Amazon Inside P&G Warehouses: A Case of “What’s In It for We”

An article in today’s Wall Street Journal revealed that Amazon has set up operations inside at least seven P&G warehouses worldwide where “each day, P&G loads products [such as paper towels and diapers] onto pallets and passes them over to Amazon inside a small, fenced-off area. Amazon employees then package, label, and ship the items directly to the people who ordered them [online].” Amazon’s partnership with P&G started three years ago, and the company is reportedly doing the same, or is in talks to set up similar operations, with Seventh Generation, Kimberly Clark, and Georgia Pacific.

As it turns out, my guests today on Talking Logistics were Kate Vitasek, architect of the Vested business model and faculty member at the University of Tennessee, and Jeanette Nyden, a negotiation expert and adjunct professor at Seattle University. We talked about their recently-published book, Getting to We: Negotiating Agreements for Highly Collaborative Relationships (more on that in a future posting). I didn’t read the WSJ article until after the show, so I didn’t get to ask Kate and Jeanette about it. But after reading most of the book and reflecting on our conversation today, it struck me that Amazon and P&G are planting an orange tree.

Let me explain.

In Chapter 1 of Getting to We, Kate and Jeanette (and co-author David Frydlinger) highlight a classic tale about how to divide an orange, from the best-selling negotiation book, Getting to Yes by Fisher and Ury. Here’s an excerpt: 

In the orange story, two people negotiate to divide one orange. Positional bargaining would split the orange in some fashion — in half or perhaps with the party with the most power getting two-thirds and the weaker party getting one-third.

Fisher and Ury presented a new paradigm known as interest-based bargaining in 1981. Interest-based bargaining allows each person to share their interests with the hope of finding mutual gain. For example, one party may want the pulp while the other party may want the peel…Thus, in the Fisher and Ury analogy, the parties’ self interests are maximized, with each person getting exactly what is wanted: one would get all of the peel and the other all of the pulp.

The problem with this approach, the authors of Getting to We argue, is that “people are still fighting over one orange today [emphasis mine],” and the mindset is “short-term and opportunistic.” A better approach is for the negotiators to take a “What’s in it for We” (WIIFWe) mindset, the “philosophical mantra for all highly collaborative relationships.” The authors go on to say:

Ultimately, as negotiators embrace the WIIFWe mindset, partners begin to view the relationship as a unique and individual entity with interests of its own. Changing the lens to view the partnership as its own entity with its own interests in addition to each partner’s interests solves the problem of fighting over one orange today. Using a WIIFWe mindset changes the question from what is in my self-interest to what move will generate value for the partnership. The parties would then find solutions to work together to perhaps plant an orange tree allowing both to prosper from an increased harvest [emphasis mine]. Planting that tree requires a paradigm shift.

And what increased harvest are Amazon and P&G going after? The online sales of household goods like toilet paper and diapers, which despite being worth $16 billion in 2012, represents only 2 percent of the market today. However, Nielsen Holdings predicts that online sales will increase 25 percent per year to $32 billion in 2015.

Of course, I don’t know for certain if Amazon and P&G have truly taken a WIIFWe approach to their partnership, but based on the info disclosed in the article, it seems that way to me. According to the article:

The economics of the arrangement benefit both sides. For Amazon, co-location reduces the cost of storing bulky items like diapers and toilet paper and frees up space for the Web retailer to stock higher-margin goods in its own distribution centers.

P&G, meanwhile, saves on the transportation costs that it would have incurred trucking products to Amazon’s regional distribution centers. Plus, it gets Amazon’s help in boosting online sales, a priority for many in the industry.

And P&G is not new to Vested. The company was one of the case studies featured in Kate’s previous book, Vested: How P&G, McDonald’s, and Microsoft are Redefining Winning Business Relationships (watch the Talking Logistics episode with Kate and co-author Karl Manrodt where they discuss the key takeaways from the book). In short, P&G has already experienced the value of taking a WIIFWe approach in one part of its business, so why not here?

Back in July, I highlighted the top ten supply chain trends presented by Tom Linton, Chief Procurement and Supply Chain Officer at Flextronics, at an MIT conference. Number one on his list: “Non-Zero” Supply Chains Win. In other words, supply chains focused on greater collaboration between everyone in the ecosystem will win, which will result in end-to-end supply chain solutions that will create new value for customers. The relationship between Amazon and P&G, if truly built on a WIIFWe foundation, will serve as a great case study and proof point that “non-zero” supply chains do indeed win.

The Amazon and P&G partnership also raises some interesting questions to ponder. For example, is this an opportunity or a threat for traditional third party logistics providers? Many 3PLs view e-commerce fulfillment (and, more broadly, omni-channel fulfillment) as a growth engine. Regardless of how 3PLs ultimately view Amazon’s activities, either as a risk or opportunity, what will matter the most is their response. Will 3PLs and their retail and manufacturing clients continue to split an orange or will they plant orange trees instead, perhaps with the help of Google, Facebook, and eBay?