Amazon’s acquisition of Kiva Systems is big news, not only for the sky-high $775 million price tag, but for the deal’s implications for both Amazon and its competitors. First of all, it positions Amazon’s competitors to be potential customers if they wish to buy the same bot-based order fulfillment system Amazon did to help it improve operations. Could that be considered a conflict of interests if it meant getting into some kind of systems sale to, say, Wal-Mart?

John Hill, material handling industry veteran and newly appointed director of the St. Onge Company, wasn’t as curious about that as he was about how Amazon would protect its intellectual property rights.

“If KIVA has the only, or the better, ‘mousetrap’ for a given set of requirements with an attractive value proposition, I would think retailers would be unlikely to dismiss the company simply because of the Amazon connection,” he told me. “The question for me would be how well protected is Kiva’s intellectual property? I doubt that Jeff Bezos would have paid such a high multiple without very solid IP protection and a thorough assessment of the implications for Amazon’s position in the retail marketplace.”

Amazon has been giving its competitive position a lot of thought over the past couple years, and judging by its 2011 annual report, was quite worried about it–particularly in regard to logistics.

“If we do not adequately predict customer demand or otherwise optimize and operate our fulfillment centers successfully, it could result in excess or insufficient inventory or fulfillment capacity, result in increased costs, impairment charges, or both, or harm our business in other ways,” it stated. “We and our co-sourcers may be unable to adequately staff our fulfillment and customer service centers. … If the other businesses on whose behalf we perform inventory fulfillment services deliver product to our fulfillment centers in excess of forecasts, we may be unable to secure sufficient storage space and may be unable to optimize our fulfillment centers.”

So it seems that the Kiva acquisition was one of Amazon’s answers to these concerns. Two years ago other industry analysts were wondering if Amazon might be Kiva’s next customer after the e-tailer bought Zappos.com and Quidsi Inc., a couple companies that used Kiva robots. The latest turn of events reminds me of that old Remington shaver ad in which Victor Kiam said of the product, “I liked it so much, I bought the company.”

Mr. Hill’s comment about the intellectual property involved in this deal is on-target. When Amazon was contemplating its options with Kiva there were reports that Amazon coveted the company’s software code so it could better integrate the system with its order fulfillment processes. So now that Amazon is on the brink of owning the whole shootin’ match, why wouldn’t another party have designs on those rights too? Sounds like China, doesn’t it?

And speaking of China, that was another area of concern for Amazon, according to its annual report. It was worried about its business arrangements there.

“In order to meet local ownership and regulatory licensing requirements, www.amazon.cn is operated by Peoples Republic of China (PRC) companies that are indirectly owned, either wholly or partially, by PRC nationals. Although we believe these structures comply with existing PRC laws, they involve unique risks.”

Wonder if putting Kiva robots to work there would be one of those.

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As a mature adult, I don’t like being called “Tommy.” It doesn’t sound dignified. Nevertheless, there are people in my life who continue to do so because they’ve known me since childhood and the name just stuck. If you manage a 3PL you may feel my pain. You may not like the name 3PL because it no longer matches the business you’ve become. You may prefer LSP—for logistics service provider. You may feel that “third-party” stuff implies a separation from your clients—like being the fifth wheel on a date.

And that is probably the biggest misperception people have about LSPs—that they are outside vendors. I heard this from several service providers while doing interviews for a feature to appear in MH&L’s April issue. It was one of the first things they cited when I asked “What are the most common misperceptions of the role of a 3PL?”

None of them chastised me for calling them the 3-word, but most of them gave an answer similar to the one Rich Miller did. He’s UPS’s global marketing manager and he said one of the biggest misperceptions of third party logistics providers is that they are strictly vendors.

“We’re an extension of your business and must be seen as partners in order to be truly effective,” he added. “As a partner we can help solve complex problems related to your company’s supply chain. We can also help you identify opportunities to build more flexibility into your supply chain to streamline operations, reduce costs, improve customer service, expand into new markets and deliver on your key business objectives.”

