June 30, 2016

Amazon's 3PL encroachment to force traditional providers to overemphasize IT, consultant says

Gonzalez says 3PLs will need to "flip their models" and become technology companies in the logistics business.

By DC Velocity Staff

The push by Amazon.com Inc. into the third party logistics (3PL) segment will force traditional 3PL providers to "flip their models" and effectively become IT specialists that work in the logistics business, a leading supply chain management consultant said.

Adrian Gonzalez, president of consultancy Adelante SCM, said 3PLs will need to expand more deeply into areas such as cloud-based services and predictive analytics to fight off Seattle-based Amazon, which has positioned itself as a soup-to-nuts logistics provider for the millions of small merchants that use its services as an online storefront and back-end fulfillment partner. Speaking Tuesday at the SMC3 Connections 2016 conference in Chicago, Gonzalez said Amazon is focused on owning the supply chain "ecosystem" by providing an end-to-end shop of commerce in much the same way Cupertino, Calif.-based Apple Inc. built a closed-loop network of software, hardware, and services.

Amazon will leverage its successful cloud-based services as a technology backbone for its growing logistics empire, according to Gonzalez. Traditional 3PLs will be asked by shippers to provide similar solutions, but customers will not expect to be charged for them, Gonzalez said. "Shippers will expect (cloud-based) services to be tossed in" as part of the relationship, which will put 3PLs in a quandary because they are unsure how to build those services into their cost structure, he added.

In the past few years, Amazon has moved to develop an in-house fulfillment and delivery network in an effort to more cost-effectively manage the enormous flow of packages spawned by the success of its e-tailing storefront. For years, it has relied on third-party transport providers to deliver packages. However, spiraling shipping costs and concerns about service disruptions have forced the company to look at alternate means of distribution.

Jeff Bezos, Amazon's founder and CEO, has said the company's goal is to supplement its existing transportation alliances and to fill any service voids should they arise. Gonzalez said that while he concurs with Bezos' sentiments, he is convinced Amazon wants to go much further than that.

One step Amazon will not take is to become a stand-alone 3PL serving businesses that aren't already using its services, Gonzalez said. "It would be a mistake for them to hold themselves out as a 3PL handling ad hoc business," he said. "It doesn't make sense for them."

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