Supply Chain Frontiers issue #1. Read all articles in this issue.
Amazon.com is driving growth in the international business-to-consumer channel with groundbreaking work to standardize carrier and postal practices across countries. The company has cut last mile shipment delays through the use of multiple postal authorities, and is pursuing efficiencies in other parts of its international business.
Girish Lakshman, Amazon's Director of Worldwide Transportation Engineering, explained the company's strategy at a special conference organized by the MIT Center for Transportation & Logistics, April 27-28, 2004. The invitation-only event titled "Innovations in Transportation: Focus on Procurement and Management" brought together industry experts to talk about leading-edge developments in transportation procurement.
"Every package is a customer for us," said Lakshman, "and these "customers" are crossing national borders in increasing numbers". Much of the responsibility for making sure that the packages arrive on time and undamaged falls to Amazon's transportation services, collectively called Ship2Deliver. Said Lakshman, transportation represents a substantial portion of the expense for the company, and in addition to the well known Amazon.com web presence, represents the face of the organization when carriers deliver purchases to buyers.
The retailer has grown its carrier base from two core carriers to multiple providers to give it more flexibility and capacity. The change also affords greater control over an area that is a core competency: service quality. An important component of quality is being attuned to the nuances of individual national markets. Customers in some countries prefer to deal with their national carrier, and that operator has an intimate knowledge of the vital last mile in its home territory. In Japan and the United Kingdom leaving a product on the doorstep is frowned upon; American consumers would rather see a purchase left outside than a yellow note telling them they missed it. Domestic operators are familiar with these market idiosyncrasies.
Working with a broader mix of carriers to deliver products from books to lawnmowers requires precise capacity planning and management. "We have developed very flexible arrangements with our carriers" explained Lakshman, and Amazon.com works with each provider on a daily basis "to understand their volume thresholds and capacity issues." The carriers feed service information daily to the retailer, and a specially developed simulator analyzes the details and formulates volume plans by carrier and origin node.
The result is that "we predict volumes very accurately," he said, even as Amazon.com's distribution network has grown in complexity. In Europe it has three primary distribution centers and several drop ship locations.
The precision with which volumes are managed extends to the tracking of in-transit items. Virtually every package is scanned and if one misses a scan four times Amazon.com knows there is an 80 percent chance that it will not arrive on time or has gone astray. When that happens the carrier is informed and a tracer issued to locate the item.
Armed with extremely detailed information on package flows, Amazon.com is able to find creative ways to cut costs - important for any retailer, but especially when a large percentage of shipments are shipped with no shipping cost to the customer. For example, Amazon.com has a special arrangement with Deutsche Post to move packages through the Deutsche Post hub near Frankfurt .The arrangement required Amazon.com to make some significant changes but the result has been a reduction in shipping costs into Western Europe.
But it is Amazon's determination to standardize international transportation services that is paving the way for international e-commerce. The company is working with several national postal authorities to iron out differences between their service offerings, said Lakshman. Some use aircraft for expedited package delivery services but others do not, just one of the numerous anomalies that international shippers have to deal with. "We want the same services worldwide, we are not there yet but we are normalizing," he said.
Similarly, Amazon.com is unifying communications practices among carriers. It is standardizing electronic documents such as cargo manifests, and moving towards a single standard for tracking information. The latter is crucially important not just from an overall efficiency standpoint. Each carrier uses its own language and content when giving tracking information, noted Lakshman. That creates much confusion for customers when accessing the site to get information on the status of purchases. "We need to control the message to our customer," he said.
And that imperative drives much of what Amazon.com is doing in the internal e-commerce space. It also underlines the importance of transportation in that effort. "Transportation is not just a support service," emphasized Lakshman, it underpins the services that have made Amazon.com a pioneer in on-line retailing.
For more information contact Chris Caplice at caplice@mit.edu, 617 258 7975