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Jim Tompkins (2013): What is the Amazon Effect?

from his blog Tompkins International

Jim Tompkins, founder and CEO of Tompkins International, is a long-time supply chain guy. And guess what? Jeff Bezos, CEO and founder of Amazon, is a supply chain guy too. He has to be, because business is now at a critical X-Roads in demand-driven supply chain and customer satisfaction.

Amazon has invented – and is continuously refining – new ways to connect customers with solutions. They are your biggest competitor. Watch the video:

“For many businesses, Amazon is simultaneously a sales channel, a potential service provider, and a competitive threat.”– Forrester Research

In this video you will learn about these topics:

  1. What is the Amazon Effect?
  2. Which Amazon? Products and Services
  3. The Magic of Amazon Prime
  4. Amazon Network & Two-Day / Same-Day Delivery
  5. What Can We Expect from the Amazon Brick-and-Mortar Store?

You know that Amazon is exploding in the online retail world. Odds are that you’ve recently ordered something from their website. But did you know that they are also your company’s biggest competitor, regardless of the products you sell or your industry?

Today, we want to help you understand more about your supply chain by understanding more about theAmazon Effect. This huge and mysterious Amazon Effect is about to get even closer to your customer base because the online retailer is planning to open its first brick-and-mortar store.

“Amazon is a black box… It’s difficult to discern any of the company’s essential goals.”– TIME Magazine

What in the world will this new Amazon store look like?

Jim Tompkins has some expert insight into the store’s likely features and how you can compete with Bezos’ expansion plans. Tompkins predicts that between now and holiday season of 2013, both in-store and online retailers have major decisions to make that will result in either success or bankruptcy.

“We are willing to be misunderstood for long periods of time.”– Amazon CEO Jeff Bezos

The traditional thinking around customer satisfaction, distribution networks and operations is obsolete given the X-Roads that we sit at today with the Amazon Effect.  We can talk about multichannel, omnichannel and every other buzz word – but at the end of the day, it’s really about price, selection, convenience and experience.

Learn how to compete with Amazon, and you will survive Business at a X-Roads.

Want to learn more? Read expert opinion and view an illustration on what an Amazon brick-and-mortar store will look like.

The Amazon Store: What Will It Look Like?

It seems like Amazon announces a new product or service every week, and its growth shows no signs of stopping. For example, its dedicated business-to-business website,AmazonSupply, offers price, selection and delivery options that make it a big competitor for industrial distributors.

Amazon’s future plans, both short-term and long-term, are typically hidden from view. While business leaders, news analysts, and social media channels are all watching Amazon to solve the mystery of how fast its growing or what new markets it is getting into, a topic of major speculation is how an Amazon brick-and-mortar store looks, and how it will perform.

When you think about what an Amazon store looks like, the size of the store is the first thing that comes to mind. With the millions and millions of SKUs Amazon has, wouldn’t an Amazon store have to be about the size of the state of Vermont? But of course, that’s impossible; nor will it be bigger than the world’s largest Wal-Mart.

Instead of focusing on size, consider the Amazon culture and compare it to other popular ones: Starbucks comes to mind. Then think of the Apple stores, where they have the Genius Bar for in-store customer support and service, and the devices right there for you to try.

Put these two concepts together, then think about how Amazon is customer-focused. Amazon CEO Jeff Bezos said so himself: “Do not be competitor-focused. Be customer-focused.” What do customers want? Price, selection, convenience, and experience. When you add all these together, what do you get?

A Tour of the Amazon Brick-and-Mortar Store

“We see customers as invited guests to a party, and we are the hosts. It’s our job every day to make every important aspect of the customer experience a little bit better.”– Amazon CEO Jeff Bezos

The Amazon store is three-stories tall, and it’s open 24/7. On the first floor, in the center, you will see the coffee bar, with lockers in the back where you can pick up the items you ordered online. That is actually the extent of product in the store – items customers have already ordered, waiting to be picked up.

Customer service agents will be positioned on the left side of this first floor, who can tell you how to use all the Amazon products and services. Then on the right side of this floor you can find all the Amazon-related electronics, like the Kindle.

Take a trip up to the second floor. Here you will find all of Amazon’s product offerings from the various other sites they own: For example, Abe Books, which is Amazon’s rare book offerings. There will be local offers, similar to Groupon, on this floor. You can also find all the Amazon Wireless-related cell phone services.

The second floor is going to be fun place to hang out with your friends. Products won’t be there, but there will be displays and employees to tell you how to use the site to order a product and help you get a good deal. This floor is where you find merchants like Zappos for shoes, MyHabit for designer-label fashion… the list goes on and on. Here is a sampling.

