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Q&A with Jeffrey Wilke October 21, 1999 Guiding Amazon's Foray into Bricks and Mortar New operations chief Jeffrey Wilke talks about his role in executing Amazon's new strategy for expansion Jeffrey A. Wilke joined Amazon.com Inc. in September as vice-president and general manager of operations just as the online superstore was gearing up for the holiday rush. Wilke is a former vice-president and general manager of AlliedSignal's Pharmaceutical Fine Chemicals unit and a specialist in the total quality movement aimed at honing company processes for increased efficiency. He comes to Amazon to help ensure that its expensive move into building its own warehouses and fulfillment operations pays off. In a recent interview with BW Senior Correspondent Robert D. Hof, Wilke talked about how he thinks Amazon's controversial foray into bricks and mortar will pay off. BW: Why is Amazon.com going against conventional Net wisdom to build brick-and-mortar assets such as warehouses? Wilke: It is our ability to feel absolutely secure that we can control and deliver the best possible experience for them. That is our distinctive competitive advantage. So the next question is how do you ensure that? There are four things we've done. The first thing is that we've built capacity in an incredibly fast period of time. We've added more than 3 million square feet in the U.S. in less than a year. It provides new and very flexible capacity for us. That was a huge move for us. The second thing is, there's a level of automation and mechanization here that's truly extraordinary. The best part about it is that it allows us to capture data throughout the process and then use that data to be the most efficient and flexible mover of items from container to pallet to lot sizes of one. When you think about distinctive competitive advantage, you can look at lots of other distribution networks or transportation networks, but there's nobody else whose sole purpose is essentially to break down container and truckloads into lot sizes of one and send it directly to a retail customer. If I define the distinct nature of our supply chain, that's it. That's why you can't go out and just partner with someone who's doing this every day. BW: Aren't there a lot of distributors, such as Ingram, that are starting to do this already? Wilke: There are some who are doing it for certain types of products. But nobody is doing it across a breadth of products and to the extent that we are. And no one has linked it to the customer base that we're linking it to. If you look at the size of our customer database, it's absolutely unparalleled, certainly in the e-commerce world. That's the power. The third thing I'd emphasize is information technology. With this automated system, you capture data, but you link it to knowledge of these individual customers, and the combination of the two is what's powerful, unique, and so huge. The others who are doing it have not made the same type of investment that we have in the information technology and data mining that will allow us to tailor the experience that the customer receives -- which is really what we're trying to do. The fourth thing is that the capacity, the automation, and the information technology linkage allows us to expand in terms of product breadth and in terms of partnerships, acquisitions -- whatever we want to do. We've created the hooks to bolt those onto this thing. We have tried to replicate [the systems] across the distribution centers wherever possible, so if we think about expansion, if we think about bringing other products online -- adding tabs to the Web site, adding global opportunities -- we've created the information technology infrastructure and the ability to expand in a modular fashion. That gives us enormous flexibility. If the customer is telling us: "We want you to help us find, discover, and buy anything anywhere," we've got to have an incredibly flexible system that will grow with the customers' expectations of what we can deliver. BW: How much warehouse space do you have at this point? Wilke: Over 3 million square feet. We've added roughly 3 million square feet this year. When we have everything done in the U.S., there will be seven warehouses by the end of the year. There are two as well in Europe, one in the U.K. and one in Germany. BW: Are you planning to build out more than that? This seems like a lot. Wilke: It has provided incredible flexibility and capability for now, and for the near term. But this company's going to grow real fast. And I don't have any delusion that we'll be sitting on this same network in 5 or 10 years. We have to be able to expand in a modular fashion as we either bring on partnerships or simply expand our breadth of offering. And we're prepared to do that. As soon as you get everything humming, you have to be prepared for the next step. So we won't quit, ever. BW: There have been a lot of new logistics companies, such as Fingerhut Business Services. If you were starting anew, would those be sufficient, or is there a sustainable advantage in doing this yourself? Wilke: There's a built-in barrier in that model between the data that you have about customer preference and exactly how you fulfill that customer's requirements. We can follow the customer experience from beginning to end and own the data as well as the physical movement of product through the whole process. We think that will deliver a level of customer performance that is unparalleled. The experience is just more consistent. And it's consistent across a very broad range of products and services. BW: The Internet is supposed to eliminate these barriers and make connections between partners and suppliers frictionless. Are we not there yet, or is that just a pipe dream? Wilke: The Internet is a wonderful way of interacting with the consumer and bringing parties together that couldn't be brought together before. But you still have a lot of places where human beings intervene into these supply chains. As long as that happens, the systems that are controlled and optimized for a particular purpose or for a particular degree of performance and flexibility are going to be better off than the solution the market would provide. While we're in the middle of this market that's only four or five years sold, there's going to be growing pains. There will be times when supply and demand are out of whack. If we can plan our little piece of the economy perfectly, we think it'll be more consistent. We won't be subject to the turbulence that's in this new world. I don't know what happens 20 years out. Maybe things get so seamless that it doesn't matter. But we think that at this point in e-commerce, we need to control it. BW: We also see folks like Value America and Buy.com outsourcing everything and still growing very fast. How can they do it? Wilke: I don't know their business models well enough. But I wonder at what scale will the ability to muscle through things as a purely virtual fulfillment company begin to break down. Our objective is to build something that's scalable to a huge level and control that experience as we grow. I wonder whether the complexity doesn't at some point create problems for folks that have chosen to do it virtually. BW: How does the Christmas season look? Wilke: We think there's going to be huge growth in e-commerce. This is when retail happens, right? Because the company has placed such an important emphasis on this side of the house, it's nice to come in at a time when you're wanted. We feel good that we're well-positioned for the holidays. BW: Given that Amazon.com was already deep into building this physical infrastructure, what are you bringing to the party? Wilke: Well, for the next 90 days, I'm going to try to just help this team do everything it can to please the customers. I don't think you change course when you've spent a year like we've spent. What you do after the holidays -- I want to bring what I developed a sense for at AlliedSignal, which was a marriage of total quality, lean techniques, and Six Sigma [quality assurance methods]. We will optimize the economics of the process while we're getting people to think about how can we make this as effective as possible for our customers. That's something I spent the last seven years at AlliedSignal doing. It prepares you for the next level, which is how do you continue to grow at this pace? BW: Are rigid quality methods even compatible with a company growing this fast? Wilke: It is, actually. I did it in a couple of growth businesses at Allied -- not that were growing quite this fast -- but when you have lots of people, lots of complexity, you cannot escape the need to turn things into processes. I don't think that processes have to kill innovation or speed. In fact, they make speed more effective. There's a certain level where you can bulldoze your way through everything. But at some point, you reach a size -- your distribution centers are spread out around the country or the world, you have enough people in your organization -- that you have to have a way to systemize the improvements, lock in the gains, and frankly free up people to be innovative. It gets you away from all of your work being in reactionary mode and fighting fires. It works. BW: I imagine you have a bit of an education to do here, though. Wilke: Yes. But I enjoy teaching as part of the job of leadership. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Jeffrey Wilke: Guiding Amazon's Foray into Bricks and Mortar Gomez Advisors: Scorecards on Internet Storefronts