Download White Paper: The Amazon Effect & Your Supply Chain

It is important to understand Amazon’s effect on your supply chain, your operations and your customers, and more importantly how you can adapt and thrive.

The Amazon Effect

Amazon earns 37% of all ecommerce sales in the USA.  What is even more incredible is their ecommerce market share is growing, and ecommerce is a fast growing market.  In 2016, Amazon was responsible for 53% of all ecommerce growth.  This is all remarkable… or frightening.  However, what is getting our attention (and should get yours) is Amazon’s inevitable march into industrial product distribution.  Most Supply Velocity Clients are involved in industrial markets.  Before 2016 Amazon was a consumer business.  Not any more.  Their incredible distribution footprint is quickly being used to serve industrial markets.

Increasing complexity of supply chains

Ecommerce in general has created changes to how companies process products.  What used to move in pallet quantities is moving in single unit parcel boxes.  Customers that used to accept 7 days leadtime demand products in 2 hours.  What used to be returned at below 10% rate to stores is now being returned at almost a 30% rate, which requires handling by special processing centers.  Supply chains are getting more complicated; customers and consumers are requiring, and getting used to better performance.

Manufacturers are becoming distributors

For manufacturers, the world is changing.  In the past, lean manufacturers with less than 2 week leadtimes could produce-to-order.  Now even industrial customers are requiring 2 day leadtimes on commonly purchased items.  The result is manufacturing companies are having to build warehouses and become distributors, with efficient pick-pack-ship operations of pallet quantities, mixed pallets and single unit parcels.  If you think you can be a manufacturer, focused on production, with an inefficient warehousing operation, it is time to think again and realize you are actually a distributor with a dedicated supplier (your manufacturing operations).

Distributors are becoming retailers

The bad news for distributors is they will find themselves competing with Amazon… a company that is great at supply chain management and uses advanced mathematics and software to minimize costs and can succeed earning razor-thin margins.  The good news is Amazon is forcing distributors to become online retailers, selling via their web site or opening stores on Amazon and being part of Amazon’s marketing machine.  If you are not augmenting your wholesale business with direct-to-consumer retail business, you risk being cut out of the supply chain in the future.  You must develop a relationship with the customer, whether it is a repair-person, a construction firm or property manager.

Online store – link to Amazon’s platform (Marketplace)

If you can’t beat them (and no one seems able to beat Amazon) then join them.  Putting a store up on Amazon allows you to participate in their marketing efforts.  You can do this while building your own online store which can be promoted in parallel to your sales through the Amazon marketplace.  The key is to start selling online as soon as possible, even if it means giving a portion of the profit to a company that is competing with you for sales.  Note, make sure you do the fulfillment to make sure Amazon does not gain power over your pricing.

Competitors sharing assets

If you have been fighting it out with your competitors, it is time to evaluate them as potential collaborators.  If you and a competitor can jointly reduce costs and create (legal) barriers to Amazon entering your market, do it.  This can be transportation assets, joint-warehousing or even sharing manufacturing.

Inventory management / optimization

Few companies think of their inventory as a strategic weapon.  It is a cost they try to minimize.  Amazon uses advanced algorithms to set inventory levels, making sure they have inventory near customers who need it, while maximizing profit.  You must be smarter and truly optimize your inventory.  The days of having “6 weeks on hand” are over.  You must calculate safety stock based on service levels, reorder based on target inventory levels and reorder quantities that balance service to customers and investment in inventory.

Inventory / network optimization to minimize delivery time and cost

Amazon has an impossible-to-duplicate warehouse footprint.  They are creating a distribution network where every item can be close to every consumer.  However, you can still optimize your network.  Every item in every location is probably not optimal.  You should use your service strategy, and A/B/C/D/F SKU classification to drive your decisions of what item is stocked in which location, at the optimal inventory level.  Doing this will balance minimizing costs and maximizing service to customers.  You cannot satisfy every customer with every SKU but you can maximize profits and the tradeoff of customer service versus inventory investment.

