How the Amazon Supply Chain Strategy Works (2022)

Retailers can learn a lot from the Amazon supply chain strategy – especially since the company has decided to launch its own delivery network, a la Fedex and UPS.

In the following article, we will discuss:

  • What is the Amazon Supply Chain?
  • How Amazon supply & demand works
  • The components of the Amazon distribution strategy
  • Global supply chain by Amazon

What is the Amazon Supply Chain?

Jeff Bezos and his organization have found a way to optimize nearly every piece of the supply chain puzzle – from warehousing and inventory management to delivery times and prices.

Sellers who sell on the Amazon Marketplace have different fulfillment options to choose from. Sellers can choose whether they want to handle fulfillment or let Amazon sort, package and ship products through their own fulfillment centers.

As a third party seller selling on the Amazon Marketplace you have the option to use Amazon’s fulfillment services:

  • Fulfillment by Amazon (FBA) – Sellers leverage Amazon’s fulfillment for products sold on the Amazon Marketplace
  • Or sell using your own fulfillment (FBM) – Sellers handle fulfillment for their products sold on the Amazon Marketplace

Below is an image that describes how Amazon handles every aspect of FBA:

How the Amazon Supply Chain Strategy Works (1)

They’ve even added drones, robots and other high-tech strategies into the mix.

The result? It’s made Amazon one of the most popular – and most profitable – retailers in all the world.

[optin-monster-shortcode id=”vetzegbz9rq9ac2oovwu”]

How Amazon supply & demand works

Recently, Amazon has made a shift in how they are communicating inventory demand to vendors with the addition of a new feature:Probability Level Demand Forecast(available in both ARA Basic & Premium).

Vendors are now being forced to make some critical decisions that will directly impact their stock levels for Amazon (and potentially impact the success of their entire business).

Although Demand will continue to be based on glance views, sales history, and projected demand for planned promotions, the forecast will now have three new probability forecasts for the vendor to choose from including:

P70 – Means there is a70%chance Amazon will purchase the level of demand indicated or less and a30% chance they will purchase more.

P80 – Means there is an80%chance Amazon will purchase the level of demand indicated or less and a20% chance they will purchase more.

(Video) How Amazon's Supply Chain Management Strategy Works ? Challenges with Solutions | SCM Case Study

P90 – Means there is a90%chance Amazon will purchase the level of demand indicated or less and a10%change they will purchase more.

You can learn more about how to forecast demand on Amazon in our recent post.

The components of the Amazon distribution strategy

Now, let’s break down the individual pieces of the Amazon supply chain strategy including:

– Warehousing
– Delivery
– Technology
– Manufacturing

Amazon Supply Chain: Warehousing

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. There are even mini-warehouses in smaller areas to ensure orders can be sent and delivered fast, no matter what is being purchased.

Warehouses are also optimized internally. Each with five unique storage areas, the organization strategy allows team members and pick-and-pack robots to pull products almost instantly and move them toward delivery.

Plugable Technologies, founded in September of 2009, is just one example of a brand who was able to successfully established its goal of “building a better device company” – largely thanks to the implementation of FBA seller strategy & automation.

How the Amazon Supply Chain Strategy Works (2)

“Plugable bet onAmazon and FBAfrom day one. I wanted to focus on technology and customer support and not have to worry about selling and the logistics of individual customer orders.”

“I needed our higher investments in product quality and support to be rewarded through positive reviews, so it would all be financially sustainable.”

– Bernie Thompson, Plugable Technologies, Founder said.

How the Amazon Supply Chain Strategy Works (3)

Plugable Technologies Founder – Bernie Thompson

(Video) How Amazon's Super-Complex Shipping System Works

Amazon Supply Chain: Delivery

One of the biggest differentiators between the Amazon supply chain strategy and other online retailers’ is the plethora of delivery options offered.

Sure, those options include the free, two-day Prime deliveries and even the Prime Now option, which gets products from point A to point B in two hours of less. But what’s the bigger game-changer?

How the Amazon Supply Chain Strategy Works (4)

That’s the number of ways in which Amazon can make those deliveries happen.

Amazon employs a whole host of strategies – from more traditional to super high-tech – to get its products out in lightning-fast times and all over the world.

There are drones that land in your backyard or on your roof, there are Amazon-branded trucks and delivery vans and there are even deliveries by bike in certain areas.

The retailer also leverages existing delivery routes via Fedex and UPS, too.

These wide-ranging strategies allow the company to get orders out faster, easier and more efficiently to basically everywhere in the world – even remote and rural areas not served by traditional options.

