December 2021 | Commentary | Resiliency

Early Amazon Story Explains How to Create Resiliency

Tags: Risk Management, E-commerce, Technology

Early in Amazon's history there is a famous story about a renegotiation of its UPS contract. It is one of the first examples of Amazon realizing its scale and utilizing and leveraging it for growth.

Jason Murray, Former VP of Supply Chains & Retail Systems, Amazon. Current CEO, Shipium, 206-569-8244

At the time, Amazon used UPS almost exclusively for deliveries. But because UPS was the only carrier we leaned on, they priced accordingly knowing we had little alternative.

As we neared the annual renegotiation talks, we knew that in order to secure better rates, we had to become less dependent upon a single carrier. We had to become more resilient. For several months, the team was directed to rebuild its outbound shipping technology stack to allow for dynamic carrier selection and manual switching, like a figurative train track switch. That technology hadn't previously existed because there was no need for it if only using one carrier.

With the technology built, the story goes that the team was directed on an early December day to switch all shipments to go through our new carrier contract, USPS. UPS was to receive no packages for that date.

UPS was alarmed. Their systems went off, bells buzzed, alerts scaled all the way up the ladder until eventually a UPS executive called and asked if Amazon was having technical problems. The reply was a simple, "Nope, just using other carriers to handle volumes you believed we couldn't shift away from UPS. See you at the negotiations next week. *click*"

That's a powerful story, but the powerful insight is not in the negotiation theater that played out.

In truth, the real value created through this exercise was greater resiliency added into this specific part of Amazon's supply chain. By reshaping technology to support multiple delivery partners, we ensured a system with fewer late deliveries, better customer experience, and minimal system downtime or bottlenecks. The added resiliency improving performance year-over-year was a bigger reason for Amazon's early growth than the renegotiated UPS rates for that year.

One of the best ways to add resiliency to your supply chain is to diversify optionality. Vendors, sources, contracts, technology components—look up and down your supply chain and identify single points of failure, then think through how to diversify your options.

This isn't necessarily a new or novel idea. The COVID-19 pandemic starting in early 2020 forced every commerce company to re-examine upstream dependencies, like manufacturers or component distributors. I'm still waiting for a new bike I ordered last summer because the manufacturer is delayed getting a certain type of screw from their suppliers.

No, instead the new and novel idea is to understand that diversification and optionality all the way down to eventual order delivery is critical for optimization and margin growth. More importantly, it's critical to customer experiences and expectations.

Take a moment today to think through which downstream parts of your supply chain are not diversified. You might be surprised which junctures are causing bigger problems than you realize.

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