Be Amazon’s supplier

You would think that Amazon, with their incredible purchasing volume, would be buying only from manufacturers.  However, in many (for Amazon) smaller product categories it is more cost effective to buy from distributors.  Many manufacturing companies are not set up, and therefore will not do the packaging/labeling required by Amazon.  (Part of Amazon’s very efficient warehouse operations is their receiving processes, which require specialized packaging and labeling by their suppliers.)  Therefore, you can and should actively seek to become a supplier to Amazon and be part of their supply chain.  They are not loyal, but it is better to participate in their supply chain then see your customers go to Amazon with no benefit.

Operational flexibility

Even as a smaller company, you can be Amazon’s supplier because they require specific packaging and labeling on all shipments inbound to their distribution centers.  Large companies are not set up for these special requirements.  This allows smaller and midsize companies to fill a gap and participate in Amazon’s supply chain.  However, some of the productivity-improving automation that Amazon uses so successfully (I mean robots) can actually be problematic because automation is not flexible.  You need to be able to quickly change your processes, build new processes, relay-out your warehouse or production operations based on changing product mix and Amazon’s requirements.  The key to being part of the Amazon supply chain is flexibility, then low-cost.  We have Clients whose warehouses may look like the 1980s (when scan guns first came out) but they are flexible and will quickly make changes required by customers.


While much of our discussion is focused on distributors and manufacturers we must consider how retailers can adapt and thrive in the Amazon era.  There are strategies around customer service and having a product that brings your customer into your shop.  For example, in the hockey retail business, players will go to the store to get their skates sharpened.  From a product fulfillment perspective retailers must embrace omnichannel, which is a set of processes to ensure a seamless buying experience that moves between the physical world (stores) and virtual world (web site, mobile).  This includes buying online and shipping from the store, buying online and picking-up in the store, buying in-store and shipping from warehouses, buying online and returning to stores and traditional e-commerce (buying online and shipping from warehouses).  In addition, you cannot forget a warehouse’s traditional function of supplying product to replenish store inventory.

Demand forecasting

If you have inventory you have been forecasting.  Many companies forget this simple truth and believe they are not forecasting when they use the average weekly demand of the last 3 months.  Some manufacturing companies using kanban believe forecasting is a push system (the opposite of what they are trying to achieve, pull) but they forget the kanban bin quantity is based on a forecasted demand.  Many distributors try to keep “weeks-on-hand” not thinking about what week they are talking about (hint, it should be future weeks!).  Here is the reality, if you have inventory you are forecasting, and therefore you should do it as accurately as possible.  Because there is no such thing as a 100% accurate forecast, at Supply Velocity we instead seek to minimize forecast error.  This requires the use of multiple forecast algorithms.  The most advanced, which are used by our sister company, Optimal Velocity, include exponential smoothing, regression and machine learning to predict future demand.  If you are forecasting… be great at it.

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“In a time of volatile supply chain disruption, Supply Velocity is helping us develop Demand and Supply Planning processes to proactively tackle these new challenges. They are genuine partners, working with our team, facilitating and teaching.”

Jane Thrasher, Vice President of Supply Chain, Horizon Hobby
“Many thanks to all three Supply Velocity presenters. I think you guys took a very difficult time for learning and capitalized on everyone’s time and training needs. I truly hope this helps your business as this was a considerable undertaking on the part of Supply Velocity. Outstanding!!”
Mark Holdinghausen, VP of Operations, DEMA Engineering
“We are using Supply Velocity’s Lean Six Sigma methods to analyze a variety of processes including rationalizing SKUs (stock-keeping-units). By using math to evaluate SKUs we took some of the emotion out of our decisions. We expect significant increases in sales and productivity from reducing poor performing SKUs.”
Mark Kelso, Director of Process Improvement, Save-A-Lot

“Your process encourages this group to work together, better communicate and have fun doing it.”

