Supply Chain Inc: A Deep Dive into the Showdown Between Flexport Revolution & Supply Chain by Amazon - Part II

Who Will Win? Why Amazon Has the Advantage Over Flexport

In part 1, I discussed how Flexport seemed to have the initial upper hand over Amazon, particularly regarding user interface and a suite of readily available solutions. But the landscape is more complex than it appears and it comes down to a core debate of the last decade: which is better software or assets.

This debate resonates across various aspects of supply chain, such as trucking, warehousing, and labor. Take trucking, for instance. Some companies opt to operate their fleet of trucks when it makes economic sense. Yet, for most shippers, owning a fleet isn't cost-effective due to lumpy demand or non-urgent shipments. They partner with providers to transport their goods. Shippers often wrestle with the decision of whether to collaborate with a broker or an asset-based carrier.

Brokers hold an edge when it comes to exploiting available capacity via network effects. This approach is sensible when the service offered, like driving a truck, is relatively commoditized, and alternatives abound, leading to lower costs. Conversely, asset-based carriers guarantee more capacity, albeit with no assurance of allocation. They boast direct communication, thanks to the absence of intermediaries, yielding superior performance.

In the world of over-the-road shipping, one of the big taboos is double brokering, where layers of intermediaries separate those who create work from those who execute it. This results in inflated costs, poor communication, and a general lack of accountability. Supply Chain by Amazon combines the assets performance, and given its scale, with the network effects of a broker.?

Why AWD is Brilliant

Amazon Warehouse Distribution (AWD) will be pivotal in Amazon's strategy. Amazon is a channel virtually every brand taps into, with some businesses building their entire model around it. However, Amazon's FBA (Fulfillment by Amazon) is optimized around turning inventory as quickly as possible and imposes limits on the amount of inventory a brand can send to them, and these caps fluctuate with sales. There can also be sporadic issues with receiving and scheduling replenishment stock. Being vigilant here usually requires someone from the brand to log into Amazon regularly, monitor inventory levels, generate replenishment orders, and organize shipments to prevent FBA stockouts.

FBA relies on rapid inventory turnover, imposing steep storage fees and high costs for bundling or kitting. AWD enters as a game-changer, allowing brands to ship full pallets to Amazon, supposedly with no volume caps. This removes some degree of urgency for brands managing their Amazon store. It’s also highly likely that Amazon would choose to prioritize its internal deliveries to FBA sites which eliminates issues with receiving. This ensures swifter inventory turnover for AWD and FBA customers alike. Expect any penalties for mislabeling or overstocked inventory to vanish. AWD could also eventually deal a significant blow to Amazon prep offerings at 3PLs.

AWD: The Gateway Drug

Utilizing AWD really feels like a no brainer for a brand intent on building Amazon as a viable channel. Once a brand is comfortable with AWD , it wouldn’t be difficult for Amazon to upsell additional logistics services, possibly even handling factory-level logistics or fulfilling orders for other channels. Amazon's ability to leverage its colossal network and expertise makes AWD an undeniable force to reckon with.

In the race to supply chain supremacy, while Flexport has its advantages in the short term, Amazon's extensive assets and innovative AWD program might just give it the edge in the long run. However, in this ever-evolving industry, the victor remains uncertain, as innovation? and adaptation can tip the scales at any moment.