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Amazon Gets Up Close and Personal with P&G

Oct. 15, 2013
Amazon is sharing warehouse space with major suppliers to grab a bigger piece of the CPG market.

Consumer goods giant Procter & Gamble Co. knows a little something about packaging, and not just the kind of stuff that gets sold on retail shelves. The company is also pretty good about putting a new wrinkle on an old concept, and getting a lot of attention for putting a new label on a tried-and-true concept.

Witness the front-page story in the Wall Street Journal, “Soap Opera: Amazon Moves In with P&G” (subscription required). The focus of the story is on how online retailer Amazon has launched an initiative with its suppliers called Vendor Flex, where Amazon shares warehouse space with some major supplies, such as P&G:

By piggybacking on their warehouses and distribution networks, Amazon is able to reduce its own costs of moving and storing goods, better compete on price with Walmart and club stores like Costco Wholesale Corp., and cut the time it takes to get items to doorsteps.

As IW blogger Jim Tompkins has noted, Amazon is on a mission to out-Walmart Walmart when it comes to its grocery and consumer goods offerings, and by locating its distribution facilities a mere five miles from a P&G manufacturing plant, Amazon and P&G both are able to improve their logistics efficiencies while reducing transportation costs.

The only really “new” thing about this set-up, though, is the involvement of an online retailer like Amazon, since P&G has been at the forefront of collaborative projects with retailers for more than 30 years, particularly when it comes to collaborative planning, forecasting and replenishment. (In fact, I devote an entire chapter of my book—Supply Chain Management Best Practices—to various collaborative practices, such as CPFR and vendor-managed inventory). Since in fact Walmart worked hand-in-hand with P&G and other CPG companies when launching its supplier initiatives, it’s difficult to see whether Amazon is taking a quantum leap into collaboration, or merely catching up. I suspect we’ll be hearing about Vendor Flex quite a bit in the months to come.

Meanwhile, in a speech prepared for the investment community, Walmart CEO Mike Duke emphasized, “No matter what environment we’re in—today, a year from now, or five years from now—we are driven to win. And we’re never satisfied at Walmart until we do.” Without using the “A-word,” it’s pretty clear that Amazon is very much on Duke’s mind, as he stressed that he loves the progress Walmart has made in e-commerce. “The biggest opportunity we have is winning the intersection between physical and digital retail around the world.” So as Amazon increasingly enters the physical space of its suppliers (a space where Walmart has been for decades), Walmart is scrambling to keep pace with the online world that Amazon continues to expand. It’ll be an interesting race.

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