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Peoplevox Updates

The problem with Prime: what’s Amazon’s next move?

Jonathan Bellwood
  • 16 November 2017
  • 6 min read

At a glance:

  • Amazon's Prime service has raised the bar when it comes to speedy delivery
  • Now the company needs to improve the variety of goods within its Prime offering
  • To do this, they need the support of third party merchants
  • It's incredibly difficult for Amazon to contain all stock from these merchants within its own warehouses
  • The best solution is the application of a warehouse management system that improves processes within merchant warehouses and gives Amazon a view of the complete fulfillment process

Amazon has a stated aim to become “the earth’s most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online.” It’s a value statement that is ultimately centred around giving its customers whatever they want, whenever they want it.

To see where Amazon is going to go next, it’s worthwhile taking a backwards glance over our shoulders to acknowledge how it got to where it is today. Its initial premise was simple: sell books. It did that. So it decided to sell more stuff other than books. It did that too. Then it decided to not just sell its own goods, but to create a marketplace where other sellers could sell their items on their website. It’s doing that. The most recent radical development to the way the company operates is the introduction of Prime; this, more than anything, has been the biggest game changer for the company.

The battle for speed and variety

But Prime has also forced Amazon to confront a stumbling block. It’s raised the expectation that consumers have for rapid delivery. They love the convenience of next day/ same day/ 2 hour deliveries. But they also love the variety of goods that Amazon has on offer. They don’t want to be made to choose from a limited range of stock; they want all of the products that they buy through Amazon to reach them quickly. And they want the packages to reach them in the same uniform way that they’ve come to expect from Amazon. They expect speed and variety to be executed and offered in equal measures.

Currently, this isn’t possible. Amazon depends on third parties to provide them with a varied product range. These third parties don’t have the same fulfilment capabilities of Amazon. Many not even close.  The only goods that are shipped with Prime are those which live in warehouses where Amazon has control over all processes. So it needs to find a way to bridge this problem.

How Amazon’s been tackling the fulfilment gap

The company’s FBA (Fulfillment by Amazon) solution isn’t perfect. Essentially, Amazon has been reaching out to merchants and asking them to send over their inventories. The concept is simple enough; they’ll store all of the goods and look after all fulfilment processes. Easy.

In execution, it’s led to merchants sending over a load of dead weight to Amazon warehouses. Goods that are just sitting in the warehouse, never going to be sold. Realising this, it’s started charging a lot to store these goods, else sending them back to the merchant. Amazon may have thought that it had mapped Utopia, but it’s got a way to go yet.

Back to the drawing board

Amazon’s dominance is almost without question, but in order to maintain such a strong lead it needs to work out a way to offer variety, speed and quality in equal measure. They need to make everything Prime without actually stocking all goods, and have the merchant fulfil all orders…but still maintain control over the entire fulfilment process. It’s difficult. But not impossible. The way that we see it, there are two clear paths that could be followed.

  • Offer their merchants a system that gives them Prime capabilities

Working to Prime standards is pretty difficult for most warehouses. Processes that have been set up so that goods can be picked up by carriers in the evening, for example, to guarantee next day delivery need to be shortened by hours. In order to match up to Prime expectations, these orders need to be ready by midday in time for Amazon’s fleet to come and collect. This sharp shortening of time allocated to fulfilment is, for many, insurmountable.

Besides, Amazon doesn’t have control over the processes that each warehouse uses. It’s a worrying black spot that means that it can’t guarantee the same experience with each delivery. There’s a huge question mark hovering over the space in time between when the order is received and the truck arrives. Clearly, this isn’t a good thing.

But it can have this control. If it uses a warehouse management system that gives it full visibility of its merchants’ operations, it will have the quality assurance that it needs. And, working with the merchant, it will be able to work out ways to ensure that all Prime orders are fulfilled on time, every time.

  • Have all of their own warehouses, everywhere, full of all merchants’ stock

The second option is for Amazon to double down on housing all of its inventory; both its owned products, and those of its merchants. At the moment it’s targeting 1,300 warehouses across Europe. Considering the speed of growth that Amazon has experienced, and will continue to experience, this amount of floorspace isn’t enough. It needs more. Way more.

So this option, essentially, shouldn’t really be on the table. It’s an impractical pipe dream. An impossibility. Amazon is not going to be able to get the amount of space that it needs.

The logical move, therefore, would be for Amazon to improve the way that its existing merchant warehouses work. It needs to implement a clear and accurate warehouse management system that works well for all parties.

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