“Many online shoppers already have adeep loyalty to shopping on Amazon and are Amazon Prime members, which makes them much more likely to click on products being advertised by Amazon. If a shopper knows they can get free two-day shipping and the unmatched customer service experience they get with Amazon, they will often choose them over lesser-known retailers.”

– Pat Petriello, Director, Amazon Strategy at Tinuiti

How the Amazon Supply Chain Strategy Works (6)

Amazon Supply Chain: Technology

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.

(Video) Amazon Supply Chain Optimization Technologies

These tools not only up the company’s efficiency and delivery speeds, but they also cut down on warehouse and staffing costs – freeing up funds for other logistics or supply chain needs.

The company has also embraced drones as well, launching Amazon Prime Air.

How the Amazon Supply Chain Strategy Works (7)

Though the program’s not fully operational just yet, the drones will eventually allow for 30-minute deliveries in some of the nation’s biggest markets.

All customers need is an Amazon-branded landing mat (and to live within 15 miles of the nearest drone-enabled warehouse), and the instant air-side deliveries are within reach.

Amazon Supply Chain: Manufacturing

Amazon still allows third-party sellers, but the company seems to have learned that many of those third-party products can be made for much cheaper – and more profitably. The retailer has taken to manufacturing its own lower-cost products, as well as white-labeling products from other sellers.

Amazon offers branded lines in everything from household products to pets to babies, and the list of labels just keeps growing. This allows Amazon to own the whole lifecycle of its products – from creation to marketing to storage to shipment.

How the Amazon Supply Chain Strategy Works (8)

Global supply chain by Amazon

Though Amazon might have one of the most well-tuned supply chain strategies in the world, the company’s never one to sit stagnantly. The retailer is preparing to start construction on its second headquarter location and its partnership with Whole Foods is set to change the food delivery game.

But what about sellers who want to expand internationally?

Amazon operates 11 online marketplaces (websites) worldwide, allowing sellersto grow theirbusiness internationally, independent of where theirbusiness is physically established.

With Amazon, sellers canintroducetheir brand and products to millions of customers in Amazon’s marketplaces as seen below:

North America

These marketplaces represent many of the world’s largest e-commerce opportunities. When you register to sell in one of these Amazon marketplaces, you gain immediate access to customers who know and trust the Amazon buying experience. There’s a lot of advantages to expanding sales to one or more of Amazon’s marketplaces. One of the biggest benefits is that sellers can leverage the Amazon brand without having to foot the upfront costs of building business name recognition on their own in a brand new sales environment.

Amazon’s European Fulfillment Network (EFN) is a powerful way to reach customers across Europe from a single marketplace account,” Petriello said.

“Amazon will handle picking, packing, and shipping your products across Europe from a single pool of inventory without you having to worry about importing or customs for each nation within the EFN.”

(Video) Amazon Supply Chain Management

“For instance, you can ship your inventory into Amazon Fulfillment Center in the UK and any customers across Europe can have that product shipped directly to them. You can also use that pool of inventory to list the product on other European sites such as .de or .fr as long as you list that product in the native language of that region’s marketplace.”

Thinking of expanding into international markets? Check out our recent post, “How To Sell Internationally on Amazon“.

FAQs

What is the reason why Amazon is considered having one of the best supply chain? ›

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. Those efficiencies have made the current shop-from-home world possible.

What is one of the keys to Amazons successful supply chain management? ›

One of the keys to the marketplace's tremendous success is the Amazon supply chain strategy innovation, allowing fast product delivery from the warehouse network to the customer, and the application of human-robot interaction in Amazon supply chain management.

Does Amazon use a push or pull strategy? ›

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.

How can Amazon improve supply chain? ›

6 Ways Amazon Is Changing Supply Chain Management
  1. Continuous Fulfillment. Customers are no longer satisfied with a distribution company that collects orders and fills them at the end of the day. ...
  2. More Intensive Management. ...
  3. Better Automation. ...
  4. Bigger Warehouses. ...
  5. Last-Mile Logistics. ...
  6. Reversing the Inventory and Logistics Dynamic.
Oct 14, 2021

Does Amazon have their own supply chain? ›

The Amazon supply chain is undoubtedly one of the most efficient in the world. The e-commerce giant is infamous for its large-scale operational efficiency.

How Amazon achieves a strategic fit between its competitive strategy and their supply chain capability strategies? ›

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.

What is supply chain strategy? ›

What is Supply Chain Management Strategy? Supply chain management (SCM) involves the movement of products and services from suppliers to distributors. SCM involves the flow of information and products between and among supply chain stages to maximize profitability.

