Amazon Supply Chain: A Fine-Tuned Machine

Amazon constantly invests resources to cut back delivery times for years to make good on their promise of customer satisfaction. The end result is the Amazon supply chain, a notable achievement in retail logistics.

It combines the whole process of product warehousing, multi-tier inventory management, transportation, pricing strategies, and delivery times. FBA sellers rely on the Amazon Supply Chain to provide a safe, full-service fulfillment for customer orders. 

However, few businesses know how it has become so efficient. 

In this post, we’ll break down the Amazon supply chain to understand how it works. Let’s go and look at the supply chain’s separate tiers:

• Warehousing
• Delivery
• Technology
• Pricing

Warehousing

The Amazon Supply Chain warehouses filter, process, and store millions of products every day. As of November 2019, the Amazon Supply Chain operates more than 175 well-placed fulfillment hubs worldwide. This giant warehousing network consists of several types of facilities:  

• Crossdock centers. These facilities hold containers from foreign vendors until the fulfillment center needs more stock.
• Fulfillment centers. Here, amazon associates pick, pack, and ship orders.
• Sortation centers. Sorting facilities where employers sort packages by zip code and load them onto trucks for delivery.
• Delivery stations. In these buildings, couriers prepare customer orders for last-mile delivery.
• Prime Now hubs. Small locations designed to deliver selected items within two hours of being bought by the customer
• Prime Air hubs. These airport facilities sort, pack, and ship one-day deliveries to Prime members across the US.

Amazon stores different types of products among its warehouses to meet customer demand on time. Inventory management is further optimized using real-time data, and a fleet of pick-and-pack robots, to separate products in five storage areas. These are:

1. Library Prime: Books and magazines
2. Pallet Prime: Full cases of high demand products
3. Case Flow Prime: Broken case and high demand items
4. Random: Small items and modern demand articles
5. Reserve: Low demand and irregularly shaped stock

Warehouse classifying and automation ensures Amazon associates to locate and pull products toward delivery almost instantly. But more importantly, it enables Amazon to manage customers’ orders efficiently and quickly, at minimum expense.

Delivery

The Amazon supply chain is completely equipped to get products into customers’ hands faster.

Amazon fulfillment centers are located near metropolitan areas to reduce delivery time. Products travel from these facilities to sorting centers, where orders are filtered by region and shipping speed:  

• No-Rush delivery (3-5-day shipping),
• Prime (1-2-day delivery), or
• Prime Now (1-2 hours delivery).

Finally, couriers like Ups, FedEx, or USPS receive the packages at a delivery station and get them to the final customer. However, these couriers are just one delivery method. 

Amazon also has many partner distribution centers and wholesalers in smaller cities. If Amazon cannot fulfill an order from its own centers, partner regional couriers may deliver it fast. Some of these are: 

The Amazon supply chain uses several delivery strategies to travel the last mile. 

• Delivery Service Partners capable of leading a small fleet of delivery vehicles. The contractor taps into his skill and efficiency, and Amazon processes all the tools and orders they need to deliver orders on time.
• Flex Delivery. This service allows independent drivers to use their own vehicles to deliver Amazon orders as a way to make extra money.
• Hub Lockers. Secure, self-service kiosks where customers can pick up Amazon orders when it’s convenient.
• Hub Counter. Partner locations (pharmacies and stores) where shoppers can get packages delivered.
• Amazon Key. Customers can install an Amazon lock so couriers can drop off packages when they’re not home. This feature offers in-home, in-car, and in-garage options. Also, the delivery would be filmed for safety.
• Prime Air. Amazon claims to be able to deliver in less than 30 minutes through drones that land on your roof or backyard. However, drone delivery is limited in urban areas because of several safety reasons.

These wide-ranging delivery options allow Amazon to get orders out faster, everywhere. It is a significant factor in the success of Amazon’s supply chain.

Whole Foods Market

Amazon acquiring the grocery chain in 2017 was a strategic supply chain expansion.

Whole Foods held too much inventory onsite. They wanted to provide everything a customer would ask on hand. However, this strategy slowed its supply chain and service quality. 

Amazon implemented the Just-In-Time inventory management system to lean out the supply system. 

This move turned Whole Foods storage and products into a new key link on the Amazon supply chain fast delivery network.

Technology

The Amazon supply Chain is supported by the latest storage logistics technology to increase efficiency. These tools upgrade the company’s efficiency, increase customer satisfaction, and help shorten the last mile delivery.

Machine Automation

Within the warehouses, Amazon associates are aided by high-end conveyor robots. These machines constantly sort platforms to stack and store inventory. They also pick orders and bring them to the person responsible for packing.  

Amazon continually invests in this strategy. The company established Amazon Robotics out of its Kiva Robots acquisition in 2012. This Amazon subsidiary now has an estimated 100,000 robots in fulfillment facilities around the world.

Prime Air

For optimizing deliveries, the Amazon supply chain established the Prime Air program. Amazon claims to be able to deliver in less than 30 minutes using drones that land on your roof or backyard. However, drone delivery is limited in urban areas because of several safety reasons.

Scout

A new delivery service could be Amazon Scout. This is a fully electric street delivery system. Scout has the size of a small cooler and rolls along sidewalks. 

Scout started testing with six devices in Snohomish County, Washington. Amazon hopes this delivery device will speed up fulfillment and free up funds for other logistical elements.

Relay

Truck delivery also got a tech boost with Relay, a trucking app designed to streamline warehouse deliveries. 

Using Relay, a driver can enter cargo information to pick up orders faster at Amazon fulfillment centers. Relay tells them at which point they can pick up their packages. 

Amazon Air

Amazon invested $1.5 billion in a 210-acre parcel in Kentucky to build its own 2-million-square-foot airport. Currently, the Amazon Air fleet has 40 Boeing 7637-300 aircraft and counting. 

This move will help reduce Amazon’s development of its own aircraft delivery network. Also, the company expects to eliminate the performance issues that Amazon has experienced dealing with partnered carriers.

Pricing

The Amazon supply chain remains cost-effective through customer segmentation. A smart price differentiation strategy differentiates prime and standard shoppers. 

This division allows Amazon to offer different delivery options to each, at corresponding prices. For example, Prime users may pay more for a product, but have access to ‘free’ and fast delivery.

Another pricing key for the Amazon supply chain is product management to keep costs down. Storing too much inventory raises storage costs and slows fulfillment. 

To prevent warehouse overloading, Amazon charges high long-term storage fees. This encourages FBA (Fulfillment by Amazon) sellers to send just enough inventory to meet demand. 

Final Thoughts

The more Amazon can promote items in their warehouses, the more they can sell. They keep a complex supply strategy for success. Yet, the fundamentals have not changed:

• Long-term vision
• Customer-centric approach
• Independent logistic network
• Technological innovation
• Smart inventory management

Amazon never stops making improvements in the supply chain to process to get products to customers faster. This is what makes the Amazon Supply Chain one of the largest, best-optimized supply chains in the world.