George Edinger, President, C&R Mechanical
“C&R was struggling with labor productivity. The construction crews were often missing materials that they needed to do their work. This caused significant idle time. Supply Velocity, Inc. and C&R used value stream mapping and visual management tools to make dramatic improvements in operations. Most importantly, two years later C&R is sustaining and improving on the implementation. C&R’s return on investment was 11:1. C&R had a record year last year in both sales and profits and would not have been able to pull it off without the changes Supply Velocity, Inc. helped us make.”
Tom Kuthe, V.P. Construction Operations, C&R Mechanical
“Our experience with Supply Velocity was one of the best values we have ever had from a consulting project. Cyril Narishkin brought a structured lean methodology, invaluable experience and engaging facilitation skills to help us streamline a very complex and disjointed sales order process. Just as importantly, our team now has the knowledge and process competencies to address other business improvement opportunities going forward.”
Mike Howard, CEO, Aspeq
“We engaged with Supply Velocity to help us embed process improvement at all levels of the business. Our team learned from Mitch to let the data drive decisions, to use Lean tools to help us see our processes critically and objectively, and to create a control plan to manage all of the tasks that were the outcome of the data study.

The project turned out to be very significant to the company and most importantly, our customers. We reduced our customer wait times by 40%, and cut in half the labor cost to fulfill customer orders.

Some results are not able to be measured. However, as a result of this project, we have started to build a Lean mindset and culture, which is part of our strategic mission to save our customers money. Supply Velocity has been a valued partner in this mission.”

Dionne Dumitru, COO, Weekends Only
“In thirty years of hiring consultants, Supply Velocity, Inc. was the first to tell me what they were going to do, set a price they stuck to and substantially exceed my expectations. I have recommended them to friends and acquaintances. They were true partners in assisting with the turnaround of an acquisition we had been struggling with for two years.

Their math-based technology, solid down-to-earth facilitation skills, and positive, patient and enthusiastic attitude combined to make our implementation of Lean a very rewarding experience.

We increased our production by 50% in the first month of implementation and continue to see improvements. Improvements have not only been realized in productivity, but also in quality and morale. We have increased profitability by $2M on flat sales of $10M.

Based on Supply Velocity, Inc.’s integrity and our results, I will continue to refer them to others and utilize them in the future as we expand our company through acquisitions.”

Bill Gilbert, President, Fusion Coatings
“We used Supply Velocity on our Warehouse optimization project. One of the key characteristics of Supply Velocity is that they listened to our requirements and provided a clear path for our Warehouse processes using lean tools and our future sales growth as objectives.”
Haris Tokalic, President, Grand Rock, Inc.

“Supply Velocity created visibility within our Assurance Services Group… visibility of performance, Client-service, employee satisfaction and processing time. Using the Supply Velocity System, Audit Report Cycle time is down over 50%. We are using his strategies to create greater Client loyalty.”