  • AmazonPrime
  • Shopbop
  • Audible
  • Soap.com
  • BeautyBar.com
  • Wag.com
  • Book Depository
  • Whs. Deals
  • CreateSpace
  • Woot
  • Diapers.com
  • YoYo.com

The third and final floor will help you navigate all of Amazon’s many service offerings. Experts will be on hand to help you build a website hosted by Amazon, get you set up with display ads posted by Amazon, track your web site’s hits, and services to help you take credit card payments from customers on your site. They can help you with fulfillment of orders, store your data in the cloud, and many other business applications.

Since its early days, Amazon has developed many innovations in online convenience, including one-click check-out and advanced search and recommendation functions, as well as Amazon Prime. When they apply that innovation to a brick-and-mortar store, and add customer experience to their customer-pleasing good prices, convenience, and selection, businesses in any industry need to be prepared to respond.

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George Anders (2012) : Inside Amazon’s Idea Machine: How Bezos Decodes The Customer. In: Forbes Magazine, Issue April 23rd, 2012

This story appears in the April 23rd, 2012 issue of FORBES magazine.


A few months ago Amazon reached what its founder and CEO Jeff Bezosdemurely tells me was “an interesting milestone.” The retailing giant, so ubiquitously associated with books, then music and video, now has tens of millions of products in stock—and a majority are nonmedia goods: drills, dress shoes, tennis rackets and almost anything else that a human can ship. Adults may still mentally link Amazon with Barnes & Noble, but to teenage customers, Amazon is now synonymous with store.

Forbes Special Feature: America’s Best And Worst CEOs
Jeff Bezos’ Top Ten Leadership Lessons

That turning point might be Bezos’ greatest accomplishment. In officially transforming Amazon from an online bookstore that sells other stuff to a retailer—and business ser­vices provider—that once sold mostly books, he has taken one of the original Internet bonanzas and created a success story all over again. Its stock is up 397% in the last five

With a net worth of some $19 billion, the 48-year-old is one of the 30 richest men in the world. Yet he still dashes around Amazon with the intensity of a startup boss trying to make his first payroll, as well as the glee of a teenager discovering all the fun you can have at overnight camp. “I’m a legitimately happy person,” Bezos explains on a recent, rainy Friday morning at Amazon’s Seattle headquarters. “My wife says: ‘If Jeff is unhappy, just wait five minutes.’”

What’s not to be happy about? He’s the number one CEO in America. The passing of Steve Jobs has left him, without question, as the corporate chief that others most want to meet, emulate and deify. And his primacy can be proven with numbers: FORBES’ ranking of top CEOs—using a bang-for-the-buck methodology that factors in sustained performance, modest compensation and the ability to pull ahead of one’s peers—has Bezos comfortably in the top spot. Indeed, he’s in the highest 5% in every single metric.

Across numerous e-mail back-and-forths and face-to-face questions with Bezos, I’ve come to understand why. More than a century ago another legendary retailer, Chicago’s Marshall Field, championed the fatalist’s slogan: “The customer is always right.” Bezos, perhaps more than anyone, has taken that mantra into the digital era, incrementally cracking one of the business’s great mysteries: figuring what customers want before the cash register rings and then making those insights pay off. In an era when high-flying tech companies outdo each other with worker perks, no-frills Bezos is proving the potency of another model: coddling his 164 million customers, not his 56,000 employees.

Jeff Bezos’ managers at Amazon find him formidable enough. But the figure that overwhelms their lives goes by the internal nickname “the empty chair.” Bezos periodically leaves one seat open at a conference table and informs all attendees that they should consider that seat occupied by their customer, “the most important person in the room.”

If the empty chair is the ultimate boss at Amazon, then Bezos is its billionaire enforcer, the guardian of what he calls the “culture of metrics” that tries to give that inanimate object a loud, clear voice. Amazon tracks its performance against about 500 measurable goals. Nearly 80% relate to customer objectives. Some Amazonians try to reduce out-of-stock merchandise. Others race to build a bigger library of downloadable movies. Intricate algorithms turn one group of shoppers’ past habits into custom recommendations for new customers. Hourly bestseller lists identify what’s hot. Weekly reviews keep track of who is on course—and where corrective attention is needed.

Amazon is so confident of its ability to personalize the site for each user that the company hardly ever creates classic customer-segment personas, such as “soccer moms” or “gearheads.” Such marketing standbys are too imprecise for Team Bezos.

Feisty debates over what metrics to watch are Amazon’s way of life. “There’s an incredible amount of challenging the other person,” says Manfred Bluemel, a former senior market researcher atAmazon. “You want to have absolute certainty about what you are saying. If you can stand a barrage of questions, then you have picked the right metric. But you had better have your stuff together. The best number wins.”

Bezos is even stricter about what customers don’t want. They hate delays, defects and out-of-stock products, so the metrics patrol at Amazon constantly tracks such numbers, looking to make them as rare as possible. Even the tiniest delay in loading a Web page isn’t trivial. Amazon has metrics showing that a 0.1 second delay in page rendering can translate into a 1% drop in customer activity.

