Amazon offers non-sellers more of its supply chain services
Below is the latest edition of Modern Retail’s Supply Chain Weekly newsletter, which goes out on Mondays at 10 a.m. ET, and dives into all things logistics and supply chain during a tumultuous time for the retail industry. To receive this weekly in your inbox, click here.
Of all the changes Amazon’s dominance has brought to the e-commerce world, setting expectations for free and fast shipping may be at the top of the list.
Now it’s angling to make the services that power that experience a bigger part of its business.
Last week, Amazon announced the launch of Amazon Supply Chain Services. While it has previously offered fulfillment and logistics services to companies that are on and off its marketplace, the new suite of services is being marketed as a “full portfolio of freight, distribution, fulfillment, and parcel shipping capabilities to businesses of all types and sizes, not only Amazon sellers.”
CEO Andy Jassy said in an interview with CNBC that the goal is to grow Amazon’s supply chain network as it has grown its AWS cloud services.
“If you think about what we had to do as a retail business, we had to get really good at being able to move products from manufacturers to upstream storage warehouses, to the actual fulfillment centers where you actually do the fulfillment, to allowing people to sell in multiple marketplaces but have one inventory pool, to the last mile delivery,” he said in the interview. “We had to get good at all those to scale our retail business. … It makes so much sense to expose these services to companies of all sizes.”
But it’s important to note that many of these services have been live for several years, with hundreds of thousands of sellers already taking advantage of Fulfilled by Amazon.
Here’s a breakdown of what’s new and what it may mean for the e-commerce industry at large.
What’s new in Amazon’s offering
The most visible change is that Amazon will now market all its services under one place with a streamlined portal for companies to access. With that, brands that are not Amazon sellers can tap into an expanded set of services, such as freight and trucking, that were previously offered only to Amazon sellers.
Matthew Hertz, CEO of the online service Third Person that connects brands with fulfillment partners, said this may make it easier for companies to do business with Amazon.
“Three years ago, it was like different portals or different logins,” he said. “If you use shipping, you go to this place. If you use fulfillment, you go to this admin. And now, from a user experience perspective, it’s one seamless admin or one seamless portal.”
Where it makes sense
Aaron Alpeter, founder of Izba Consulting, said the key use case for Amazon’s shipping and fulfillment services is direct-to-consumer brands that already do a majority of their business on Amazon. And it’s unlikely that a customer would just use Amazon for a single part of the journey — like freight shipping — without also using Amazon’s fulfillment network. That combination could make them a “formidable competitor” to existing businesses, he said.
“They’re going to do a great job, regardless,” he said. “But that doesn’t mean that they’re the right fit for everybody.”
Alpeter said companies that want a more direct line to their warehouse or freight partner may prefer using a smaller company. And packing through Amazon may not be a fit for premium brands that use unique packaging, highly personalized multi-SKU shipments or high-touch delivery services.
“What’s left for traditional 3PL is complex multi-pick,” he said.
But for less complex operations, Alpeter said Amazon could truly dominate.
“When it comes to just putting a label for a single item in a box, there is probably nobody, certainly in North America, that is better at doing that one thing than Amazon is,” he said.
An uphill battle for share dominance
Hertz from Third Person said that, while he has spoken to brands considering Amazon Supply Chain Services, there will be competition to contend with. Some operations may be priced lower than Amazon’s, Hertz said, and some customers will want a more specialized experience.
Some may also be wary of putting their products in the hands of a business that has its own marketplace to run, he said. During Covid-19, for instance, many sellers of non-essential goods had to switch to doing their own fulfillment instead of leveraging Fulfilled by Amazon.
“While they trust Amazon, I think they’ll continue to view Amazon with a dose of skepticism,” Hertz said. “They’re the big behemoth.”
The week in tariffs
- The U.S. Court of International Trade on Thursday found that President Donald Trump’s latest 10% tariff on most U.S. imports was unlawful, a decision that further limits how the president can enact such duties without Congressional approval. The 10% tariff was announced after the U.S. Supreme Court ruled the president didn’t have the authority to levy tariffs under the International Emergency Economic Powers Act. As The New York Times reports, the administration is likely to appeal the latest decision.
- Speaking of IEEPA, the first round of tariff refunds from those payments is set for May 11. But as CNBC reports, companies are unlikely to turn these into refunds to consumers due to higher costs. Further, companies are still flagging tariffs as negatively affecting their earnings.
What we’ve covered
Target’s new supply chain center could be the first of many
Last week, Target opened its first “receive center” in Houston, which is a new kind of facility in its supply chain network. The facility will mostly house imported products — often seasonal, bulky or tough-to-forecast items — so they don’t take up space in distribution centers.
MR’s Mitchell Parton reports that the facility is a pilot for the company to understand whether it came up with the right design and automation for the facility, and whether it works as expected.
“Once we use this as a test site, we’ll start to decide, ‘Is this going to be a future strategy for us?’” Sousan Ortega, Target’s svp of field replenishment, global supply chain and logistics, told Modern Retail.
How Ace Hardware built its employee AI assistant
Ace Hardware recently deployed a new AI assistant called “Hey ARMA” that can help store associates provide product information, give project recommendations and compare products.
But like many companies, Ace first had to weigh whether to build a tool in-house or find an outside software vendor to do so.
Andy Enright, svp of retail strategy and operations at Ace Hardware, told Modern Retail the company initially thought about partnering with a third-party developer. But it ultimately saw more value in building an AI team internally to create the tool from scratch, while leveraging third-party large language models and existing data.