In June of 2017, Amazon announced that they would be buying the organic grocery chain Whole Foods for $13.7 billion. This move has been closely watched by many and is a topic that has been discussed extensively on this blog. Amazon will be introducing new processes and technologies that will enhance the in-store experience for Whole Foods customers, such as checkout-free shopping. Similar to the e-commerce industry, Amazon entering grocery store market will force other companies within the industry to meet their benchmark for efficient processes and value delivery or be forced out of the industry entirely.
The supply chains operations within the grocery store industry have gone relatively unchanged for the last fifty years, their processes and logistics have not been highly reactive to the steep increase in technology during that time period. In fact, the only change in technology that had an impact on the supply chain in the last fifty years was the introduction of the barcode and scanner inventory method. Other than this small change, grocery stores and supermarkets have continued operations just as inefficiently as they always have. One of these inefficient processes is the timing and amount of inventory delivery. Because of last of sophistication within their logistical operations, many grocery stores have a large surplus of inventory that is rarely all sold by its sell by date. Also, the current inefficient check out method leads to long waiting lines during most busy times. A poor in-store experience and the inefficient handling of inventory leads to razor thin profit margins for most grocery stores and super markets. Because of the industry giants who have large portions of the market share, companies have been able to get by with their less than satisfactory operations. Amazon’s plans to implement lean systems and a “just-in-time” logistics philosophy for Whole Foods will put a lot of pressure on other companies to rethink operations and processes.
Many people view Amazon as a retailer or an e-commerce company, but I believe that they are actually more of a logistics and supply chain company. They deliver product from distributers and suppliers to customers in a timely and efficient manner, Amazon’s supply chain expertise has allowed them to flourish in today’s economy. Amazon will incorporate “just-in-time” inventory in order to maximize their efficiency. They will refresh inventory supplies several times a day with constant new shipments, this will be timed based on each products demand. This system will greatly reduce the number of days product spends in inventory. The quicker inventory turnover will help alleviate the problems that other grocery stores have with their profit margins. Because of the huge influence Amazon has over their suppliers, they can force them to meet their tighter efficiency demands. Amazon’s implementation of lean systems and perfection of Whole Foods’ supply chain will completely change the way the grocery industry operates and make it much more profitable.
My question from this article is, which topics and strategies that we have discussed in class do you think other grocery companies should use in order to keep up with Amazon?