Technology — Not Trucks — Drives the SCaaS of Amazon, Walmart, UPS

By Michael Dominy | September 21, 2021 | 0 Comments

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As I shared earlier this year in my blog post, “Supply Chain as a Service: Three Types and Three Opportunities,” companies are looking to exploit their assets and expertise to move beyond cost optimization and contribute directly to top-line revenue.

Gartner’s Supply Chain Top 25 research shows that multiple companies across industries are working on supply chain as a service (SCaaS) initiatives. To recap, there are three types of SCaaS, all of which require technology to support development, deployment and scaling. Like trucks, planes and warehouses, technology is an asset.

Walmart

For some companies and industries, one or two types of SCaaS are potential opportunities. In the case of Walmart, the first two types — physical operational assets and business process services — are opportunities.

Walmart Fulfillment Services is an example of the first two types. Beyond the fact that Walmart has a large network of physical fulfillment assets, including distribution centers, stores and trucks, it has significant supply chain business process expertise.

Exploiting physical infrastructure and supply chain process expertise to deliver new sources of revenue requires a comprehensive portfolio of technologies within fulfillment operations and between Walmart and third-party sellers and, of course, the customer. Consider the complexities associated with order taking, order scheduling at fulfillment location, order picking and delivery required to support Walmart Fulfillment Services.

Walmart’s GoLocal announcement on Aug. 24 is another example of SCaaS. GoLocal provides local delivery between sellers and customers using technologies to connect and match independent drivers to pick and deliver within a defined community such as cities and townships.

Amazon

One might argue that Amazon has been providing SCaaS for years, with increasing choices across first-party (1P) and third-party (3P) distribution models. As we describe in “Tool: A Guide to Selecting the Right Amazon Distribution Model,” a 1P relationship with Amazon is similar to a wholesale or distributor go-to-market and fulfillment model. The direct-to-consumer or end customer is handled by Amazon and cost associated with fulfilment is buried within the markup Amazon charges as it sets the selling price. Amazon’s 3P relationship with Fulfillment by Amazon (FBA), which launched in 2006, aligns with Gartner’s definition of SCaaS. The seller pays fees to Amazon for storage, pick, pack and shipping to the end customer.

Looking beyond the obvious expansion of physical assets, including fulfillment centers, vans and planes, the key to Amazon’s SCaaS offering is technology and business process expertise. From its birth as a company, Amazon has had to build its own solutions in many parts of its business, including aspects of its fulfillment operations. For example, to keep costs low but also support customers’ needs, Amazon built order tracking and visibility into its platform. Existing solutions at the time were disintegrated and dependent on people. For example, direct-to-consumer retailers such as catalog retailers used call centers and customer service representatives to provide order and delivery status.

Amazon continued its investments in technology and SCaaS since then, with a list too long to describe here. A recent example to illustrate is Amazon’s launch of Amazon Freight in 2019, which is a digital platform for matching shippers and carriers. Amazon Freight is another example of SCaaS specifically within the transportation space, in contrast to FBA, which includes warehousing and distribution services.

Another example from 2019 are the Target Inventory Levels tools that Amazon built and deployed to the market. These tools provide better inventory visibility to third-party sellers.

What about supply chain service providers?

Supply chain service providers including wholesalers, distributors, parcel carriers, third-party logistics providers (3PLs) and even the supply chain consulting and business process outsourcing are not sitting idly by.

Wholesalers and distributors across industries including high tech, manufacturing, life sciences and food service have offered SCaaS. One example is Cardinal Health’s OptiFreight Logistics, which provides a portfolio of “…services and capabilities to meet all of your logistics needs, including same-day courier solutions, regional parcel carrier relationships, mail consolidation capabilities, a shipment protection offering, pharmacy system integration and a multicarrier shipping hub.”

For years, the 3PLs have been spending heavily to move their legacy systems running on outdated technology to modern cloud services. As far back as 2008, 3PLs were spending heavily on technology to reduce costs, improve service and power new offerings. For example, the case study that Gartner published in 2012, “Logistics Provider Ceva Leverages IT and Business Process Outsourcing to Transform Its Business” describes what Ceva did to modernize its technology platforms and capabilities.

This month and presumably in response to Amazon and Walmart’s SCaaS, UPS on Sept. 10 announced its intention to acquire Roadie, a startup focused on same-day delivery leveraging — you guessed it — modern technology platforms and capabilities to match freelance delivery drivers with shippers needing to deliver to customers today.

Based on these recent public announcements and our research and interactions with clients across industries, we anticipate more activity in the SCaaS space. Cost, revenue and sustainability objectives are the drivers, and technology is the enabler.

Mike Dominy
VP Analyst
Gartner Supply Chain
Michael.Dominy@gartner.com

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