Former executives all have stories about Bezos’ obsessive focus on the customer. Simon Murdoch, the former head of Amazon’s British operations, remembers offering customers in the U.K. next-day delivery if their order was in by 4 p.m.; Bezos personally hammered him to extend that delivery window to 6 p.m., 7 p.m. and later, even if it meant radical changes in warehouse hours. (Today Amazon offers same-day delivery for much of Britain and ten U.S. cities if the order gets in that morning.) Another one-time insider remembers a relentless push for sturdier-than-usual cardboard so customers could reuse its boxes for other shipments or presents, creating goodwill and putting Amazon’s name in front of a second set of potential customers.

Bezos’ zealous protection has paid off. Each year the University of Michigan calculates a customer-satisfaction index for 225 of America’s largest companies. Amazon has led the online retailing category for years and has repeatedly placed in the top 10 among all companies. Currently only Heinz,Clorox, Apple and three car brands topped Amazon.

But great customer service doesn’t fully explain Amazon’s extraordinary success. Other high-touch online retailers can’t match the $48 billion in sales Amazon did last year. Meanwhile, traditional retailers like Target and Costco play up customer service too—yet their combined market capitalization trails Amazon’s $98 billion.

For Bezos a data-driven customer focus lets him take risks to innovate, secure in the belief that he’s doing the right thing. “We are comfortable planting seeds and waiting for them to grow into trees,” says Bezos. “We don’t focus on the optics of the next quarter; we focus on what is going to be good for customers. I think this aspect of our culture is rare.”

 

Amazon CEO Jeff Bezos introduces the Kindle Fi...Amazon CEO Jeff Bezos introduces the Kindle Fire tablet in New York, September 28, 2011.

That kind of thinking has transformed Amazon. After wild swings associated with the dot-com boom and crash, Amazon’s performance was essentially flat between mid-2003 and early 2007, in lockstep with the industries it was associated with: books, music and the like. Then Amazon took off afresh, as investors realized that Bezos had been quietly building a multitude of new growth engines inside his company. All were rooted in the same theory: If Amazon lets customers set the specs, it could conquer any number of consumer products and services. Bezos also decided to court business customers (and freak out his own engineers) by turning Amazon’s internal software architecture inside out and selling access to it. The boss’ new diktat upended Amazon’s approach to tasks ranging from quality assurance to interteam communication.

In 2006 he launched Amazon Web Services as a standalone business. It rang up an estimated $1 billion in revenue last year, with $2 billion in its sights, thanks to an even faster growth rate than Amazon’s main storefront. It serves customers ranging from NASA to Netflix with dozens of cheap, on-demand computer services via the “cloud.” During the Cassini space probe’s exploration of Saturn, raw data for 180,000 photos were processed on Amazon’s computers within five hours, at a cost of less than $200, says Tomas Soderstrom of NASA’s Jet Propulsion Lab. Doing the job in-house could have taken 15 days, he says.

Last October’s launch of the Kindle Fire, a computing tablet that can play music and videos, has again hurt short-term profitability. Amazon’s selling price of $199 doesn’t appear to cover costs. Bezos isn’t perturbed. He calls the Fire “the most successful product we’ve ever launched.” To him the bullish case for the Fire is obvious. If it induces owners to buy more from Amazon, the costs of spreading these tablets globally will be well worth it.

This renewed Amazon is basically a personal manifestation of Bezos, who is equal parts quant and dreamer. Growing up in Houston and Miami, Bezos never paused for a traditional retailer’s apprenticeship—i.e., selling things. Rather, he crunched numbers, once proudly telling his grandmother that he had calculated how much her cigarette habit was shortening her life. He went to Princeton to study physics and ended up in computer science, which led to a brief, lucrative career on Wall Street.

The dreamer side of Bezos wants to be at the frontier. His teenage hope was to become an astronaut, and he pushed himself to be high-school valedictorian to improve his chances. He spent summers as a teenager on his grandfather’s 25,000-acre ranch in Texas, fixing machines, working with cattle and learning about self-reliance.

 

Stumped candidates will find their path into Amazon slipping away. Those who cobble together guerrilla answers—informal polls through free online tools such as SurveyMonkey—tend to thrive at Amazon. They are the same people who might have challenged Bezos in math class and also succeeded on Grandpa’s ranch.

Efficiency—cheapness, in the eyes of Amazon’s detractors—is as much a part of the Amazon culture as the empty chair. In fact, Bezos links the two. In his 2009 letter to shareholders, Bezos declared that Amazon had begun waging war on muda, the Japanese word for waste. The more he could get rid of needless costs, the easier it would be to deliver rock-bottom prices to customers. This crusade, he wrote, was “incredibly energizing.”

During interviews for this story Bezos cited Amazon’s recent success in improving its warehouse usage 23%, “recapturing 6 million square feet of underutilized space.” He also takes pride in Amazon’s work to presort packages for carriers such as FedEx, so shipments aren’t delayed by the carriers’ need to carry out further “sortation.”

