Amazon is aggressively expanding its logistics operations to become a major player in the shipping industry, aiming to reduce dependence on traditional freight carriers like UPS and FedEx. By developing an in-house logistics department and exploring ocean and air freight options, Amazon seeks to improve customer satisfaction and wrap up its fulfillment processes more efficiently. The company’s focus on logistics management positions it to potentially disrupt the third-party logistics market, valued at $170 billion, with its advanced technology and cloud computing capabilities.

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Amazon Loves Logistics? The E-Commerce
Giant’s Next $400B Opportunity
report by Sharat Prakash | sxp155631 | Global Supply Chain Management

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Abstract:
Amazon is laying groundwork to become the top player in the shipping business. The
aggressive expansion plan into the logistics market globally seem to pose brazen challenge for the
top American freight carriers. This article speaks about how Amazon is winning over customers
over by delivering to them with just one click, plans to develop in-house logistics department and
Amazon’s successful cloud computing platform.
Introduction:
Distribution is the process of moving and storing a product from the supplier stage to the
customer stage in a supply chain. It is a key player in the profitability of a supply chain as it directly
affects the cost of manufacturing and the customer’s experience. It makes up to 10.5% of the U.S
economy and 20% of the cost of manufacturing. There is no denial of the fact that, the world’s
most profitable companies have built their success on outstanding distribution design.
Amazon is also joining its forces to add value to the customer experience and it is designing
its distribution network to have more control over its shipments. The whole idea is to become much
more self-reliant rather than relying on the top freight carriers – UPS and FedEx. With its ever
expanding thrust in the logistics arena, Amazon is all set to turn the industry on its head.
Discussion:
Amazon relies highly on the trucking giant – UPS and has longstanding partnership with
the company. But its will to gain control over its shipments was revealed in front of the world
when it opened its sorting center in Kent in the year 2014 and bought thousands of truck trailers.
This step could be traced back as a learning lesson for the retailer from the 2013 holiday fiasco.
Amazon and UPS had to offer huge amounts of refund to customers who did not get their products

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delivered during the holiday season. Amazon has adopted the last-mile distribution network to
bypass such instances.
Product Flow
Information Flow
This is just for the domestic distribution network. Amazon has also decided to globally
take care of its shipments. Amazon China has registered itself to operate as an ocean freight
forwarder. That means Amazon can now ship its products from China to U.S in its own ships, a
step to enter the $350 billion ocean freight business. Plus, talks with cargo-aircraft lessors suggest
that Amazon is experimenting to enter the air-cargo operation as well.

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All these expansion strategies suggest Amazon’s plans to develop a full in-house logistics
department to handle all its fulfillment processes. This in turn will help Amazon take care of the
two major factors that influence a company’s revenue:
 Meeting customer’s need
 Cost of meeting the customer’s need
Amazon’s love for logistics can also be sensed when they referred themselves as
“transportation provider” and “competitor to companies that provide fulfillment and
transportation services for themselves or for third parties.” The retailer’s intention to become a
3PL service provider will multiply the company’s profitability and it has all the potentials to
become a top third party logistics provider. The Third-Party logistics is a $170 billion global
market that Amazon is eyeing on.
Although Amazon does not have the scale to be a global leader in the 3PL market right
now, but it has a fantastic Information Technology network which is the differentiating factor. The
company can be a huge competitor to the giants of the Third-Party logistics market if they decide
to leverage on its successful cloud computing platform and integrate logistics relationship between
themselves (3PL provider) and the supply chain participants. Amazon’s efforts to improve
Amazon Web Services(AWS) and Marketplace are ways of telling the world that they are planning
to extend their increasingly complex and technology-centric logistics and delivery platform as a
third-party provider.
As Collin Sebastian, Senior Research Analyst – Internet/Interactive Entertainment, RW
Baird said, “Amazon may be the only company with the fulfillment/distribution density and scale
to compete effectively with global 3PL providers.”

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Amazon may very well disrupt the business like UPS and DHL. The following figure
represents the same:
Conclusion:
Amazon is never going to stop surprising us. The company is a fantastic innovator and it
understands the fact that “supply chain begins and ends with the customer.” All their plans to
expand and their ways of operations have always been customer centric. A huge product variety
(A to Z), very less response time and now efforts to be self-reliant with their shipments adds value
to their supply chain, adds value to the customer experience and will shoot them to become the
global leader. From all the financial figures like increase in Amazon’s sale by 22%($35.7 billion)
and delivering more than 1 billion packages to customers in 2015, we can say that they are doing

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something right. Amazon might very well be eyeing on the $400 - $450 billion global market of
fulfillment.
After all the topics covered in textbook related to different distribution network designs
and third-party logistics and going through this article, I could very well relate to Amazon’s
expansion strategy and benefits.
References:
Amazon Loves Logistics? The E-Commerce Giant’s Next $400B Opportunity
by Elizabeth Hines | Feb 2, 2016 | Blog, Logistics, Strategy, Supply Chain
http://www.fronetics.com/amazon-loves-logistics-the-e-commerce-giants-next-400b-
opportunity/