Insight: How Does Amazon Do It?
Amazon has grown from a regional US delivery service to one of the biggest companies on earth. Famed for its speedy deliveries and revolution of the logistical sector, in this piece, we explore how it found such huge success and what lessons we can learn from how it functions in the Middle Eastern market.
Amazon, while already having an influence in the Middle East, took its operations to the next level after the purchase of UAE-based e-commerce delivery giant Souq in 2017 as part of a US$580 million deal.
The deal meant that Amazon, which maintained Souq as a subsidiary and changed its name to Amazon.ae, had major leverage in the market. To give you an idea of the scope of that leverage, Amazon.ae is now the leading e-commerce company in the UAE.
The model of expanding its operations via the purchase of subsidiaries isn’t new for Amazon and is a key part of its strategy.
Amazon seeks not only to buy out well-performing regional companies but also to work at monopolizing supply chains themselves, thereby ensuring fast delivery via instant real-time communications across the chain.
Amazon took things to the next level when it launched its own dedicated shipping service, which could incidentally be used even by companies outside of Amazon, meaning it now handles up to two-thirds of its own cargo, according to Investopedia.
Amazon’s Innovative Ecosystem
At the heart of Amazon’s operation is it's ‘innovative ecosystem’. This ecosystem is vital to the smooth global functioning of the logistics giant. Prashant Saran, Director of Operations at Amazon MENA said: “Amazon’s supply chain and logistics ecosystem is built for an environment where safety, speed, and efficiency are of the essence.
“Since 2014, Amazon has scaled an entire global transportation network from the ground up to meet the needs of our growing customer base and create a great place to work for our employees, partners, and drivers.
“Across the Middle East and North Africa regions, we have built a network of delivery stations, and a robust ecosystem of partnerships with small and medium delivery companies as our delivery service partners.
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"Collaboration is instrumental in building a successful last-mile network and our partners are integral to delivering packages to Amazon customers with speed, convenience and reliability. In turn, we support our delivery partners with logistics expertise, technology, and training to allow their businesses to thrive.”
So, again we see how Amazon’s strategy for growth is in making smaller companies it engulfs into its operations more successful. The strategy has proved highly successful, but what of the concerns of a monopolisation of logistics?
Is Amazon a Monopoly?
The accusation of Amazon as a monopoly has come up several times in the past decade, with logistics firms and business professionals stating they feel Amazon has grown too large and is thus too dominant in the market.
The big question then is this: is Amazon a monopoly dominating too much trade, or is this sour grapes from industry professionals who cannot match the levels of Amazon?
Amazon has hit back at such suggestions stating that it does indeed face stiff competition, namely from other giant companies such as Apple, Microsoft, and Google – with the latter perhaps being the best example of a modern-day monopoly with its control of the internet space.
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The criticism that’s often fired back is that Amazon is a seller and a shipper, thereby going the extra mile than other companies (metaphorically and literally), yet in the said criticism is a counterpoint in itself, Amazon competes on many fronts. Because of this, Amazon “…doesn’t command any segment to the exclusion of other market participants,” that’s according to the finance experts over at Financhill.
What this means is that Amazon isn’t a monopoly in the true sense of the word, with the aforementioned finance brains stating Amazon is more of a ‘monopsony’ than a monopoly. And here’s our economics lesson of the day:
“In economics, a monopsony is a market structure in which a single buyer substantially controls the market as the major purchaser of goods and services offered by many would-be sellers.”
Amazon & Technology
So given its success, what tech does Amazon use? Prashant Saran states the following: “In our fulfillment centres, we use world class fulfillment technology to store, pick and pack customer orders with the highest accuracy and speed.
"Our algorithms are continuously learning and improving to decide the optimal packaging for shipments. Our box suite technology recommends the right box size to ensure both protection of the items and sustainable practices.
"Complex algorithms map the ‘last mile’ of the journey of a package – from the time it enters a delivery station to the time it reaches a customer’s doorstep.
“After a package arrives at a delivery station, the technology sorts packages by zones to maximize delivery efficiency. This means that algorithms evaluate a variety of factors – from how many packages the facility is receiving at a given time to what the delivery promise window is for that package, the delivery locations, and what our delivery capacity is for the day."
Mr Saran continues: “Each package gets assigned with a sorting location; and each sort zone typically consists of multiple packages with closely located addresses.
"We also place delivery stations close to large Amazon customer populations and leverage innovative technology to optimize delivery routes, providing guidance to drivers on the best delivery routes reducing delivery times for customers.”
We can see then that Amazon’s operations revolve around one key word – algorithms.
Technology is very much the key, but the challenge is in getting it right, for as many have experienced in logistics, having the tech and not knowing how to maximize it is like having a Ferrari and filling it up with orange juice.
Given Amazon have the size, skills and expertise to make it work, they leapfrog the competition.
Amazon & The Future of the Supply Chain
Returning to Prashant Saran, he believes that: “The past couple of years have taught us to expect the unexpected – in every sphere of business. There may be further challenges along the way, but building a resilient supply chain will help to mitigate many risks.
"This requires careful preparation, innovation, technology, and strategic harnessing of data. Businesses are adopting a range of strategies to ease the impact of potential disruption such as diversifying suppliers, increasing transparency, investing in automation, strengthening relationships with suppliers, implementing risk management strategies, and adopting agile supply chain practices.
“We are also working towards balancing the gender scale in the logistics and supply chain sector. Amazon nurtures an inclusive and welcoming environment, with supportive policies that engage women to join, grow to their full potential and achieve leadership roles.”
And What of Sustainability?
Sustainability is the challenge of our age, and Amazon remains at the forefront of such challenges as any large multinationals have expectations from the social, political and business arenas.
Prashant Saran states a big aim: “We are committed to be net-zero carbon by 2040. We embed sustainable practices across our operations from our facilities to our packaging and transportation. While some actions and investments have immediate carbon savings, others may take years to demonstrate results.
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“For a company the size and scope of Amazon, where our business involves moving products at scale, transportation is a big opportunity to reduce our carbon emissions. We are excited to work with innovators and partners to explore using electrification and low carbon alternative fuels, and we already have thousands of electric vehicles on the road around the world.
“In addition, we are always working to become more efficient through technologies that help us improve routing and delivery of packages, reducing the number of delivery vehicles on the road. We actively encourage our supply chain to decarbonize their businesses, and work with partners that are similarly committed to transitioning their business.”
Conclusion
As a company, Amazon has gone to the very front of global logistics, becoming a household name and a trusted provider of the world’s goods.
Yet such growth comes with big responsibility, consumer expectations are changing, people want speed and efficiency, yet also safety and climate consciousness.
This means Amazon has many challenges to face, yet seeks to keep ahead of the field via a solid commitment to social change and technological innovation.
