This Week in Leadership (Nov 29 - Dec 5)
Questions—and answers—about the Omicron variant's impact on organizations. Plus, critical year-end moves to boost your career.
The global supply chain’s next major moment may have arrived.
Amazon, the e-commerce giant, is not only reshaping its relationships with logistics behemoths FedEx and UPS but also building out its own massive delivery system. Experts say the dance between the three shows how fast business relationships can change and how critical a company’s often-overlooked supply chain is to its overall success.
As Amazon builds out its own parcel delivery system — the company now has 50 planes, more than 20,000 vans, and is even testing robot delivery — Raschke says there will eventually come a point when it decides to either build the business organically by opening it up to other companies or buy one of its competitors. “Both FedEx and UPS recognize that Amazon is now, foremost, a competitor,” says Bernhard Raschke, head of the Supply Chain Center of Expertise in EMEA for Korn Ferry.
Until that time comes, UPS and FedEx are taking different approaches to their relationships with Amazon. In June, FedEx said it would end its air and ground express shipping contracts with Amazon. Much of that business appears to be going to UPS, with analysts crediting the 30% gain in next-day air-shipping volume during the second quarter to additional Amazon deliveries picked up from FedEx.
“It’s a short-term strategy to drive revenue and fill the hole in the market,” says Raschke. He says part of the reason UPS might be taking a different tact with Amazon is because its leaders don’t see the company as an acquisition target for Amazon. To be sure, at the opening of trading Tuesday, FedEx had a market value of $42 billion while UPS’ is $81 billion. Amazon’s market cap, by comparison, is more than $900 billion.
The interplay between the three firms comes as firms all over the world are facing one critical challenge after another along the supply chain. Events like Brexit and current trade wars—not to mention tech disruptions, the continued use of online buying, and even the purpose movement—have brought supply-chain matters front and center even before things go wrong.
The question now is whether a company—and virtually every industry can be affected—will have enough time to stay ahead of the critical links in its business. Thanks to technical innovations such as the Internet of Things, a firm’s supply chain could become a driver of better, cheaper products and services. Korn Ferry polled 100 senior supply chain executives last year, and every one of them executive said a digital supply chain had the potential to revolutionize the business. However, 74% said their firms have a long way to go before that happens.
“It’s critical for leaders to understand the competitive landscape and how developing partnerships impacts business strategies,” says Tom Terragno, a senior client partner at Korn Ferry who specializes in the consumer market. With Amazon deliveries accounting for an estimated 10% of UPS’ revenue (as opposed to around 2% of FedEx’s revenue) Terrango notes that if Amazon is successful in building its network, UPS revenue will likely decline and be difficult to replace.
In the meantime, “UPS can get more business and maximize revenue while Amazon makes up its mind,” Raschke says.