The company’s executives feel the pinch. Bezos keeps an eerily tight rein on expenses, eschewing color printers in favor of trusty old black-and-white models. No one flies first class (though Bezos sometimes rents private jets at his own expense). Experiments are hatched and managed by the smallest teams possible; if it takes more than two pizzas to feed a work group, Bezos once observed, then the team is too big. Offices still get cheap desks made of particleboard door blanks, a 1990s holdover that Bezos refuses to change.

Managers may grumble, but they learn to bring sandpaper to work so their merino sweaters don’t get shredded by splinters. None of the company’s five top officers earns more than $175,000 in cash a year. Bezos last year took $81,840 in salary and hasn’t had a raise since 1998. He has raised at least $750 million since 2010 by selling Amazon shares, but that’s how you make your money at his company. Stock and options are the big honeypots; many on the leadership team have $20 million or more in unvested shares.

This mind-set is an outlier in an industry that views talent as a delicate asset in need of constant pampering; in Silicon Valley perks like free on-site massages are as rote as a pot of coffee in the kitchen area. At Glassdoor.com, where current and former employees rate their companies as a place to work, Amazon generates a middling 3.1 out of 5, putting it somewhere between Delta Airlines (3.2) and Burger King (3.0).

Steve Yegge, a Google employee and former Amazon engineer, chronicled his frustrations last October in a 4,500-word Internet posting that has attracted more than 100,000 readers. He complained about the decor at Amazon, the hiring policies, the pay and the need to do grungy tasks at times. He portrayed his former boss as Dread Pirate Bezos, who issues mandates that cause people to “scramble like ants being pounded with a rubber mallet.”

Yet Yegge also saluted Bezos’ ability to push massive changes through the organization, in particular the initiatives that led to Amazon Web Services. Those small two-pizza-or-less innovation teams are nimble, and because they’re cost-effective, Bezos can deploy dozens. Even Google hasn’t been able to react so quickly with its own Web services, Yegge added. That comparison alarmed him, because Yegge had quit lean-and-mean Amazon years earlier in favor of opulent Google, where free shuttle buses with Wi-Fi whisk employees to their jobs.

Amazon, started in a garage and nurtured in a rundown stretch of Seattle waterfront, is now settling into its fifth headquarters, in Seattle’s elegantly rehabbed South Lake Union district. The company’s new campus consists of nearly a dozen shiny glass and steel buildings, complete with courtyards, cafes, restaurants and a little bit of public artwork on display.

Jeff Bezos should be there a long time. He just turned 48 in January and could easily run Amazon another two decades. That’s good for stability. It could be a challenge in terms of retaining other executives with aspirations of becoming a CEO. Bezos says he knows when to avoid meddling so that his project leaders can find their own paths. Yet it’s congenitally hard for founders to be hands-off for long—an effort to bring in a chief operating officer to work directly under Bezos didn’t work out a decade ago.

How much power can Bezos share when the customer, as channeled by Amazon’s founder, calls all the shots? Rather than kibbitz with a number two, Bezos actually reads over-the-transom e-mail, which most CEOs regard as unbearable clutter. He scanned customer notes avidly when Amazon was tiny, and he hasn’t shaken the habit. Dozens of times a year, unsolicited suggestions turn into feature improvements. Even angry e-mails are “fantastic if you want customers to be honest,” Bezos says.

Then there’s the fan mail. Asked about customer e-mails that have become his favorites, Bezos forwarded to FORBES a note from a woman recounting how Amazon has touched her life over the past 12 years. First she bought books and compact discs when she was in her late 20s. Then she spent $79 a year to qualify for free shipping as part of the Amazon Prime program for heavy users.

Now, she writes, Amazon is “helping me choose a mattress and a crib for my son.” Instead of being overwhelmed by all the shopping associated with pregnancy and the arrival of a child, she feels in control. She concludes by writing: “Thank you so much for making my life simpler and easier. … They say it takes a village, but, in this case, all a mom needs is Amazon, her Amex and an iPhone.”

That last need, ironically, seems to be Amazon’s next target: smartphones. Lab 126, Amazon’s Silicon Valley unit where the Kindle was developed, has been hiring flurries of mobile-technology engineers the past two years. Amazon hasn’t confirmed anything, but it hasn’t made much of an ­effort to swat down speculation. If Amazon does storm the lush smartphone market, it will do so with valuable strengths such as customers’ physical addresses, purchasing histories across a broad array of categories and credit card data. Even Apple can’t claim all of those.

In the short term Bezos will continue to attack muda. Last month Amazon bought Kiva Systems, a maker of small robots that whiz goods to the right spots within a warehouse, for $775 million. Kiva “could speed the cycle time inside our fulfillment centers,” Bezos says. Owning Kiva gives Amazon first crack at its technology, which means “getting products to customers even more quickly.”

