Whether you’re a larger or smaller company looking to scale your online operations, Amazon is a great example to look at with regards to increasing productivity, expanding reach, and building profit.
Download ebook: Amazon FBA – Is it worth it?
While there are a plethora of factors that have led to Amazon being the ecommerce leader that it is today, its state-of-the-art supply chain model is the most critical element to its success. Amazon launched in 1995 as a website that sold only books. Now, however, Amazon is one of the fastest-growing companies with one of the best supply chain operations in the world.
Amazon’s current supply chain model is similar to the model back in 1995 when the company only sold books online. However, it is much larger in scale and has a range of technological innovations that have helped to streamline both operations and efficiency.
In this article, we’ll explain the key elements contributing to Amazon’s success and what to expect from this supply chain powerhouse in the future.
Watch the on-demand webinar: Overcoming Supply Chain Disruptions
What is Amazon Supply Chain?
The term Amazon supply chain essentially refers to Amazon’s entire process from product warehousing to inventory management, pricing, delivery, and more. Amazon has optimized each of these elements to ensure that everything is working smoothly and efficiently.
With third-party sellers being responsible for 55% of all salesmade on Amazon, Amazon offers two fulfillment options to sellers – FBA and FBM.
FBA (Fulfillment by Amazon) – With this option, Amazon will take care of all logistics and customer support. Third-party sellers will just have to send bulk products to Amazon’s fulfillment centers for them to pick, pack, and ship. For third-party sellers who don’t have logistics in place and are handling small and lightweight products, FBA is usually the better choice.
In addition to the above, Amazon also has an FBA Onsite program where Amazon uses its own warehouse management software to help with optimizing the third-party seller’s warehouse. While third-party sellers will take care of the inventory of their own products, Amazon is in charge of picking up orders from the seller’s warehouse and selecting the most efficient and effective fulfillment method.
FBM (Fulfilment by Merchant) – In this option, third-party sellers will be in charge of listing their products on Amazon and handling all of the storage and fulfillment aspects of the process on their own.
Here’s a chart showing the usage of Amazon FBA among top sellers worldwide:
Usage of Amazon FBA
Download ebook: Amazon FBA – Is it worth it?
Two main elements of the Amazon Supply Chain
When it comes to Amazon’s supply chain, there are two main elements critical to its success – Amazon Fulfilment Centers and the Amazon Delivery Fleet.
With the COVID-19 pandemic generating a boom in ecommerce, Amazon has experienced record growth within the last year. In 10 months, Amazon has had to hire 427,300 employees to keep up with demand. Third-party sellers experienced a 60% annual increase in sales, with this trend expected to continue into 2021. In a bid to respond to growing demand and a capacity crunch in its fulfillment centers, Amazon will open around 50 new warehouses and fulfillment centers in the US and more globally.
Amazon Delivery Fleet
While having the capacity to store inventory and fulfill orders is key, Amazon’s delivery fleet is just as important. To deliver orders to its customers, Amazon has various transportation and delivery partners that help keep up with demand.
To start, Amazon’s trucks help carry about 2,000 boxes or more from the fulfillment centers to the sort centers. There, Amazon then distributes the packages according to location and the delivery speed required. After that, the company selects the most efficient transportation mode to transport these packages.
If you’ve always wondered how Amazon meets its one or two-day delivery window for Prime members, Amazon has an airplane fleet that helps with delivery. These airplanes fly from more than 20 airports around the United States and can carry about 30 or more containers. On the ground, Amazon uses trucks, vans, bikes, and at times – even robots. Interestingly, Amazon is now exploring the use of drones to deliver items to locations that are near their fulfillment centers.
Recently, Amazon has also launched the Delivery Service Partners company that provides its employees with $10,000 in start-up costs and three-months of pay to launch their own delivery business. This not only helps with strategically expanding Amazon’s delivery network, but it is also an awesome way to make money with Amazon.
What Happens After You Click the Buy Button
How does an Amazon Fulfillment Center work? These are the steps that take place after a shopper has clicked the buy button.
Receiving Products
At Amazon Fulfillment Centers, products are either taken off trailers by forklift or manually built into pallets. The separation of freight occurs between those that are coming from an Amazon facility and those from third-party vendors using FBA. Unsurprisingly, half of the items currently sold on Amazon are from small businesses and entrepreneurs.
Storing of Items
Unlike other warehouses that store their items by type, Amazon stores its items randomly. Amazon has yellow tiered bins with random items – all tracked by computers. These bins then ferry to Amazon associates based on the product size.
