6/26

Amazon long-ago labeled its supply nodes as "Fulfillment Centers" (not distribution centers).  As a matter of fundamental strategy Amazon is a demand fulfillment enterprise, not a producer or distributor of supply. The company seeks to "own" demand by providing consumers with an easy and seamless way to express demand that the firm will fulfill in a manner that increasingly causes consumers to simply neglect potential competitors.

Last summer my wife ordered a jar of ginger jam from a small English firm that sells through Amazon. The package arrived broken and dripping.  Before she had time to complain to the seller, Amazon asked about her "experience".  Amazon then facilitated the quick receipt of a -- much better wrapped -- replacement.  Demand was fulfilled, expectations (regarding Amazon) exceeded.

According to internal documents reviewed by Bloomberg, this attention to detail is part of an ambitious strategy to expand the "Fulfillment By Amazon (FBA) service, which provides storage, packing and shipping for independent merchants selling products on the company’s website."  By serving -- and mentoring -- these independent merchants the once-upon ideal of a Whole Earth catalog would not only be achieved but supported with easy payments, quality assurance, and rapid delivery.

While FBA is demand-facing, the supply-facing operation will be a new venture called “Global Supply Chain by Amazon." According to Bloomberg, "The new business will locate Amazon at the center of a logistics industry that involves not just shippers like FedEx and UPS but also legions of middlemen who handle cargo and paperwork associated with transnational trade. Amazon wants to bypass these brokers, amassing inventory from thousands of merchants around the world and then buying space on trucks, planes and ships at reduced rates. Merchants will be able to book cargo space online or via mobile devices, creating what Amazon described as a “one click-ship for seamless international trade and shipping.”

I still contend Amazon has every plan and intention to continue to use existing shippers.  But if GSCA is successful Amazon will have almost complete power to set shipping terms and convert systemic savings into an immense price advantage.