In some ways this is the area Bezos least needs to worry about: Last December he was “very proud” that Amazon was able to make good 99.99% of the time on its promises to get packages to customers before Christmas. No small feat (just ask Best Buy). To Bezos, though, this also means they came up short one time in 10,000. “We’re not satisfied until it’s 100%.”

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Sarah O’Connor: Amazon Unpacked (2013) in FT Magazine, Edition February 8th, 2013

By Sarah O’Connor

The online giant is creating thousands of UK jobs, so why are some employees less than happy?
Amazon's warehouse in Rugeley, Staffs, looks like huge blue box. It is the size of nine football pitchesAmazon’s warehouse in Rugeley, Staffs, looks like huge blue box. It is the size of nine football pitches

Between a sooty power station and a brown canal on the edge of a small English town, there is a building that seems as if it should be somewhere else. An enormous long blue box, it looks like a smear of summer sky on the damp industrial landscape.

Inside, hundreds of people in orange vests are pushing trolleys around a space the size of nine football pitches, glancing down at the screens of their handheld satnav computers for directions on where to walk next and what to pick up when they get there. They do not dawdle – the devices in their hands are also measuring their productivity in real time. They might each walk between seven and 15 miles today. It is almost Christmas and the people working in this building, together with those in seven others like it across the country, are dispatching a truck filled with parcels every three minutes or so. Before they can go home at the end of their eight-hour shift, or go to the canteen for their 30-minute break, they must walk through a set of airport-style security scanners to prove they are not stealing anything. They also walk past a life-sized cardboard image of a cheery blonde woman in an orange vest. “This is the best job I have ever had!” says a speech bubble near her head.

If you could slice the world in half right here, you could read the history of this town called Rugeley in the layers. Below the ground are the shafts and tunnels of the coal mine that fed the power station and was once the local economy’s beating heart. Above the ground are the trolleys and computers of Amazon, the global online retailer that has taken its place.

As online shopping explodes in Britain, helping to push traditional retailers such as HMV out of business, more and more jobs are moving from high-street shops into warehouses like this one. Under pressure from politicians and the public over its tax arrangements, Amazon has tried to stress how many jobs it is creating across the country at a time of economic malaise. The undisputed behemoth of the online retail world has invested more than £1bn in its UK operations and announced last year that it would open another three warehouses over the next two years and create 2,000 more permanent jobs. Amazon even had a quote from David Cameron, the prime minister, in its September press release. “This is great news, not only for those individuals who will find work, but for the UK economy,” he said.

People in Rugeley, Staffordshire, felt exactly the same way in the summer of 2011 when they heard Amazon was going to occupy the empty blue warehouse on the site of the old coal mine. It seemed like this was the town’s chance to reinvent itself after decades of economic decline. But as they have had a taste of its “jobs of the future”, their excitement has died down. Most people are still glad Amazon has come, believing that any sort of work is better than no work at all, but many have been taken aback by the conditions and bitterly disappointed by the insecurity of much of the employment on offer.

If anyone should still be a cheerleader for Amazon, which has created hundreds of jobs in the past 18 months in a community that sorely needs them, it is Glenn Watson, manager of economic development at the district council. But he is dismayed. “They’re not seen as a good employer. It’s not helpful to our economy; it’s not helpful to the individuals,” he says. Britain’s economic transformation is playing out in miniature in this smoky little town. It hasn’t been a smooth ride.

Amazon warehouse in Rugeley

Like almost everyone without a job in Rugeley, a mostly white working-class town of about 22,000, Chris Martin started scouring the internet for application details as soon as he heard Amazon was coming. Local politicians rushed out jubilant press releases. “It’s absolutely fantastic news for Rugeley,” the release from Aidan Burley, the area’s member of parliament, said. “People are crying out to get back into work.”

Rugeley had never fully recovered from the mine’s closure in 1990, and the local economy was further depleted by Britain’s deep recession of 2008-09. Chris Martin moved there in 2007 to be with his partner. “She led me a merry story, saying, ‘Oh you should walk into a job,’ but there’s no jobs down here,” he said ruefully. The 54 year-old found a night job filling shelves in the Morrison’s supermarket for a while, but it didn’t last. It didn’t help that he was a relative newcomer in this close-knit community, where job opportunities often spread by word of mouth. “Nearly everybody knows everybody else. If you come from outside it’s like walking into a bar in a western,” he said. “Everyone stares.”

So Martin was thrilled when he passed the Amazon recruitment process, which includes drug and alcohol tests, and was given a job on the night shift. A global employment agency called Randstad, which had handled the recruitment process for Amazon, was also to arrange his shifts, manage him on the warehouse floor and pay him his near-minimum wage. After three months, if he had performed well, he could apply to be an Amazon employee, though there was no guarantee he would succeed. Randstad calls this sort of system “Inhouse Services” and describes it as a “flexible work solution designed exclusively for each client to optimise the work force and drive cost effectiveness”. One of the benefits for clients, it says on its website, is the “removal of the administrative burden of recruiting and managing large numbers of staff”.

