The global e-commerce giant Amazon is no stranger to transformation and keeps in the news for various developments in their operating strategies. From its beginnings as an online bookseller to becoming a global e-commerce powerhouse, the company has continually evolved. Its latest venture could potentially unlock over USD 100 billion in revenue, and it’s all connected to its expansive supply chain network.
Amazon’s journey into logistics services, encompassing shipping and distribution, is a strategic move poised to be a massive game-changer. According to Truist Securities analyst Youssef Squali, this expansion could ultimately yield more than USD 100 billion in revenue. The company is leveraging its robust supply chain apparatus, previously viewed as a cost center, and transforming it into a profit center. This bold move positions Amazon as a major player in the logistics industry.
It is believed that Amazon works on enhancing profitability by committing itself to cost-cutting. These cost savings are the result of a strategic response to the surge in e-commerce activities brought about by the COVID-19 pandemic. Not only has Amazon invested heavily in expanding its warehousing infrastructure to cope with the rising demand, but it is also steadily moving forward with its own logistics services across a majority of its stations. This investment is paying off the company handsomely.
Notably, Amazon’s revenue growth was beginning to stagnate, with a mere 9% increase in the previous year. However, projections suggest that this trend will be reversed, with an estimated 11% growth in revenue to reach USD 570 billion in 2023. This resurgence in revenue growth can be primarily attributed to the company’s supply chain endeavors.
Amazon’s Supply Chain division is central to its mission of becoming a leading logistics company. This arm of the business oversees the entire process, from the production of goods in factories to the delivery at the customer’s doorstep, not just locally but globally. Amazon aims to replace various businesses responsible for tasks like ocean freight, customs, ground transportation, and inventory storage with one unified, seamless service.
One may be reminded of Amazon Web Services (AWS) – a cloud computing solution that was initially developed to meet Amazon’s internal needs, and was later offered as a service to third-party businesses. The success of AWS sets a precedent for the potential success of Amazon’s supply chain services when extended to external merchants.
Amazon’s business model now appears to rest on three main pillars: AWS, its core retail operations, and the burgeoning supply chain and logistics services. This multi-pronged approach provides diversification and resilience while multiplying the revenue many fold.
In conclusion, Amazon’s expansion into logistics services and its transformation of the supply chain from a cost center to a profit center represent a significant step in the company’s continued evolution. This strategic move has the potential to bring in substantial revenues and drive Amazon’s growth well into the future.
Logistics Insider Magazine: October issue 2023