In a research report Tuesday, Thomas Weisel analyst Sara D'Eathe said Amazon recently put out a "request for a quote" (RFQ) to a large private outsourcing fulfillment, customer care and customer call centre. She declined to name the company.
The RFQ is an invitation for a company to provide outsourcing services to Amazon, said D'Eathe. Connecting the dots, she speculated that Amazon's reaching out to outsourcing firms may imply that the e-tailer "does not believe it can be efficient at fulfillment itself."
"Amazon is seeking new avenues to improve the economics of its business, in our opinion," D'Eathe said. "However, this is of course contrary to what Amazon is leading people to believe."
When a company outsources, it often sheds workers and facilities. It's not clear whether Amazon would be outsourcing its fulfillment, customer service or both, but farming out some key functions would cut costs. Amazon has about 3,500 workers and has faced unionisation efforts at the Seattle service centre, where workers make between US$11 and $14 an hour.
Amazon already outsources some of its US business, including call centre operations and fulfillment for certain products, a spokeswoman said. For instance, another company handles shipments of wireless products so it can pre-program cell phones before shipping them. Amazon also outsources fulfillment at its Japanese operations.
Although D'Eathe said she doesn't know the magnitude of Amazon's outsourcing plans, many Wall Street analysts said they would cheer the business model shift--even though the payoff may not be immediate. Amazon, which reports first-quarter earnings April 24, spent millions on distribution centres in 2000 in an effort to be an all-encompassing online department store. D'Eathe said she would "encourage the company to change its current business strategy so that it is more consistent with profitability."
If Amazon does outsource much of its fulfillment, it would mark a dramatic change from the company's previous goals. Bolstered by a strong 1999 holiday season, Amazon acquired more than 4.5 million square feet of warehouse space worldwide by the end of 2000. Despite its efforts to offer everything from its core books, music and videos to patio furniture, the company is using only 40 percent of its warehouse space.
"If my back was against the wall, I'd be looking to outsourcing to cut costs," said Wit SoundView analyst Scott Milne.
