reportedly leases 40 of them), truck trailers (it now owns thousands of them), self-service lockers (it now has over 6,000 of them), and fulfillment, sorting and distribution centers in every major metropolitan area in the US (as of May 2018 it operates 328 such centers domestically, and 708 worldwide with 55 future facilities). This massive investment has given rise to speculation that Amazon is planning to eventually take on its delivery partners FedEx and UPS" (Zur, 2018). In short, Amazon is aiming to be the everything company, and that means its global logistics will depend on no one but itself — it will be its own supplier, shipper, and delivery service.

To make this work, however, Amazon has to compete with rivals like FedEx and UPS. It has already entered the grocery business through its acquisition of Whole Foods in the United States, giving it even more leverage to tackle various industries and undermine competitors' costs in order to gain market share. If AWS begins to falter, however, or if its lucrative government deals dry up, Amazon could be on the hook for running an expansive company that cannot turn a profit without AWS. As Bezos first imagined, by handling all aspects of ordering, selling, shipping, receiving, and delivery, Amazon would be the everything store — a vision captured in his original napkin sketch.

References

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Lebeda, F. J., Zalatoris, J. J., & Scheerer, J. B. (2018). Government cloud computing policies: Potential opportunities for advancing military biomedical research. Military Medicine.

Meier, J. (2013). Interview with Mr. Jens Meier. Shippers' Journal, Nov. 14, 2016. BVL. Retrieved from

Zur, I. (2018). Make no mistake: Amazon is going to take on delivery behemoths FedEx and UPS. Retrieved from https://medium.com/@itamarzur/make-no-mistake-amazon-is-going-to-take-on-delivery-behemoths-fedex-and-ups-d047cf6b6b0c