Picking Orders
When you’ve clicked the “buy button”, and your order comes in, a robot will bring pods full of items to Amazon associates working at pick stations. These pickers will read the screen, retrieve the item and place it into a yellow plastic box – also known as a tote.
Quality Assurance
For robots and humans to work cohesively together, there’s a great deal of quality assurance required. There’s a need to make sure that the item’s physical location matches what’s in the computer, and that the robots function correctly. Fine-tuning occurs throughout the entire process as technological innovation is vital in a large-scale supply chain business like Amazon.
Packing Orders
Lastly, items that belong to different shipments are both organized and scanned before being sent to the pack station. There, the system will recommend box sizes to Amazon associates and measure out the amount of tape required. Third-party vendor items are shipped in original boxes, but Amazon works with third-party vendors to reduce packaging.
What We Can Expect From the Future
With the scale that Amazon is growing, it’s evident that technological innovation is at the company’s forefront. Below are some innovations that are currently in the pipeline.
Drones
Amazon is in the process of developing a drone-based delivery system called Amazon Prime Air. With this innovation, Amazon will deliver products that weigh under five pounds to locations within 10 miles of Amazon’s fulfillment centers. While there are many hurdles that Amazon would need to overcome, it’s an incredible innovation that’s currently in the pipeline.
The drone delivery service is still currently in development with Amazon testing a variety of vehicle designs and delivery mechanisms to discover how best to deliver packages in various operating environments. Amazon Prime Air was expected to begin in select cities in late 2019 but has since been delayed. It still shows, however, that Amazon is leveraging the latest supply chain technologies and maintaining its position as the clear market leader.
Expansion of manufacturing sector
While Amazon is a retail giant, it has also diversified its business. It now produces various other products from backpacks to smart speakers, virtual assistant AI technology, and more. As Amazon has already established itself in the market, the company can sell third-party items to customers at lower prices.
With low-cost production, Amazon is naturally grabbing market share from a multitude of manufacturing companies. This expansion into the manufacturing sector has provided Amazon with a critical revenue growth opportunity.
Conclusion
The rate of Amazon’s innovations has been incredible – making it difficult for competitors to keep up. The retail giant has shaken up the supply chain automation industry and forced competitors to invest more to have a slice of the pie. From increasing the number of fulfillment centers, expanding their delivery fleet, investing in new technology, and even engaging in product manufacturing, it’s exciting to see what else Amazon will do in the future.
In 2017, Amazon also acquired Whole Foods – in a bold declaration to move to brick-and-mortar retail. As of 2020, the company operates seven different kinds of physical stores from Amazon Go to Amazon Books – an impressive feat. While the company is still experimenting, this is a market that has massive potential for the company. Also, Jeff Bezos will step down as Amazon CEO in the third quarter of 2021. Andy Jassy, the CEO of Amazon Web Services (AWS) will replace him. With Jassy as CEO, it is likely that Amazon will significantly expand their web services and grab an even bigger market share than they already own.
Regardless of which industry they venture into next, Amazon’s consumer-centric approach, organization, unique supply chain strategy, and technological innovations can only mean that they’re only going to continue to shake up the industry.
About the Author
Moritz Bauer is a German online seller and runs his own blog smartminded, where he teaches online entrepreneurs how to grow their business with Amazon.
–> Want to continue learning about supply and fulfillment? Watch our on-demand webinar
Traditionally, the supply chain of Amazon includes a complete process of manufacturing and delivering a product. However, as an Amazon seller, you deal with product warehousing, inventory management, pricing, and delivery times. To maintain uninterrupted supply chains, you need to constantly optimize every element.
Amazon has one of the biggest and most efficient supply chain operations globally. While the basic model has remained the same since its inception, it has adopted newer technologies over the years to streamline its operations and improve its efficiency.
Amazon warehouses feature extensive use of mobile barcode scanners and wearables to enable a constant cycle of order processing, item picking, and shipping. Digital inventory processes allow for real-time visibility into stock levels, asset dispositions, and shipping demand at any given time.
AWS Supply Chain is a cloud-based application that unifies data, provides ML-powered actionable insights, built-in contextual collaboration, and demand planning.
A supply chain is the network of all the individuals, organizations, resources, activities and technology involved in the creation and sale of a product. A supply chain encompasses everything from the delivery of source materials from the supplier to the manufacturer through to its eventual delivery to the end user.
Amazon succeeded in building a consumer paradise. They charge much less and promise much more than other stores and platforms: The best selection by combining a retail business with a marketplace business, the best price by using the “buybox“, and the quickest delivery by offering FBA to their sellers.
