Amazon: One Day...All this will cost more.

One Day Shipping, the new promise from Amazon, has filled the news headlines lately with consumers welcoming even faster delivery services of their online orders. The online Behemoth has cracked the code on how logistically this will all get done.

Consumers have bought into the notion that One Day shipping is what’s best for them, and Amazon has done just as well selling the notion that this can all get done simply because they have the scale, the logistics assets and distribution model in place to successfully deliver to you in One Day.

What isn’t in any of this press or talked about on TV is the extra costs of this model. Yes, this all costs more. 

The biggest piece missing in all this is a simple business finance line called Inventory Carrying Cost. For decades supply chains have worked on Just in Time distribution models to help mitigate or sometimes eliminate Inventory Carrying Costs for a company. 

Inventory carrying cost is the sum of the cost to “hold” Inventory. Some of these costs are easy and straightforward like how much you paid for the warehouse space that the items took up while not being sold, the costs of handling the items into and out of storage, and the cost of damage, loss, or obsolescence of the items.

Some costs are harder to pinpoint but the opportunity cost of the capital tied up in inventory can also be a factor in determining the cost of the inventory. The dollar amount tied up in inventory that could have been used to generate more sales or buying other faster moving inventory items.

Amazons quest to fulfill orders in One Day will require, small, medium and even large companies to carry more inventory in more Amazon DCs around the country than they ever have had to before. Which by the way is great for Amazons business because they charge storage fees for items in their warehouses.

To prepare for this Amazon eliminated their long-term storage charges but increased their charges on short term storage.  

More Inventory, more cost to carry that inventory and higher cost to store the inventory that’s required to be on hand leads to higher cost of the products you buy.  This certainly will put a squeeze on the smaller companies who will need to carry more inventory to fulfill Amazons inventory requirements.

Associated with this is also Amazons supplier changes, in which many 1P suppliers, those with sales 

over 250k, will be moved to the 3P program, with the later program being higher priced and comes with less Amazon account support.

Certainly, many changes are still to come from Amazon to support the new one-day shipping directive. It’s a great move for Amazon as a growing logistics business, but for consumers, we should be ready to pay more for this convenience. Maybe not today or tomorrow but One Day…all this will cost more.