Chain of Thought

If Bezos is Mad, Let’s Hope He’s Contagious

Every century has its ideal “Mad Genius.” There was Sir Isaac Newton in the 17th, Beethoven in the 18th, Vincent van Gogh in the 19th, and some would argue John Nash, the mathematician of “Beautiful Mind” fame, for the 20th’s. Although the 21st century is still young, Amazon’s Jeff Bezos has a commanding lead in this century’s rankings.

Whoever judges this honor shouldn’t have to look much further than the story that ran in the Wall Street Journal the other day. “Soap Opera: Amazon Moves in with P&G,” read the headline. It described the details of Amazon Flex, an arrangement whereby this online retail giant is taking up a chunk of square footage inside a major consumer packaged goods supplier’s distribution center and packaging, labeling and shipping staples like toilet paper, diapers and shampoo directly to consumers who order them online. To many logistics experts, that’s crazy. But if you ask Amazon competitors like discount chains, club stores and grocers, it’s probably driving them crazy.

MH&L relies on its editorial advisory board of sane geniuses to sound off periodically on such trends, and several of them, while impressed with this arrangement, had different takes on its long-term feasibility. Ron Giuntini sees it as a game-changer for e-commerce, but Alex Scott just doesn’t get the economics.

“We are acting as if Amazon shipping to my house bulky items like toilet paper everyday isn't a major cost that has to be reflected in the price I pay,” he says via MH&L's "Ask the Expert" Forum.  “Speaking as a consumer, if I'm going to the store anyway, it's virtually zero marginal cost to pick something else up while I'm there.”

John Hill, director of the St. Onge consulting firm, says it seems like a brilliant move, based on the fact that Bezos’ supply chain innovations seem to be right more often than wrong—but is it a trend?

“Too early to tell,” Hill says, “but it will be interesting to see how other high volume CPG companies and on-line retailers react.  I love it!”

And of course Jim Tompkins, who groups Amazon in with a small group of supply chain pioneers he considers “titans,” says those competitors outside this group had better get over their disdain for what Amazon is doing and start turning their wholesale anger into their own brand of high-end madness.

“These folks need to realize the changing landscape and find their own counteroffensives to make something good happen instead of wishing they were Amazon,” he said.

Some could argue that this kind of intimate relationship Amazon is forging with a few choice manufacturers is not really new at all. One of those is Jeff Holmes, an advisory managing director at PwC, a business auditing and consulting firm. Although he’s not on MH&L’s board, PwC does analyze the retail and consumer segment. Recently he sat in on a conference where this kind of relationship was discussed by two manufacturers who are sharing transportation assets for the same retailer. The aim is to reduce inventory, create more frequent fulfillment to the retail outlets and increase in-stocks and service levels. But could two retailers share the same manufacturer’s DC?

Of course and it is happening today,” he said, “especially where the manufacturer's DC can segment inventory for specific customers. This ensures product availability for the most important retailers/customers, can create pick up opportunities for some retailers who desire this and also allows for special packaging, etc. for different retailers.”

So while retailers scramble to innovate on their end, manufacturers are doing their share in developing strategic capabilities. And let’s not forget third party logistics service providers. One of Bezos’s other mad schemes was his company’s acquisition of Kiva, makers of those robots used in goods-to-person order fulfillment operations. This not only made fulfillment more efficient in Amazon’s own DCs, but it controlled who else would have access to this technology. 3PLs may be the ideal market.

“There is a very big opportunity for third party distribution operators to invest in distribution facilities that serve high density markets and use those facilities to facilitate same day delivery to consumers and consolidate multiple manufacturers’ product into one shipment for the consumer,” Holmes concluded. The community has to do this to even get close to competing with the leading direct-to-consumer model.”

There are many supply chain routes to both madness and genius. Jeff Bezos seems to have mastered the art of combining those traits and currently leads the race for mad genius of the 21st century. You have 86 more years to figure out how to rob him of that title.

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