Some customers are more comfortable with the old name 3PL and the role implied by it. That’s because the idea of opening the door of their inner sanctum to an outsider seems dangerous. But as Miller explained, in order to develop the most effective supply chain solution, an LSP must collaborate with a client to understand its challenges and goals and then integrate with that company’s purchasing, production, packaging and distribution functions. That’s more than three parties already.

Some companies are justified in their discomfort because they don’t do the necessary homework before approaching a “3PL” about a piece of business. Part of that homework calls for understanding all the contractual obligations that come with a relationship.

Shanton Wilcox, principal of Capgemini Consulting’s Supply Chain Management business, said a shipper must accurately reflect what his expectations are in a contract if the relationship is going to work. It’s a matter of clarifying what information is available within the organization, understanding what they’re willing to invest in and then netting out what is needed for the service provider to officially support operations.

“You have to pony up certain information and access in order for your partner to fulfill those responsibilities and then you have to measure both sides in a closed loop mechanism,” he told me.

One of the more challenging aspects of a “3PL” relationship involves management of green initiatives like gauging carbon footprint and fuel efficiency. The question becomes, how can those details become part of the traditional key performance indicators between a shipper and a service provider so that shipper can report back to customers as well as to their board and be accountable for their sustainability claims?

Accountability requires trust among all parties in a relationship, no matter how many there are. And face it, the more complex life becomes, the more parties you have. Hey, I like the sound of that.

Related Editorial:

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I’m pitched a lot of hype in my job as a content generator for an industry information outlet. That’s what used to be called a magazine writer. But despite the obits many online media experts wrote in expectation of print’s imminent demise, real magazines are still in your real inbox.

That’s why I try to filter out as much of the hype about anything’s demise before it reaches your desktop—virtual or actual. So when I get a report that takes pains to tone down any whiff of hype, I pay attention to it. One such report reached my desktop yesterday.

It came from Voice Information Associates, announcing the availability of the “2012 Voice Technology in the Supply Chain (VSC)” market report. It projects a CAGR of 22.6% for the VSC market between 2011 and 2016. This rate is attributed to a short ROI due to productivity and accuracy improvements. However, the report’s authors add this caveat:

“Voice Technology in the Supply Chain is at a very early stage. The penetration of voice in distribution centers that would readily benefit from voice technology is approximately 8%….Does it make sense to use voice picking in the entire warehouse? Possibly not. Voice picking may not make sense for a warehouse area with low volume or pallet picks which can be done equally effectively using traditional RF devices. Voice picking is also most effective for repetitive tasks. If the warehouse operators perform a large number of different transactions, voice picking may not be very effective. A careful cost-benefit analysis is needed to determine what areas of the warehouse can benefit from voice picking.”

I thought that was a refreshing bit of anti-hype. I also liked the rationale these authors gave for being so careful with projections: hype purveyors always get burned. This report cites examples of technology birth announcements and obits that were written long ago:

• TV will replace radio. (1950)

• TV will replace teachers/schools. (1950)

• Paging will rapidly be wiped out by cellular. (1981)

• Video phones will become ubiquitous. (1982)

• Cellular will reach a total worldwide population of 1 million by 1995. (1981)

• The PC market will be saturated when 10 million units are shipped. (1983)

• The voice mail market will be saturated by 1991 and decline after that. (1990)

“The point of all of this is to indicate that the possibility exists that the market projections provided in this report are quite low and that the Voice Technology in Warehouse Management market could become significantly larger than the projections contained in this report,” the authors state.

They also point out that this technology will co-exist with and be supported by mature technologies that are still hard at work in the market—not only the tried and true input methods of keyboard, stylus, GPS, bar code scanning, and RFID, but even inexpensive dedicated devices that can support a variety of input and output modalities thanks to standard connectors and networks. In other words, i-Phones.

Maybe this desire by technology marketers to tone down their rhetoric is becoming a trend. I remember talking to several vendors exhibiting at the MODEX show last month more about retrofits and upgrades than about technology replacements. For example Chris Arnold, Vice President of Solutions Development at Intelligrated told me how they’re leveraging existing technologies at their customers’ sites.