There was an electric atmosphere in the big blue warehouse that autumn as the operation geared up for the first time. “At the start it was buzzing,” said a member of the Amazon management team at the site, who did not want to be named. “Brothers, sisters, neighbours, everyone was just so pleased to have jobs. Everything was new.”

Workers in Amazon’s warehouses – or “associates in Amazon’s fulfilment centres” as the company would put it – are divided into four main groups. There are the people on the “receive lines” and the “pack lines”: they either unpack, check and scan every product arriving from around the world, or they pack up customers’ orders at the other end of the process. Another group stows away suppliers’ products somewhere in the warehouse. They put things wherever there’s a free space – in Rugeley, there are inflatable palm trees next to milk frothers and protein powder next to kettles. Only Amazon’s vast computer brain knows where everything is, because the workers use their handheld computers to scan both the item they are stowing away and a barcode on the spot on the shelf where they put it.

The last group, the “pickers”, push trolleys around and pick out customers’ orders from the aisles. Amazon’s software calculates the most efficient walking route to collect all the items to fill a trolley, and then simply directs the worker from one shelf space to the next via instructions on the screen of the handheld satnav device. Even with these efficient routes, there’s a lot of walking. One of the new Rugeley “pickers” lost almost half a stone in his first three shifts. “You’re sort of like a robot, but in human form,” said the Amazon manager. “It’s human automation, if you like.” Amazon recently bought a robot company, but says it still expects to keep plenty of humans around because they are so much better at coping with the vast array of differently shaped products the company sells.

  • The Amazon fulfilment centre and Rugeley Power Station
    Alongside the local power station, Amazon’s fulfilment centre at Rugeley, Staffordshire, dominates the view from the town’s housing estates

  • Rugeley Power Station and the Amazon fulfilment centre
    The warehouse sits between the power station’s cooling towers and a brown canal on the edge of the town

The unassuming efficiency of these warehouses is what enables Amazon to put parcels on customers’ doorsteps so quickly, even when it is receiving 35 orders a second. Every warehouse has its own “continuous improvement manager” who uses “kaizen” techniques pioneered by Japanese car company Toyota to improve prod­uctivity. Marc Onetto, the senior vice-president of worldwide operations, told a business school class at the University of Virginia a few years ago: “We use a bunch of Japanese guys, they are not consultants, they are insultants, they are really not nice … They’re samurais, the real last samurais, the guys from the Toyota plants.”

In Rugeley, the person with the kaizen job is a friendly, bald man called Matt Pedersen, who has a “black belt” in “Six Sigma”, the Motorola-developed method of operational improvement, most famously embraced by Jack Welch at General Electric. Every day, the managers in Rugeley take a “genba walk”, which roughly means “go to the place” in Japanese, Pedersen says as he accompanies the FT on a tour of the warehouse. “We go to the associates and find out what’s stopping them from performing today, how we can make their day better.” Some people also patrol the warehouse pushing tall little desks on wheels with laptops on them – they are “mobile problem solvers” looking for any hitches that could be slowing down the operation.

. . .

What did the people of Rugeley make of all this? For many, it has been a culture shock. “The feedback we’re getting is it’s like being in a slave camp,” said Brian Garner, the dapper chairman of the Lea Hall Miners Welfare Centre and Social Club, still a popular drinking spot.

One of the first complaints to spread through the town was that employees were getting blisters from the safety boots some were given to wear, which workers said were either too cheap or the wrong sizes. One former shop-floor manager, who did not want to be named, said he always told new workers to smear their bare feet with Vaseline. “Then put your socks on and your boots on, because I know for a fact these boots are going to rub and cause blisters and sores.”

Amazon workers in Rugeley process ordersAmazon workers in Rugeley process orders

Others found the pressure intense. Several former workers said the handheld computers, which look like clunky scientific calculators with handles and big screens, gave them a real-time indication of whether they were running behind or ahead of their target and by how much. Managers could also send text messages to these devices to tell workers to speed up, they said. “People were constantly warned about talking to one another by the management, who were keen to eliminate any form of time-wasting,” one former worker added.

In a statement, Amazon said: “Some of the positions in our fulfilment centres are indeed physically demanding, and some associates may log between seven and 15 miles walking per shift. We are clear about this in our job postings and during the screening process and, in fact, many associates seek these positions as they enjoy the active nature of the work. Like most companies, we have performance expectations for every Amazon employee – managers, software developers, site merchandisers and fulfilment centre associates – and we measure actual performance against those expectations.”

