Amazon Reinventing the Delivery Value Chain

Amazon Reinventing the Delivery Value Chain

There are many ways how logistics companies can ship products to their customers. An exceptional example is Amazon: It builds its own distribution network by breaking down the traditional delivery value chain just to recompose it piece-by-piece to build a tailored distribution network.

Parcel delivery companies such as DHL have been the backbone of Amazon’s success for decades. However, the traditional hub-and-spoke system is becoming obsolete. In doing so, parcels get picked up at the e-commerce’s fulfillment centers, then consolidated with other parcels at regional logistic hubs before being transferred overnight by Full Truck Loads (FTLs) to destination regions and finally distributed through milk runs to the final recipient.

Amazon’s continuous effort to offer more flexible, faster and on-demand delivery is fundamentally transforming the dynamics and structure of distribution networks. As traditional parcel delivery providers increasingly fail to keep up with new requirements, the world’s largest e-commerce launched its inhouse logistics unit, designed to fully address the delivery requirements of online shoppers in the 21st century. 

Breaking down the Distribution Value Chain

Over the past five years, Amazon Logistics broke every single component of the distribution value chain down – piece by piece. It then recomposed it in order to address its specific needs by developing innovative solutions and by smartly integrating a number of specialized providers through technology.

In 2013, Amazon Fresh directly delivered its first grocery order to the end consumer which describes proprietary last mile delivery technology. Today, Amazon Logistics manages a third-party network of thousands of city couriers through its own last mile delivery software, now delivering everything from groceries to parcels directly to the doorstep of households across Europe and the US.

Two years later, Amazon leased thousands of own branded trailers to increase flexibility, gain control over hub-to-hub shipments and secure capacities to reliably cover peeks. The truck driver and the vehicle, however, continue to be sourced through external trucking companies.

Moreover, Amazon also dedicated its own air cargo network: In 2016, it entered into partnership with Atlas Air, a specialized US provider. The aim was to launch a dedicated air cargo network of more than 40 planes to support the package delivery to prime members based in the United States.

In 2017, Amazon Logistics started rolling out its express linehaul network of city warehouses to offer deliveries within one and three hour(s). sennder GmbH is establishing an express linehaul network across Europe of typically smaller trucks (3.5t up to 12t) connecting large fulfillment centers with the city-hubs to offer fast and flexible supply and enable Prime and PrimeNow. 

Flexibility thanks to Amazon’s smart approach

The underlying denominator of Amazon’s logistics network is “asset light”. Throughout the different distribution steps, Amazon leverages small and specialized partners and hence avoids hiring personnel. This smart approach allows Amazon to flexibly scale operations without major capital expenditures.

After fundamentally transforming many industries, Amazon started shaping the future of yet another industry: logistics. A shift from the traditional hub-and-spoke system towards tailored point-to-point delivery probably is only the first innovation which requires incumbent players to essentially change their modus operandi. In other words, Amazon is making logistics sexy again.