From its beginnings in 1995 as one of the first online shopping websites, Amazon.com, under the stewardship of CEO Jeff Bezos, has focused on the logistics of distribution as central to the online retail experience. Its growth has been monumental. While the firm started off hand-delivering books, it now sells almost everything, processing in excess of 400 orders a second at peak times, and bringing in revenues of nearly $90bn a year.
Much of Amazon’s success comes down to its highly effective supply chain management. In 2015, it topped Gartner Inc.’s Top 25 Supply Chains, beating out McDonalds and Unilever to head the field. It did so by constantly innovating and adopting a consumer-centric approach that emphasizes frugality and works from the customer backwards.
For years it has been investing heavily in reducing the delivery time of its products, getting it down to same-day delivery - and it is set to make this even faster with the introduction of drones. Its recently-introduced “Dash” button also enables users to order basic household supplies at the touch of a button, so they don’t need to log on to a computer to order. Such tools are also a boon in that they provide a wealth of real-time data from which they can gain even more specific information about when demand for a product will rise and fall, so that they can adjust stocks accordingly.
Indeed, Amazon is increasingly becoming a logistics company, as it facilitates the storage and sale of goods from third party vendors. It announced last month that it was hiring more than 6,000 full-time employees across its fulfilment network, and while it always thinks outside the box, much of its success comes down to doing basic things extremely well. For one, its warehouses have been strategically placed, moving closer and closer to metropolitan areas over recent years as the company buys up more space for distribution centres around major cities.
Amazon’s supply chain process is simple, yet effective. It starts with the customer placing an order. The order prompts a red light to come on in the warehouse which shows the worker the products that have been ordered, and the bar code is matched with the order. The product is then placed in crates on a conveyor, which goes through the distribution centre before being sorted by bar codes. Crates arrive at the central point, and bar codes of products are matched with orders and sorted automatically into one of several thousand chutes before going into a box. The bar code then identifies the customer order, boxes are packed taped and weighed, and they are shipped by either US postal service or UPS for the last mile, arriving at the consumer within 1 to 7 days.
Amazon’s warehouses are divided into 5 storage areas:
Library prime storage - Books and magazine
Case flow prime storage - Broken case and high demand
Pallet prime storage - Full case and high demand
Random storage - Smaller items and modern demand
Reserve storage - Low demand/irregular shaped products
Emulating Amazon is a challenge that many will fail in, primarily because the economies of scale they have in place allow them to do so much at a fraction of the cost. However, their consumer-centric approach is certainly something to look at, and their use of frugality as a driver of innovation has the potential to inspire lower costs and new ways of working that could help compete with a behemoth such as Amazon.