The former shop-floor manager and another worker described a strict “three strikes and release” discipline system – “release” being a euphemism for getting sacked. In the early days, people were “released” frequently and with little warning or explanation, workers said. A very large number were laid off after the first busy Christmas period, some of whom had assumed their jobs would be permanent. Chris Martin says his job lasted less than a week after he took a day off for blisters and returned to find the night shift he was on had been abruptly cancelled.

It is this job insecurity that has most disappointed Glenn Watson at the district council. “Our definition of a good employer is someone who takes on people and provides them with sustainable employment week in week out, not somebody who takes on workers one week and gets rid of them the next,” he said. The council had understood Amazon would use the first 12 months to gradually build up its own workforce, transferring agency staff on to its payroll, but by last autumn Watson thought there were still only about 200 Amazon employees, with the rest of the workers supplied by Randstad and two smaller agencies. One young man strolling out of the warehouse last September said he was still an agency worker, even though he had been there since the site opened.

Watson said Amazon was supposed to send the council employment data every six months, but it had not done so. “We had no idea Amazon were going to be as indifferent to these issues as they have been, it’s come as a shock to us how intransigent they are,” he said.

Inside the warehouse, Amazon employees wear blue badges and the workers supplied by the agencies wear green badges. In the most basic roles they perform the same tasks as each other for the same pay of £6.20 an hour or so (the minimum adult wage is £6.19), but the Amazon workers also receive a pension and shares. A former agency worker said the prospect of winning a blue badge, “like a carrot, was dangled constantly in front of us by management in return for meeting shift targets”. Amazon’s Darwinian culture comes from the top. Jeff Bezos, its chief executive, told Forbes magazine last year (when it named him “number one CEO in America”): “Our culture is friendly and intense, but if push comes to shove, we’ll settle for intense.”

A motivational poster at the Amazon depotA motivational poster at the Amazon depot

Chris Forde, a professor of employment studies at Leeds university, says arrangements such as Randstad’s with Amazon are becoming increasingly common in Britain. He has encountered situations in which workers on these sorts of contracts make up 90 per cent of a company’s workforce in sectors such as car manufacturing, food processing, hotels and restaurants. “The message [from the agencies] is we are a key intermediary and we can help people back into work, but I think the danger with these big contracts, which are now the bread and butter of most big agencies, is that people just get stuck in these jobs.” Across Britain, the number of people in temporary jobs has swelled 20 per cent since the financial crisis hit in 2008, and the proportion of that group who say they cannot find permanent jobs has increased from 26 per cent to 40 per cent.

Amazon said it employed “hundreds of permanent and temporary associates” at Rugeley and had recently given a further 200 permanent jobs to temporary workers there. It said it was proud of giving its “associates” a “great working environment”, including on-the-job training, opportunities for career progression, competitive wages, performance-related pay, stock grants, healthcare, a pension plan, life assurance, income protection and an employee discount. It added: “In order to ensure that we are providing our customers [with] the highest level of service, we do take on temporary associates during periods of high demand. When we have permanent positions available, we look to the top performing temporary associates to fill them.”

The total size of Amazon’s workforce in the UK is hard to pin down and it changes dramatically depending on the time of year. Late last year, an Amazon official told a parliamentary committee the company employed about 15,000 people. In October last year, Amazon issued a press release saying it was about to take on 10,000 temporary workers to deal with the Christmas rush. In the company’s 2011 UK accounts, it said its average number of employees was 3,023.

Download Barney Jopson’s startling account of the hidden influence and boundless ambition of Amazon, overlord of a mini-economy that goes well beyond online shoppers

Ransdtad said it supplied a number of clients with “onsite-flexible workforce solutions”. It added: “The number of workers required by these clients fluctuates in response to supply and demand. When demand for clients’ products or services is high (for example during the Christmas period) the Randstad partnership allows local people to benefit from short-term work on a temporary contract, to help supplement our clients’ permanent workforce and deliver against order requirements.”

Certainly, not everyone in Rugeley is upset about Amazon. A group of workers having a pint on a picnic table outside The Colliers pub near the warehouse gates said they liked their jobs, albeit as their managers hovered nervously in the background. One young agency worker said he was earning about £220 a week, compared with the £54 he had been receiving in jobless benefits. He had bought a car and moved out of his mum’s house and into a rented flat with his girlfriend, who he had met at work. “I’m doing pretty well for myself,” he said with a shy grin. “There’s always opportunities to improve yourself there.” Across the table, an older man, wagging two fingers with a cigarette pinched between them, said slowly: “It gives you your pride back, that’s what it gives you. Your pride back.”

Many in the town, however, have mixed feelings. They are grateful for the jobs Amazon has created but they are also sad and angry about the quality of them. Timothy Jones, a barrister and parish councillor, summed up the mood. “I very much want them to stay, but equally I would like some of the worst employment practices to end.”

For Watson, the big question is whether these new jobs can support sustainable economic growth. In Rugeley, it is hard not to look back to the coal mine for an example of how one big employer could transform a place.