Because it's all run by Amazon, there's a high degree of integration between the logistics system and the company itself, ensuring that orders are processed quickly and correctly. Overall, Amazon Logistics is a highly efficient and cost-effective delivery system.
How does Amazon inventory work? When sellers choose to use FBA, they automatically gain access to Amazon's machine learning-based inventory management system. This system uses inputs like the cost of goods sold, shipment time, and Amazon data to forecast customer demand and set optimum inventory levels.
The Amazon supply chain management approach is to embrace technology. The company utilizes countless automation and robotic solutions, both to pick and pack orders as well as stacking and storing inventory.
Vendor Managed Inventory (VMI) is an operations model where suppliers restock products when it's time to reorder. With this model, third-party sellers control their products supply within a retailer's inventory. They send their inventory to Amazon's warehouses, and Amazon takes care of the fulfillment.
Find It: decide what product to sell (otherwise known as Product Selection). Make It: manufacture your high quality, cost minimized product (or, Product Sourcing). Ship It: get your product to an Amazon FBA Warehouse. Amazon handles all fulfillment from this point forward (some might call this Logistics).
The business strategy of Amazon consists of focusing on investing in technologies, enhancing its logistics applications, improving its web services by fulfillment capacity, M&A strategy, R&D activities in logistics, experimenting with Fintech, and securing its inventions using patents.
Push and Pull logistics are a big part of their inventory management. Amazon's warehouses are strategically placed, moving closer and closer to main metropolitan areas and city centers. As a result, it uses a pure push strategy for the products it stores in its warehouses based on the downstream demand forecast.
Amazon can optimize delivery through its fleet of trucks to bring the packages to the most optimal location. Not only does Amazon have partnerships with USPS and UPS, but they have also last-mile delivery fulfilled by vans, bikes, or robots in some cases.
What are the components of your supply chain you should be focusing on right now?
INTEGRATION. Integration starts at your strategic planning phase and is critical throughout your communications and information sharing and data analysis and storage. ...
The Top-level of this model has five different processes which are also known as components of Supply Chain Management – Plan, Source, Make, Deliver and Return.
Integration, operations, purchasing and distribution are the four elements of the supply chain that work together to establish a path to competition that is both cost-effective and competitive.
Supply chain management is the practice of coordinating the various activities necessary to produce and deliver goods and services to a business's customers. Examples of supply chain activities can include designing, farming, manufacturing, packaging, or transporting.
The most basic version of a supply chain includes a company, its suppliers and the customers of that company. An example would be: raw material producer, manufacturer, distributor, retailer and retail customer.
Jeff Bezos has openly shared his 'secret' to Amazon success is “obsessive compulsive focus on the customer”. Is Jeff Bezos revealing the truth behind his success? Yes, I believe he is. Steve Jobs contributed to Apple's success by doing the same thing — obsessively focus on customer experience.
The combination of sophisticated information technology, an extensive network of warehouses, multi-tier inventory management, and excellent transportation makes Amazon's supply chain the most efficient among all the major companies in the world.
To change the settings manually, navigate to My Stuff at the bottom right-hand corner of the screen and hit the Gear icon to open the settings.Select the Stream and Download Option.Hit Streaming Quality Settings. You can choose between four quality options: data saver, good, better, and best.
Amazon Logistics is a well-known shipping & delivery service, which complements existing providers such as USPS, FedEx, and UPS. In simple words, Amazon Logistics is more of a “last mile” shipping & delivery service, which gets packages delivered to their customers.
Amazon said supply chain bottlenecks and inflation on raw materials, labor and trucking costs crimped profits during its latest quarter. Those ongoing problems will cost the company an additional $4 billion this quarter, dragging down profits during the upcoming holiday shopping period, the company added.
Fulfillment by Amazon (FBA) is precisely what it sounds like: all your goods are held by Amazon in their fulfillment centers.In contrast, third-party logistics allow sellers to hold and ship their goods or have a third party warehouse them (these methods are called fulfillment by a merchant or FBM).
An FBA seller is an ecommerce business that sells in Amazon's store and outsources inventory management to Amazon through the FBA program. The seller sends products to Amazon warehouses for order fulfillment. Amazon stores the inventory until a customer places an order. Then Amazon picks, packs, and ships the order.
With Fulfillment by Amazon, inventory counts are extremely accurate. Still, some distributors prefer to manage their inventory through their own distribution network, the reasons for which we will discuss later on.
