23 January 2013

Another Ton of Bricks

About a year ago, "A Ton of Bricks" told the story of Amazon's conversion, as yet still not discussed in the channels I follow, from e-tailer to brick-and-mortar retailer. Well, the conversion continues apace. Amazon's P/E ratio, as I type, is 3,182. They make a few pennies on the share. That Amazon is able to convince so many that it has found the New Way is astounding. The cost of jet transport, per pound, is so much higher than rail, it's clear now that Amazon is finally admitting what OR folks have known for decades: JIT production is fine when one is dealing with very high value parts which are small in volume, light in weight, and a small part of the BOM. In such an instance, stockpiling can add up to more in carrying cost than transport. For garden variety retail, warehousing wins. Always has and always will; so long as fuel isn't free.

Amazon isn't such a manufacturing business. It's a distributor, and its main cost is transport. The main cost it can control, at least. Unless Jeff decides to go all Walton on its suppliers. But, since Amazon has set out to be the purveyor of everything, that ain't gonna happen.

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