How does Amazon communicate with its suppliers? ›

September 8, 2021: Amazon Elasticsearch Service has been renamed to Amazon OpenSearch Service. See details. For decades, retailers and their suppliers have communicated via email with spreadsheets, PDFs and other documents as attachments in those emails.

Is Amazon's supply chain good? ›

Though several factors make Amazon the eCommerce leader it is today, one of the most critical elements to its success has been Amazon's state-of-the-art supply chain. Amazon has one of the biggest and most efficient supply chain operations globally.

What type of business model does Amazon use? ›

The retail business model is that vendors sell stuff to Amazon, who sells them online to consumers and delivers them to their doorstep. Delivery is by truck, robot, drone or online for digital content.

What are Amazon's strengths? ›

Being the world's leading online retailer, Amazon derives its strengths primarily from a three-pronged strategic thrust on cost leadership, differentiation, and focus. This strategy has resulted in the company reaping the gains from this course of action and has helped its shareholders derive value from the company.

What software does Amazon use for logistics? ›

Third-party Amazon Logistics carriers utilize Amazon's Flex software to manage their deliveries. Many commentators have compared Flex to Uber or Doordash, identifying it as a major leader for enabling the gig economy.

Does Amazon use just in time inventory? ›

Amazon implemented the Just-In-Time inventory management system at Whole Foods, making the whole process leaner. Moreover, it has freed up a lot of physical space. This could at least partially fill the need for forward warehouses as Amazon builds out a more profitable home delivery network.

How does Amazon do their logistics? ›

Amazon Logistics relies on third-party providers, which means the level of service offered varies from one DSP to another. However, providers like FedEx, UPS and USPS have a standard of service that most customers can expect.

How are operating efficiencies realized in order fulfillment activities of Amazon Com? ›

The operating efficiencies in order fulfillment activities are being realized through the use of technology and effective retail strategies. The strategies have ensured that customers' orders that are placed on timely basis are processed adequately and a relevant feedback is given.

What is Amazon supply? ›

In some ways, Amazon Supply is a pure retail venture, a vaguely blue collar/industrial version Amazon's main site that sells books and CDs.

Is Amazon a global supply chain? ›

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.

What are the major supply chain issues? ›

the three critical challenges facing global supply chains: labor shortages, equipment availability, and the ripple effect of global bottlenecks.

How are Amazon orders processed? ›

When a buyer adds your product to their shopping cart and checks out, Amazon processes their order following these steps: Amazon places the order in Pending status. The quantity available for the listing is subtracted from your quantity in Manage Inventory.

What strategy does Amazon use? ›

Amazon's business strategy is based on one primary goal: to meet every customer need and want with a superior experience, so Amazon becomes part of every single purchase made.

How does the company achieve the strategic fit between the supply chain and competitive strategies? ›

To achieve strategicfit, a company must first understand the needs of the customers being served, understand the uncertainty of the supply chain, andidentify the implied uncertainty. The second step is to understand the supply chain's capabilities in terms of efficiency andresponsiveness.

How a company achieves strategic fit between its supply chain strategy and competitive strategy? ›

The first step in achieving strategic fit between competitive and supply chain strategies is to A) understand the supply chain and map it on the responsiveness spectrum. B) understand customers and supply chain uncertainty. C) match supply chain responsiveness with the implied uncertainty of demand.

What is the best supply chain strategy? ›

15 Best Practices for Supply Chain Management
  • Recruit & Develop Supply Chain Professionals. ...
  • Align the Supply Chain Team. ...
  • Establish Alliances with Suppliers. ...
  • Purchase Supplies in Volume to Reduce Costs. ...
  • Diversify Supplier Relationships to Avoid Delays. ...
  • Improve Demand Forecasting. ...
  • Optimize Inventory Management.
Apr 29, 2021

Why supply chain strategy is important? ›

But having a supply chain strategy helps companies know how to work with their products' distributors and vendors to improve operational efficiencies and drive down costs—and that can help enable profitable growth.

What are the strategies to become successful in the supply chain management? ›

Companies with successful SCM programs employ eight basic best practices:
  • Start with strategy, but be practical. ...
  • Manage the entire supply chain with a focus on the customer. ...
  • Get on the CEO's agenda. ...
  • Control trade-offs between cost and service. ...
  • Ensure that key stakeholders communicate. ...
  • Be smart about customization.

What is Amazon communication strategy? ›

According to the author, Amazon's communication strategy mainly targets to increase customer traffic to their website, promote repeat purchases, create extreme awareness of their products and services, strengthen their brand name and position in the market, and improve product revenues opportunities.