Fred Kostecki, Partner-In-Charge, Assurance Services, Rubin Brown
“We are pleased that Essex selected Supply Velocity, Inc. as our Lean Implementation Partner. At one facility, we have saved over $350,000 in work-in-process inventory, reduced throughput time from 2 weeks to minutes and increased inventory turns 3 to 8 times per year. All these results are in just 6 months. Our return of investment is very high.”
Terry Etter, Vice President of Operations , Essex Medical Systems
“Closure Medical recently completed a major reorganization in order to enhance our ability to rapidly create innovative medical devices. We hired Supply Velocity to help us map out the process and service flows of the new organization that would maximize our product development process (PDP). In four weeks, Supply Velocity helped us envision a new PDP structure, develop measures and accountability for each step, and gain consensus within the organization. Supply Velocity’s focus on speed and accountability helped us complete a critical project in a timely fashion.”
Gabe Szabo, Vice President, Product Development, Closure Medical – A Division of Johnson & Johnson
“In 2015 we began working with Dr. Mitch Millstein to optimize our inventory locations supporting e-commerce and in-store inventory needs. From this work we developed a new omni-channel warehousing and inventory plan that entirely redefined our approach to warehousing, inventory management, store distribution and fulfillment. As a result of the analyses by Dr. Millstein we have begun the move to an improved omni-channel design by reassigning MSAs to new warehouses, greater leveraging of in-store inventories to satisfy e-commerce demands, and exploring acquisitions of new warehousing space in strategic locations. We have already seen an improvement of $300,000 from both more efficient shipping strategies due to better inventory management.”
Rob Bowers, Vice President of Strategy, Total Hockey
“Supply Velocity’s Lean Six Sigma System has given us new tools to help improve our sales performance. We have learned new ways to analyze our business which makes problem solving more accurate and has made us better leaders.”
Rachel Andreasson, Executive Vice President – Marketing, Wallis Companies
“For several years we have worked with Supply Velocity to support us with their expertise on Lean Operations and Supply Chain Management. Supply Velocity has helped us implement Lean, improve our inventory systems, and educate our people. They are professionals who are always available to help us as needed.”
Lorenza Pasetti, CEO, Volpi Foods
“Myerson engaged Supply Velocity, specifically Ray Davis to visit our plant in Trinidad to conduct a two day assessment of our production procedures and provide us feedback on areas for improvement and where applicable, areas for future analysis.

Put simply, we got everything we paid for and in addition to more in depth analysis, we got specific tasks that were immediately actionable. Our local management team found Ray to be engaging, highly credible and insightful based on his wide experience. In other words the cultural differences and lack of specific industry knowledge weren’t impediments to things we could implement immediately and on our own. In a nutshell it was money well spent and will pay itself back many times over.”

Lee Hartwell CPA, Plant Manager, Myerson Tooth
“The role of the Erie Insurance Marketing Department has been evolving over the past several years – from a support role to a more critical role of driving growth in our organization. Because of our increased workload and desire to prioritize the most critical projects, we hired Supply Velocity to teach us the skills of Lean Six Sigma.

Participants included the Promotions, Market Research and Agency Licensing sections of the Marketing Department.

We learned valuable tools to help us to prioritize based on the voice of the customer.

I firmly believe these skills made a difference in how we work every day. We are moving new projects forward, eliminating or changing ineffective processes, and we are a much stronger department. We continue to use the tools to help us with our highly-complex and time-consuming projects. Supply Velocity helped us to accomplish our goals.”

Karen Rugare, Director of Marketing, Erie Insurance

“Supply Velocity gave us the tools to analyze our business and processes based on the facts and numbers versus our perceptions. Our common quote was “Let the numbers lead us”. The key for our organization was how quickly we moved from classroom to actual project initiation. We were able to jump in, start using the tools and see a difference right away.

The get-into-action approach was good for our culture.”

Ned Lane, President, CeeKay Supply

“I am thrilled to provide this testimonial for Supply Velocity and their outstanding work in implementing Lean Warehouses and processes at Crescent Parts & Equipment through the COVID pandemic. With their data-first focus and Mitch’s exceptional coaching and experience, they transformed our business into a more supply chain-oriented organization, enabling us to grow while prioritizing employee safety and creating a better work environment. Supply Velocity’s expertise in Lean methodologies and their comprehensive evaluation of our customers have been instrumental in optimizing our operations and increasing customer satisfaction. We highly recommend Supply Velocity to any company seeking to implement Lean processes and enhance their supply chain efficiency.”

