Amazon’s Infiltration in Suppliers’ DCs Upsets Competitors

E-tailing giant Amazon (Nasdaq: AMZN) always seems to find a way to do business more efficiently and at a cost below its competitors. This week, its rivals were reportedly upset after details of Amazon’s unique warehouse arrangement with Procter & Gamble (NYSE: PG) and other major suppliers were revealed in The Wall Street Journal. With its Vendor Flex program, Amazon has expanded its presence in the warehouses of Procter & Gamble and other major household goods suppliers such as Kimberly Clark (NYSE: KMB). Amazon personnel have literally set up shop in seven of P&G’s global distribution centers. So, when Amazon receives orders for P&G products, P&G workers gather the orders and hand them directly to Amazon employees imbedded in the warehouses. Then, Amazon ships product to its customers directly from the warehouses. This is obviously a win-win scenario for both Amazon and P&G, since Amazon gets to shove off the costs of storing and moving inventory to P&G and the supplier benefits from increased orders through Amazon. P&G can sell an exponential number of products on the site at a better price point because of shared expenses. Plus, P&G saves on the typical transportation costs it would incur when trucking products to Amazon’s regional DCs. Conveniently, one of P&G’s Amazon-imbedded warehouses in Tunkhannock, Penn., is merely five miles from one of P&G’s largest plants that manufacturers paper towels, toilet paper, and other essentials. However, Amazon's rivals are aware of its arrangement with P&G and are not pleased. "Retailers don't like things that benefit their competitor but not them," Anne Zybowski, vice president of retail insights at consulting firm Kantar Retail, told The Wall Street Journal. For its part, P&G works closely with many retailers to help reduce costs in their supply chains and “meet their unique needs”, Yannis Skoufalos, P&G's global product supply, told The Wall Street Journal in defense of its tight-knit relationship with Amazon. For example, P&G works with warehouse clubs on better stocking and replenishment, so its products don’t take up much storage space inside their stores, Skoufalos contends. And Amazon has no plans to scale back its Vendor Flex program. It is in talks with – or in some cases is already partnered with – Kimberly Clark Corp. (NYSE: KMB), Georgia Pacific Corp. and Seventh Generation on shared warehouse space. "This [consumer packaged goods sales] is one of the biggest growth areas for Amazon," Mark Mahaney, an internet stocks analyst at RBC Capital Markets in San Francisco, told The Wall Street Journal.