What distribution channels does Amazon use? ›

Amazon uses both distribution channels. It uses a direct distribution channel when it sells products to consumers directly. The indirect channel comes into play when consumers on Amazon's site buy products from independent retailers and those retailers must fulfill deliveries.

What is brand dominance in Amazon? ›

DEFINITION. “Brand Dominance” (n.) When such a strong emotional connection is created, that not only does an audience refer their peers, but also rallies behind the brand in pursuit of the brand's own growth.

What made Amazon so successful? ›

The main reason that Amazon has been so successful is their total commitment to the customer experience. Every move that Amazon makes is tied in to their customer centric philosophy. Their goal is to be the most customer centric organization in the world.

Why does Amazon have a competitive advantage? ›

Amazon offers its consumers greater ease of use over other retail e-commerce web-sites. It's superior search and query, recommendations based on past purchases, one-click ordering at check-out, multiple consumer reviews and ratings, and most recently dash buttons for automatic re-ordering are key differentiators.

What is the secret of Amazon's success? ›

They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers. Ownership: Leaders are owners. They think long-term and don't sacrifice long-term value for short-term results.

What is unique about Amazon? ›

What makes Amazon unique is that the company has never been content to "stay in its lane." The company began as an online retailer and is now a (perhaps the) powerhouse in cloud computing operations.

What is Amazon's strategy? ›

Amazon's business strategy is based on one primary goal: to meet every customer need and want with a superior experience, so Amazon becomes part of every single purchase made.

What does Amazon need to improve? ›

Top tips to increase Amazon sales
  • Focus on improving your product pages. ...
  • Brand lock your product detail page. ...
  • Differentiate yourself from the competition. ...
  • Leverage Amazon's tools. ...
  • Drive Amazon reviews. ...
  • Increase sales with Amazon advertising. ...
  • Streamline the customer journey. ...
  • Drive external traffic to your Amazon listings.
Jul 6, 2021

What are Amazon's strengths? ›

Being the world's leading online retailer, Amazon derives its strengths primarily from a three-pronged strategic thrust on cost leadership, differentiation, and focus. This strategy has resulted in the company reaping the gains from this course of action and has helped its shareholders derive value from the company.

What is Amazon's differentiation strategy? ›

Amazon's main generic strategy is that of differentiation. It has differentiated its business model with the use of technology and skilled human resources. It serves its customers through its website and apps. Amazon has developed a lot from being a book seller to being the largest retailer online.

What are Amazon's key capabilities? ›

For Amazon, such capabilities include offering a wide selection of products and services, operating an efficient supply chain to fulfill orders; and providing excellent customer service.

How does Amazon stay ahead of the competition? ›

Amazon's culture of listening to customers, instead of competitors has enabled it to get ahead of the market as it's able to think for itself, instead of blindly following what other brands are doing. "Many companies," Bezos once said, "describe themselves as customer-focused, but few walk the walk.

How successful is Amazon now? ›

US ecommerce sales hit $362B, 14% of all US commerce sales. Amazon is now considered the leading ecommerce company worldwide with more than 500M SKUs in the US alone, accounting for 53% of US ecommerce growth.

Videos

1. How Amazon Beat Supply Chain Chaos With Ships, Containers And Planes
(CNBC)
2. Amazon Supply Chain Management and Secrets to Building Lean Strategies
(eComEngine)
3. How Can The Amazon Supply Chain Management Strategy Help Your Business?
(Inventory management)
4. What We Can Learn From Amazon’s Supply Chain
(WithoutWire Inventory Sciences)
5. Amazon Supply Chain Project
(Brianna Anderson)
6. Introducing Amazon Supply Chain
(Amazon Supply Chain)

Top Articles

Latest Posts

Article information

Author: Twana Towne Ret

Last Updated: 12/02/2022

Views: 5647

Rating: 4.3 / 5 (44 voted)

Reviews: 83% of readers found this page helpful

Author information

Name: Twana Towne Ret

Birthday: 1994-03-19

Address: Apt. 990 97439 Corwin Motorway, Port Eliseoburgh, NM 99144-2618

Phone: +5958753152963

Job: National Specialist

Hobby: Kayaking, Photography, Skydiving, Embroidery, Leather crafting, Orienteering, Cooking

Introduction: My name is Twana Towne Ret, I am a famous, talented, joyous, perfect, powerful, inquisitive, lovely person who loves writing and wants to share my knowledge and understanding with you.