Josh Cole, Director of Supply Chain, Crescent Parts & Equipment
“Isolating a problem, finding short, and long term solutions with measurable results is what was promised and results is what was delivered by Supply Velocity. Upon launch of the Lean Six Sigma Selling System, we knew more about our customers, our products, and were able to create a solid plan to increase sales of our most profitable products. Within months of implementation, our booked sales jumped 60% and our most valued customers were getting direct, active, and calculable attention.”
Mark A. Presker, General Manager, Architectural Millwork of St. Louis
“In the spring of 2003, the St. Louis Area Chapter of the American Red Cross engaged Supply Velocity, Inc. to perform a study and make recommendations to streamline office processes, maximize cash flow in purchasing and warehousing and restructure and enhance our maintenance department. Supply Velocity, Inc.’s process was methodical, flexible, staff-oriented, inclusive and, above all, trackable.

In the last six months, our Chapter has realized expense savings of over $380,000 annually, and significant improvement in intra-company service levels has been attained. Supply Velocity, Inc. will return to the Chapter periodically throughout the next 18 months to audit our newly implemented processes. We have been pleased with our results and Supply Velocity, Inc.’s professionalism.”

Joe White, CEO, American Red Cross – Saint Louis Chapter
“Supply Velocity has provided the technical expertise and political capital to move our project forward. They have just the right amount of push and the right amount of support. Supply Velocity has helped us make real changes to improve efficiencies in logistics without jeopardizing our performance. We’re happy and our customers are happy.”
David Walters, President, Hy-C
“Supply Velocity has helped Clean succeed in a number of ways. First, they provided the education that kicked off our Lean Process Improvement journey. They also facilitated a number of large supply chain and process improvement projects including: 1) building quality into our direct-labor productivity incentive program, 2) designing the layout of our garment warehouse, and 3) streamlining our route service process.

We have integrated the methods that Supply Velocity taught us into our management and strategic planning. In the process our quality measurement has improved 22% from 2013 to 2015, we have reduced required annual labor by 2200 hours from the garment facility layout project and we’ve seen 50% decrease in error rate. Obviously the numbers speak for themselves, but just as important, Supply Velocity has been fun to work and have become true partners. They have “taught us how to fish” so our internal teams are able to implement change on their own, with the skills we learned from Supply Velocity. This relationship has been invaluable.”

Jeff Lazaroff, Senior Vice President, Clean Uniform
“We used Supply Velocity to rethink our sales process. By analyzing the entire process we found wasted time in our Sales, Admin and Operations departments. Streamlining this process created extra time for each Sales Rep, allowing them to spend more time with Customers and increase the value we add. Gross profit margins are up 40%!

We are now using Supply Velocity to help us rethink our entire Strategic Plan.”

Jeff Reitz, Vice President, Central States Bus
“Mitch Millstein and his team helped guide our shop fabrication division in the re-layout of our custom pipe and steel fabrication facility when we moved into a new building. It is not only the results but how he helped. We were involved in every step. I personally did time studies and was able to see the non-value added steps required to manufacture in our old layout. When we created our new layout, everyone was involved, from the executive team to our direct labor force. With Mitch’s help we increased our throughput by a 3x multiple, while providing more competitive prices to our clients as a result of the efficiency improvements.

This has enabled us to not only make more money but also to expand our commercial reach and serve more, and larger customers. I would recommend Supply Velocity to any company that wants to make improvement in supply chain and operations.”

Geoff Gross, President, Gross Mechanical
“Anheuser-Busch Precision Printing had been implementing Lean Operations on our own for the past two years. We needed to move faster and partnered with Supply Velocity, Inc. Through Supply Velocity, Inc.’s mathematical workflow balancing and visual management tools, dramatic improvements were achieved. The entire converting operation was rearranged based on Lean principles. The result is a 20.6% productivity improvement, enabling us to operate with 23 fewer people in production.”
Rich Lavosky, General Manager, Anheuser-Busch Precision Printing
“Supply Velocity is driving instrumental change in our inventory management processes. This is critical for us to be competitive in a supply chain environment with numerous disruptions. They are making change happen, which can be challenging in a 182 year old organization.”
Jim Carroll, Executive Vice President Operations, Schaeffer Manufacturing