Have you ever thought about Amazon supply chain logistics? As an Amazon seller, you will probably rely on this chain every day without realizing how vast, complex, and critical it is – and of course, the fact that it has contributed the most to Amazon’s success.
Amazon’s supply chain model is one of the largest, most efficient and modern supply chains in the world. However, its fundamentals are similar to its creation over 25 years ago, albeit on a much larger scale.
How Amazon supply chain works? Guide
Over the years, technological innovations have been introduced to streamline operations and improve efficiency, and millions of dollars have been invested to keep Amazon’s development going.
However, Amazon’s supply chain strategy is one that small e-commerce businesses can learn from and implement so that you, too, can operate as efficiently as Amazon and use it to scale and optimize your own business.
Without millions of dollars to invest, it would certainly be on a much smaller scale, but the fundamentals would remain the same.
Understanding the Amazon supply chain is essential to understanding what you need to do to replicate Amazon’s success.
What is the Amazon supply chain?
The Amazon supply chain simply refers to the entire process of product warehousing, inventory management, pricing, and delivery times. In the case of Amazon, each of these elements is optimized for a seamless supply chain.
So, in the first place, in order to maximize the product offering, Amazon has made sure that sellers using the platform have a variety of fulfillment options available to them.
- FBA (Fulfillment by Amazon)
- FBM (Fulfillment by Merchant)
Offering these two options, those who wish to store, pack and ship items themselves can do so using FBM. Those who prefer hands-off can use the Amazon Fulfillment Service (FBA) to store, package, and ship orders. So Amazon immediately covered all the bases with its supply options.
In addition, Amazon is using high-tech equipment, including robots (and soon the long-awaited arrival of drones), to further improve supply efficiency.
How does the Amazon supply chain work?
So how does Amazon supply and demand actually work? Over the years, Amazon has invested heavily in reducing delivery times and even implementing same-day delivery. This is because Amazon recognized the need for such super-fast shipping.
With that in mind, the Amazon supply chain process should be smooth:
- The buyer places an order
- Fulfillment center is on standby
- The barcode of the order matches the product
- The goods are placed in a box on a conveyor belt
- Before sorting, the box passes through the distribution center
- Boxes arrive at a central point
- The barcode of the product matches the order
- They are automatically sorted into one of several thousand chutes before being boxed
- Barcode identifies customer order
- The boxes are packed with tape and weighed
- Orders have been sent
Sounds very straight forward, doesn’t it.
But behind the scenes, six critical elements come into play:
- Warehousing
- Delivery
- Technology
- Production
- Pricing
- Global coverage
1. Warehousing
It is a critical part of Amazon’s supply chain, hence the huge number of warehouses and distribution centers located close to major cities. Amazon currently has 175 fulfillment centers (warehouses) around the world, most of which are located in North America and Europe.
In these fulfillment centers, Amazon keeps inventory so there are always products ready to meet demand anywhere in the world.
This wide network of warehouses allows Amazon to deliver orders to customers efficiently and quickly, and of course at minimal cost.
2. Shipping
This on-time and fast delivery is an important factor in the Amazon supply chain and one of the biggest differentiators between Amazon and other online retailers.
Amazon offers many shipping options:
- Prime (1-2 hours, same day, one-day and two-day options)
- Hub and locker delivery
- Amazon key (options in the house / in the car / in the garage)
- Amazon Scout robot (currently in test mode)
- Hub Counter with local retail partners
- Scheduled Day Delivery (for grouping orders together)
- Slow delivery (delivery within 6 days with a discount)
- Delivery release date (pre-order option)
3. Technology
Amazon has never been afraid of technology. In fact, technology is at the heart of Amazon’s success, enabling its supply chain to operate more efficiently and cut costs in the long run. Amazon’s supply chain relies heavily on solutions, including automation and robots in its fulfillment centers – to pick and pack orders ready to ship – as well as stock stacking and, of course, order delivery.
Amazon Scout Robot Delivery is currently being tested in select US regions ahead of a wider rollout.
Despite a large initial investment (the company reportedly spent $775 million to acquire Kiva Robots – now Amazon Robotics – in 2012), the use of technology speeds up order fulfillment, reduces staff costs, and can free up funds for other logistics elements.
Perhaps the most anticipated technological advance is the pending introduction of Amazon Prime Air Drone Delivery. Still in development, once launched, the drones will deliver small packages to customers in less than 30 minutes. Customers will need an Amazon-branded landing mat and live within 15 miles of the nearest drone fulfillment center to be eligible for this delivery option in the future.
4. Production
Amazon quickly discovered that it would be profitable to start manufacturing and white labeling some of the most popular products on the market. A somewhat daring but ingenious move by Amazon, it can offer customers cheaper product options while increasing its own profits. Amazon currently sells its own product lines, from pet products to household products, and its inventory continues to grow.
By manufacturing in-house products, Amazon keeps everything in-house, from manufacturing to shipping to customers – a sure way to lower costs and increase profits!
Amazon Tip: If you haven’t explored creating your own product or brand yet, now is the time. Sales of private label (private label) products have grown exponentially and are one of the best ways to eliminate competition, especially when selling on Amazon. Not only will you be in control of the product, its quality and aesthetics, but also how you price the product, allowing you to control your bottom line.
5. Prices
Staying profitable is an important part of Amazon’s supply chain. Amazon intelligently differentiates its customer base by segmenting core and standard customers and offering each of them different shipping options at different prices.
So, for example, Prime members can pay more for the cost of a product, but have the benefit of getting “free” and super-fast shipping. In contrast, standard buyers can only choose standard or slower shipping.
By creating these different delivery windows, Amazon can keep the ebb and flow of orders moving smoothly, which positively impacts the fulfillment process and allows Amazon to respond to any fluctuations in demand without affecting the rest of the supply chain.
Likewise, when it comes to the FBA program, Amazon is well aware that having a lot of inventory will increase storage costs and, very importantly, slow down order fulfillment.
So, to ensure fulfillment centers are not overwhelmed, Amazon charges high long-term storage fees from its FBA sellers. As a result, sellers only send enough inventory to fulfillment centers to meet demand—and thus Amazon’s costs don’t go up.
6. Amazon Global Reach
Amazon’s European Order Fulfillment Network (EFN) gives Amazon’s supply chain even more power around the world. With 11 online marketplaces across North America, Europe and Asia, Amazon offers merchants an easy way to grow their international business and expose your brand to millions of potential customers.
Each of these Amazon marketplaces is a huge e-commerce opportunity for merchants that can attract customers who not only trust the Amazon shopping experience but are also very loyal. One of the most significant benefits for merchants is the ability to use the Amazon brand without any of the upfront costs associated with brand awareness. And, of course, this is a winning scenario for Amazon.
Amazon’s supply chain now has significant reach, providing Amazon’s global foothold.
Yours, Amaz.Markets
0