Updated: Feb 28, 2019
#Amazon Delivery Service Partners, the last last-mile attempt
A good MIT Sloan Fellow friend (and natural leader and expert in logistics) and I have been discussing the recent Delivery Service Partners program launched by #Amazon (https://logistics.amazon.com). The idea is to create a community of companies owning and operating trucks (20-40 units) to cover their last mile logistics. #Amazon coordinates the purchase of #Amazon-branded vans and uniforms and manages the technology platform but outsources the management of teams to the enrolled companies. Do you think this is a threat to the big carriers (#USPS, #FedEx, #USP…)?
#Amazon has not been able to get it right
Transportation has been #Amazon’s biggest challenge and they seem, at least on the last mile, not been able to get it right, as my good friend points out.
At the same time, logistics, and particularly last mile, is the place where there is more improvement potential for #Amazon. They are already very strong on the (fragmented) supply, and they have managed to squeeze out horizontal competition through scale. E-commerce continues to grow, absorbing gradually market from the physical shop (albeit at a slowing rate of increase https://www.statista.com/statistics/288487/forecast-of-global-b2c-e-commerce-growt/). Downstream there is only the logistics between them and the customer.
#Amazon has been messing around with the last mile, trying to find ways of bypassing packaging companies in the metro areas, but so far, as my friend says, the service they have received has been unpredictable and inconsistent, not meeting their high expectations.
Is this Delivery Service Partners programs going to be “just another outside contract-just letting the contractor use their brand”, as my Fellow fried says, or is there something more?
A different partnership this time?
What is see different it the Delivery Service Partners program is that:
- They are retaining the elements that have economies of scale: load management, dispatching, routing and scheduling, and vehicle purchase. In addition to the reduction of costs with scale, these are the elements that have the greatest impact on the quality of last mile service.
- They are outsourcing micro-environment expertise, precisely what a small company can have or acquire if they are given regular workload.
- They are requiring the subcontractors to be a company and have some scale (20-40 trucks). This allows them to implement a reasonable vetting procedure, while offloading the micromanagement of teams.
What can go wrong?
Would this only work in small, densely populated areas? Maybe, but I also see #Amazon moving towards higher complexity logistic designs based on micro-depots, penetrating more towards lower density areas. This can be managed centrally while letting the small outsourced teams, with local expertise, to handle the last mile.
Will #Amazon have the access to the “last inch” (portals, building access codes) as effectively as, for example, USPS? Maybe, but #Amazon’s scale may be able to overcome some of the difficulties (lockers?).
Will #Amazon be able to acquire through this business model lower cost drivers while maintaining the quality of the service? #Amazon is structuring this program engaging only with legal entities with drivers on payroll, branded vans and uniforms, not an Uber-like guy picking packages to get extra cash.
Last mile is, arguably, #Amazon’s strategically weakest link in their value chain, as well as their bottleneck. Will this last attempt work?