How Amazon creates massive market opportunities

on July 30, 2019

No matter the occupational space you currently call ‘home’ or the one in which you lead a team of C-suite level executives, it is nigh time you and your strategic decision-making unit (DMU) stop ignoring the 800-pound gorilla in the room, or, and more to the point, perhaps, the billionaire on the backhoe breaking ground in a city near you.

No doubt you and your senior management team are aware of the disruptive forcefield surrounding Mr. Bezos, but an arms-length approach toward monitoring exactly what he is doing in the third-party logistics (3PL), transportation, and distribution sector is an unwise approach. This is especially so given the unrelenting march of Amazon and its founder into every aspect of the supply chain and its commanding software-as-a-service (SaaS) pipeline.

He and his company’s latest foray beyond the industrial warehouse complex of yesteryear lands (and you will soon understand that pun) somewhere between e-commercizing Mars, deploying drones in the countryside of England, and driving last-mile delivery the world over.

Jeff Bezos, founder of Amazon and Blue Origin speaks during the JFK Space Summit, celebrating the 50th anniversary of the moon landing, at the John F. Kennedy Library in Boston, June 19, 2019.

This is to say that his recent partnering with General Electric’s (GE) Capital Aviation Services in leasing a fleet of Boeing 737s while simultaneously building out commercial aviation capacity in North America (NA), to start at least, is an intersection among a number of low profit margin industries.

Consider, Amazon has already entered and begun to dominate the grocery space having acquired Whole Foods just a few years ago and which occurred long after their other tie-ups with shoe sellers, clothing manufacturers, and, now, construction and aircraft manufacturing firms in need of a boost in an increasingly shrinking competitive landscape.

What’s next in this space is certainly worth actively (flight) following, but there are opportunities to leverage more classic competitive advantages so as to avoid this low-cost leadership model, but also remain relevant in a world gone flat.

Following the market leader: 

Senior supply chain managers understand the importance of avoiding a low-cost leadership strategy, or one that shifts them away from niche, differentiated, and high-yielding life-time customers and, instead, towards pricing and promotion schemes, which often result in firms merging or partnering so as to reduce the number of operators along the logistics pipeline.

In other words, and in considering Amazon’s near monopolization of the small, on-time delivery network that sees packages land on doorsteps just hours after confirming a purchase on the web, legacy firms are trying to copy this market leader to the detriment of their brand value or outright financial solvency.

Copycat strategy is certainly one option in competing with the Amazon gorilla, but so to is following this leader not by merely adopting their tactics, techniques, and procedures so much as their operating principles.

The senior management team and DMU, therefore, should consider setting up fringe think-tank units within their firm or between their brokers, agents, and distributors in order to maintain margins while simultaneously seeking out what could be next in a particular operational region.

Additionally, setting up shared innovation hubs or working with start-ups that understand how to make technology and big data work for the incumbent in question.

Before stepping into the next discussion point, then, it should be noted that Amazon, while it has deep pockets, was not profitable for much of its existence and still, even now, only subsists on its subscription and SaaS profits.

All of this is simply meant to confirm that broad-based diversification is what should be copied; not buying fleets of Boeing aircraft or investing in the commercial space race.

Predicting trends:

All senior managers understand that predicting trends is an increasingly irrational pursuit and one that diverts limited resources and human capital away from solving real day-to-day as well as long-term strategic issues.

Thus, it is important to consider another disruptor (here, read:  Steve Jobs) and embrace the risks inherent in creating demand by telling consumers or pipeline partners what their next big problem is and then, of course, solving for it.

For the supply chain operator, capacity has increasingly come under review and none more so than airlines, commercial aviation hubs, and airports on account of regulation as well as simply more passenger and cargo demand.

While data analytics and software are looking to solve some of these issues (e.g., lost luggage and rerouting following weather delays, to name but a few), the problem is quite often, and simply, one of throughput and bottleneck chasing.

Is the solution building more hubs in NA?  Unlikely, since weather will likely remain a cause of concern both operationally as well as with regard to increasing regulations around carbon emissions.

Thus, why not take the cheaper (and cleaner) approach and remove all those other barriers and bottlenecks when it comes to shipping parcels?

Again, the interim or follower solution is to build out digital networks and partnerships to speed what is fast becoming a reverse Silk Road with more and more finished goods moving from West to East with raw materials moving more traditionally.

Embracing disruption:

This last consideration is one that should hearten the DMU within your senior management contingent as the East has seen a vast increase in not only population, but consumer spending power.

The Middle East and Asia, as well as Africa, and to borrow, again, from Mr. Jobs, does not understand the problem it is soon likely to face, or that of constraint.

Anticipating this likely disruption will see the DMU move beyond over analysis on account of all the data now at their disposal, and look to break ground (without the backhoe, of course) quickly around those locations already earmarked for development by Amazon, Jumia, and the like.

Chasing a competitor is certainly an option, as previously mentioned, but getting ahead of and leading trends while simultaneously acting as a disruptor to the disruptor could, in and of itself, prove a sustainable advantage toward new margin market opportunity.

Conclusion & call-to-action: 

While some DMUs and senior managers may argue that Amazon is becoming a money-fixated city-state, there is no denying the low-margin market shake-up being heralded by one backhoe-wielding CEO.

The logistics and supply chain industry will continue to see seismic shifts, but it is important for 3PLs and their leaders to not simply follow the leader or chase trends; rather, they must endeavour to partner with firms and start-ups that share similar visions, values, and hopes for the future so as to scope consumer problems and them ahead of a race to the bottom.

Which is to say, a race that no firm can win for long.

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