Take barcoding, for example. Rather than selling these clients on new hardware, they’re showing them how to make use of the bar codes on incoming products that were applied elsewhere in the supply chain, thus eliminating material and labor costs.

“We’re using more of the UCC 128 and other bar codes to do all of our hookups and all of our distribution within the facility,” Arnold told me. “We’re using those bar codes on the inbound receiving dock, for the zone routing on the conveyance system, for the putting process and for outbound tracking as we go to shipping.”

For a magazine writer/content-generator like me, advancing into his latter-50s, it’s comforting to hear about industry’s growing respect for the tried and true. Or am I just falling for my own hype?

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Proprietary is a loaded term. To technology manufacturers it’s a selling point, implying superiority and properties that can’t be matched by competitors. To some users of that technology it’s a tool vendors use to trap them in an exclusive relationship—thus giving them the ability to command confiscatory prices.

Place a technology distributor in the middle and you have the makings of a Bermuda Triangle of distrust—out of which no winners can emerge. That is, unless, the three parties in this triad treat their relationship as something proprietary in itself—something that gives each one of them a competitive advantage none of them could achieve by themselves.

This kind of thinking follows the wisdom of modern supply chain management. Competition between companies is out. Supply chain vs. supply chain is the ticket to viability.

That’s what I’m hearing from material handling equipment distributors (most of them members of the Material Handling Equipment Distributors Association) as I talk to them for an article to appear in MH&L’s April issue. It’s also reflected in a new book called CoDestiny: Overcome Your Growth Challenges by Helping Your Customers Overcome Theirs, by George F. Brown, Jr. and Atlee Valentine Pope. The authors are founders of Blue Canyon Partners, Inc., a strategy consulting firm. It was how these authors address the touchy issue of costs that made me conscious of a new attitude taking hold among equipment distributors.

“Taking costs out has to be looked at from a systems perspective that goes far beyond what each of the firms can do on their own,” these authors write. “Over and over, we’ve seen examples where the possible savings from creative approaches has dwarfed any gains that could have been achieved by even the most aggressive price negotiator. Manufacturers and distributors have to map the costs associated with their relationship and the cost to serve in their markets, and figure out where they can increase efficiency and take the savings to their bottom lines.”

But it was the following passage that got me to thinking about how that word “proprietary” needs to be rethought:

“The channel organization [distributor] typically fears that the manufacturer will ‘cut them out by going direct,’ especially as an end customer begins to buy more and more. And the manufacturer fears that the channel partner will try to ‘substitute another product or even their private label brand.’ We believe that the way to ensure stability in terms of end customer planning involves … never allowing end customer ownership to become the elephant in the room that no one is willing to mention.”

The reticence to communicate that characterized proprietary relationships between OEM and customer and between distributor and customer is succumbing to the OEM/distributor/customer triad. For that you can thank the generational adoption of social media. This is what Bill Rowan, president of Sunbelt Industrial Trucks of Dallas/Fort Worth told me:

“As people use these tools in their personal life, they want to communicate in a similar fashion in their business life as well. In 10 years when the 25-30 years olds are 35-40 and in management positions, we will no longer recognize many of the ways we would communicate in the 80s and 90s. From the dealership side, the techs can look up manuals, schematics, etc. on-line without having to return to the shop. They can communicate with the OEM experts while right in front of the equipment.”

That’s the promise of social media for customers. But Jason Milligan, vice president and general manager of Hy-Tek Material Handling’s Mobile Equipment Division in Columbus, Ohio put it in more severe terms for fellow dealers who cling to the old business model:

“As younger people continue to be promoted into positions of leadership relative to forklift fleet and maintenance activities [at customer sites], the more critical it will be for dealers to have a solid social media and e-commerce capability. So if there isn’t a current plan in place one should be considering options now for a full roll out in the next two years.”

Sounds like it could be a lifeline out of