Amazon no longer classifies stranded inventory as unsellable after 30 days. Instead, if you do not take action on the stranded inventory, within 30 days, Amazon will automatically remove the inventory from the warehouse. Plus, the default setting is to have Amazon dispose of your inventory.
Share of Amazon businesses affected by supply chain issues 2021. The vast majority of businesses selling on Amazon were challenged by supply chain issues occurring in 2021.
The list includes consumer electronic companies like GoPro , Roku and FitBit, but also United Natural Foods, a major Whole Foods supplier. Air Transport Services Group, a freight company that handles parts of Amazon's air cargo shipments, saw 29 percent of its revenue come from the e-commerce giant.
The four main inventory valuation methods are FIFO or First-In, First-Out; LIFO or Last-In, First-Out; Specific Identification; and Weighted Average Cost.
There are three methods for inventory valuation: FIFO (First In, First Out), LIFO (Last In, First Out), and WAC (Weighted Average Cost). In FIFO, you assume that the first items purchased are the first to leave the warehouse.
Amazon's inventory performance index is a number between 0-1000 that's used to measure inventory health – capturing low inventory and excess inventory levels for your SKUs. Amazon Inventory Performance Index IPI is a score between 0-1000.
As a seller on the Amazon Marketplace, you're probably aware that there are three Amazon fulfillment methods available: Fulfillment by Amazon (FBA), Fulfillment by Merchant (FBM), and Seller-Fulfilled Prime (SFM).
How Many Orders Does Amazon Get A Day? Amazon ships approximately 1.6 million packages a day. That works out to more than 66 thousand orders per hour, and 18.5 orders per second.
Cleverly, Amazon differentiates its customer base by segmenting its Prime and standard customers and offering different delivery options to each, at varying prices. So, for example, Prime members may pay more for the cost of the product but have the benefit of receiving 'free' and super-fast delivery.
Amazon uses an annual strategic and operational planning process for teams to describe critical investments and goals for the upcoming year and the associated required resources.
One example of an industry that operates under this strategy is a direct computer seller that waits until it receives an order to actually build a custom computer for the consumer. With a pull strategy, companies avoid the cost of carrying inventory that may not sell.
Amazon Supply Chain has many strengths: Long term vision & “No limit” in the sense that nothing seems impossible. Customer focus. Powerful and independent logistic network.
The Top-level of this model has five different processes which are also known as components of Supply Chain Management – Plan, Source, Make, Deliver and Return.
The Supply Chain Management Process includes the building blocks of Supply Chain Management are Strategic Planning, Demand Planning, Supply Planning, Procurement, Manufacturing, Warehousing, Order Fulfillment and Transportation business processes.
Supply chain management is the practice of coordinating the various activities necessary to produce and deliver goods and services to a business's customers. Examples of supply chain activities can include designing, farming, manufacturing, packaging, or transporting.
Integration, operations, purchasing and distribution are the four elements of the supply chain that work together to establish a path to competition that is both cost-effective and competitive.
While supply chain is a very broad career field, it has 7 primary functional areas: Purchasing, Manufacturing, Inventory Management, Demand Planning, Warehousing, Transportation, and Customer Service.
Generally the key aspects of Supply Chain management are Purchasing (sourcing), Planning (scheduling) and Logistics (delivery). Sometimes logistics is separate, and procurement may be included with Purchasing, depending upon how location specific the procurement activities are.
A big part of Amazon's success lies in its expert warehousing strategy, which ensures products are easily accessible from pretty much everywhere in the world. All the company's warehouses are strategically placed near big metros and population hubs, and inventory is spread amongst them to ensure supply can meet demand.
An example of this is Amazon will pay the sellers upfront for their products.Amazon will then handle the rest including the importation of the products. This allows Amazon to control the flow of its inventory. Additionally, it will give Amazon direct access to how your products are and the costs of their production.
And what makes it so unique and successful? In simple terms, Amazon logistics is the company's own parcel delivery system. It handles all deliveries for Amazon orders placed in the United States, including everything from small packages to large parcels.
Six effective supply chain examples. For efficient supply chains, Amazon is the company that first comes to mind for many people. Amazon is one of the largest internet-based retailers in the world, with the headquarters in Seattle Washington, Amazon also currently operates from thirty other country-specific sites.
A supply chain is the entire process of making and selling commercial goods, including every stage from the supply of materials and the manufacture of the goods through to their distribution and sale.
Introduction: My name is Geoffrey Lueilwitz, I am a zealous, encouraging, sparkling, enchanting, graceful, faithful, nice person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
)
