Wednesday, September 4, 2013

Amazon on a Warehouse Building Spree

I stumbled upon an article that discussed Amazon's method of distribution, as we discussed last week, and it elaborated on their need to not only build more distribution hubs but compared their supply chain system (to some extent) to that of their competitors.  Amazon's plan, which began in 2010, was to build 50 new warehouses world wide.  It made think, is bigger always better? While in order to maintain fast shipping and delivery and be also be faster than their competitors like target, walmart and ebay, it may be logical to build these warehouses, but at what costs? Fifty warehouses costs a large amount of money, and inevitably it will be paid for by consumers.

While Amazon has created some amazing shipping programs, they overall seem to have a higher shipping cost in general in comparison to their competitors.  Amazon consumer (non amazon prime program users) are paying on average $9 to ship their orders while stores like best buy, walmart and target are only charging $5.  These large warehouses though are calculated to make a short term rise in costs but in the long term prove to win over a larger market share and prove highly profitable for Amazon, but in the future.

"Amazon has a strong record of trading short-term losses for market share and sustained profits later, and investors are giving CEO Jeff Bezos the benefit of the doubt. Since the start of 2010 the company’s stock has more than doubled. With warehouses close to the top 20 U.S. metropolitan areas, Amazon could reach 50 percent of Americans with same-day delivery, compared with 15 percent now, says supply chain consultant MWPVL International."

So I suppose bigger is better in Amazon's case, and I realized it as I continued the article.  But it led me to my question I want to look at.  Is bigger always better for every company, every segment, every product? And what are the costs of expansion, and who pays for them?

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.