Insights from Jeff Bezos’ Letter to Shareholders

When it comes to enterprise software — especially traditional, in-house implementations — it’s not uncommon for companies to be several versions behind. Why? Upgrading is often as expensive, time-consuming, and disruptive as the original implementation. This is particularly true for warehouse management systems.

Now consider this nugget of information from Amazon.com CEO Jeff Bezos’ letter to share shareholders published last week:

Sophisticated software is key in our FCs [fulfillment centers]. This year, we rolled out 280 major software improvements across the FC network [emphasis mine]. Our goal is to continue to iterate and improve on the design, layout, technology, and operations in these buildings, ensuring that each new facility we build is better than the last.

280 major software improvements in one year. That’s an average of 3 major software improvements every 4 days.

I don’t know how Amazon defines “major software improvements,” but presumably those improvements involved more than enabling a new BI report or adding a few data fields to a user interface. Of course, many of those improvements could have come via a single upgrade instead of many new enhancements throughout the year, but if you read the rest of the letter, you realize that ongoing iteration and continuous improvement is embedded into everything Amazon does. For example, last year, more than 4,700 associates participated in 1,100 Kaizens at its fulfillment centers.

If managing the rapid pace of change in the competitive landscape is indeed the biggest challenge supply chain and logistics executives face today, then the software they use to manage their supply chain processes must keep pace with that rapid change. Being multiple versions behind is not going to cut it anymore, which is why cloud and software-as-a-service (SaaS) applications are gaining momentum.

It is also why in the build vs. buy debate, some companies still strongly believe in building their own solutions and owning the innovation cycle.

Back in March 2012, when Amazon.com announced it was acquiring Kiva Systems, a lot of people were wondering: Why would Amazon.com acquire a materials handling company? Why not just be a customer of Kiva Systems, like Zappos.com and Diapers.com (which are owned by Amazon)? Here’s what I wrote at the time:

I believe it’s that passion for invention that drove this acquisition. Specifically, the desire to own and control the innovation cycle — from the front end of its operations (website) to its back end (order fulfillment and DC automation systems) — in a holistic and integrated manner.

This is part of the reason why some third party logistics (3PL) companies continue to develop their own IT solutions; they want to have full control of the innovation cycle versus being at the mercy of a technology vendor’s innovation roadmap and release schedule.

Regardless of which path you take — in-house vs. SaaS, build vs. buy — here are some questions to ask: How many “major” (however you define it) software improvements do you enable each year in your supply chain and logistics operations? Are your IT capabilities keeping pace with your fast-changing needs or are they holding you back? If you don’t believe you need to make so many improvements each year, do you believe your competitors feel the same way too?

Here are some other insights and highlights from Bezos’ letter that caught my attention:

  • Amazon.com plans to roll out Sunday delivery “to a large portion of the U.S. population throughout 2014.” Read my comments from last November.

  • The company is doubling down on drones becoming a future transportation mode. “The Prime Air team is already flight testing our 5th and 6th generation aerial vehicles, and we are in the design phase on generations 7 and 8.”

  • “The number of sellers using Fulfillment by Amazon [where sellers can store their products in Amazon’s fulfillment centers, and Amazon picks, packs, ships, and provides customer service for those products] grew more than 65% last year. Growth like that at such large scale is unusual.” A missed opportunity by so many third-party logistics (3PL) companies. Or maybe the opportunity is still there?

 

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