The Lea Hall Colliery opened officially on a soggy Tuesday in July 1960. Miners and their families huddled under marquees to eat their packed lunches and when the first coal was wound to the surface, three bands played an overture specially written for the occasion. It was the first mine planned and sunk by the Coal Board, the body set up after the second world war to run Britain’s newly nationalised coal industry, and the Central Electricity Generating Board was building a coal-fired power station right next door. It was a defiant demonstration of confidence in coal at a time of increasing competition from oil. “King Coal is not yet dead, as many would have it, but is going to be with us for many years to come,” the regional secretary of the National Union of Mineworkers told the crowd.

From top: former Rugeley miners today; miners in the now-closed pit in April 1971From top: former Rugeley miners today; miners in the now-closed pit in April 1971. Courtesy of Lea Hall Colliery In Words & Pictures by Alex Smith

Soon, miners from all over the country were swarming to the modern new mine. The Coal Board and the local council built housing estates and schools to cope with the exploding population. “Peartree estate was built for the Geordies, the Springfield estate was built for the Scots and the Welsh,” remembered Brian Garner, who helped to build the mine when he was 16. “It was unbelievable, it was buzzing in the town, there was that much money about then. I could leave my job at 10 o’clock in the morning and start at five past 10 on another.” On Friday and Saturday nights, the queue outside the Lea Hall Miners’ Welfare Centre and Social Club would wrap right around the building.

Rugeley’s mine was soon the most productive in the country. It was a “young man’s pit” with all the latest machines and techniques, says Ken Edwards, who started there at 25 as an electrician. The work was still dirty and dangerous, though. In 1972, a local reporter took a tour. “All is silent except for the movement of conveyor belts which carry the coal and the murmur of the air pumps. The blackness is relieved only by narrow shafts of light coming from each person’s headlamp,” she wrote. It took her two days to remove the black dust from her nails, ears, nose and hair.

The good times didn’t last. By the time the pit closed, four days before Christmas in 1990, a spokesman for British Coal told Reuters it was losing £300,000 a week. More than 800 people lost jobs that paid the equivalent of between £380 and £900 a week in today’s money. The town council’s chairman tried desperately to say something reassuring. “It has come as such a shock,” he told the local paper. “[But] we have got to do what many have done and look for new areas, particularly information technology and high technology. We have a lot of expertise and a wonderful geographical spot. There’s no reason why it should be the end for Rugeley.”

From behind her desk in Vision estate agents, all purple paint and fairy lights, Dawn Goodwin sucks the air in through her teeth at the mention of Amazon. “We all thought it was going to be the making of the town,” she says. She expected an influx of people, including well-to-do managers, looking to buy or rent houses. But she hasn’t had any extra business at all. People are cautious because they don’t know how long their agency jobs with Amazon will last, she says. One of her tenants, a single young woman, got a job there but lost it again after she became ill halfway through a shift. She struggled to pay her rent for three months while she waited for her jobseeker’s benefits to be reinstated. “It’s leaving a bad taste in everyone’s mouths,” Goodwin says with a frown. Even the little “Unit 9” café next to the Amazon warehouse hasn’t had a boost in trade. The women who run it reckon the employees don’t have enough time in their 30-minute break to get through security, come and eat something, and then go back in again.

In a cramped upstairs office at the Citizens Advice Bureau, Gillian Astbury and Angela Jones have turned to statistics to try to identify Amazon’s effect on the area. They haven’t had an increase in the number of people asking about employment problems or unfair dismissal, but nor has there been any improvement in the community’s problems with debt and homelessness. Their best guess is that people haven’t had enough sustained work to make much of a difference.

Astbury says employment agencies are a “necessary evil”, but stresses it is hardly ideal for people to be bouncing in and out of temporary work, particularly when a job ends abruptly and they are left with no income at all until their benefits are reinstated. Workers leaving Amazon have had a particular problem with this, prompting the parish council to submit a Freedom of Information request to the Department for Work and Pensions to find out exactly how long local people are being made to wait for their social security payments to come through.

Far from the CAB’s little office in Rugeley, Britain’s economists are also puzzling over why the economy remains moribund even though more and more people are in work. There are still about half a million fewer people working as full-time employees than there were before the 2008 crash, but the number of people in some sort of employment has surpassed the previous peak. Economists think the rise in insecure temporary, self-employed and part-time work, while a testament to the British labour market’s flexibility, helps to explain why economic growth remains elusive.

Angi Cooney, who runs C Residential, the biggest estate agent in Rugeley, thinks the nature of employment is changing permanently and people should stop pining for the past. It’s “bloody great” that a company like Amazon chose to come to “this little old place”, she says fiercely, looking as if she’d like to take the town by the shoulders and give it a shake. “People expect a job for life, but the world isn’t like that any more, is it?”

Sarah O’Connor is the FT’s economics correspondent

 

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