How Amazon Is Changing Supply Chain

Management

The online retailer has quickly innovated its way to the top

Amazon has changed the face of retail through its use of bold supply chain strategies and the
deployment of innovative technologies. The online retailer's history is one of rapid growth and
relentless innovations. It's reshaping the supply chain and leaving competitors scrambling to
catch up. 

Rapid Growth

In 2004, 10 years after Amazon was founded, its annual revenue was just under $7 billion.
According to Statista, by 2018, revenue reached almost $233 billion.1 In fact, Amazon is the
fastest company to reach $100 billion in sales revenue, taking only 20 years.2 From its inception,
Amazon has been growing approximately 20% per year. It grew by over 20% from 2018 to
2019.3 Currently, it enjoys nearly 14% of gross global e-commerce sales.4 Many believe
Amazon is aiming for $1 trillion in yearly revenue. If you take Amazon’s roughly 20% yearly
growth rate into the calculation, it should reach that goal by 2027.

Whether or not the company achieves that goal by then, its transformation from a simple online
bookseller to the most formidable force in the retail industry is remarkable. One of the driving
forces behind that transformation is its innovative and highly efficient supply chain. Amazon’s
continuous efforts to deliver products to the customers in the shortest possible time are putting
intense pressure on other retail industry giants across the globe and thus changing the way supply
chain management works.

Game-Changing Delivery Strategy

Back in 2005, Amazon launched its Amazon Prime service. By paying an annual membership
fee, customers received guaranteed two-day shipping on hundreds of thousands of products. The
introduction of two-day delivery was the game-changer that established the dominance of
Amazon in the online retail industry. When many other retailers started to catch up by offering
their own free two-day shipping, Amazon tipped the playing surface again by offering a one-
hour delivery with its Amazon Prime Now service (which it has since changed to a free two-hour
delivery).

The company has always made life difficult for its major competitors with its innovative
strategies.

Advanced Supply Chain Management Practices

Amazon enjoys a cult following. It is a favorite choice for customers due to one crucial reason:
quick and efficient supply chain management. 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.

Outsourcing Inventory Management and Insourcing Logistics

Amazon’s supply chain heavily depends on the outsourcing of its inventory management.
Products that are infrequently ordered are not stored in regular Amazon warehouses. It may
come as a surprise to you that third-party sellers are behind over 50% of Amazon’s sales.5 That
amounted to over 3.4 billion products sold by third-party sellers in one year according to a May
2020 Amazon Report.6

Amazon’s two-hour or same-day shipping is possible due to its dependence on its own logistics.
Amazon understands too well that depending on third-party logistics to deliver these orders
would just lengthen the product delivery time. That’s why Amazon mostly uses its own delivery
vehicles for same-day or one-hour delivery options.

Delivery Options for Customers

Amazon has different warehouses for different kinds of products and customer preferences.
Prime delivery, one-day delivery, first-class delivery, and free super-saver delivery are some of
the common delivery options available to Amazon customers. Amazon’s continuous efforts to
meet every customer's delivery preferences make it a logistics giant.

Push-Pull Strategy for Supply Chain Success

Amazon’s own warehouses are strategically placed and stocked, 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, forecasting demand for the specific region. On the other hand, it uses
a pure pull strategy when it sells the products from third-party sellers, using more of an order-by-
order fulfillment model.

Classes and Zones

Amazon boasts 110 fulfillment centers in North America and almost 800,000 employees.7 To
make good on increasingly fast delivery promises, the company has positioned many new
warehouses in proximity to local urban markets. (Walmart's online strategy in China now
similarly makes use of a closer-to-the-customer fulfillment model, operating a network of mini-
warehouses.)

The location, size, and number of warehouses are important factors in Amazon’s supply chain
success. Its warehouses are divided into five storage areas. Its library prime storage stores books
and magazines. Next, its pallet prime storage stores full-case products that have very high
demand. Next, case flow prime storage stores high-demand products picked in less-than-case
quantities. Its reserve storage accommodates irregularly shaped and low-demand products.
Finally, its random storage area stores smaller, moderate-demand items.

Automation
In 2012, Amazon acquired a provider of automated and robotic warehouse solutions called Kiva
Systems. And in 2015, that company was rebranded as Amazon Robotics. The robots of Amazon
Robotics can pick and pack without needing any human assistance, enabling Amazon to
complete warehouse activities incredibly quickly. Amazon has increased its army of warehouse
robots at a rate of almost 35,000 per year since 2015. As of 2020, Amazon had more than 45,000
warehouse robots and counting.
To date, Amazon’s robotics have been aimed at bringing goods to people for the picking of
orders. The next generation of robots will see them picking as well as packing orders on their
own to reduce the need for human workers.

While Amazon has been increasing its army of robots in its warehouses, other online retailers
were initially slow to follow. Now, however, robots are catching on both domestically and
abroad in large facilities and smaller islands of automation within existing facilities. Autostore is
an example of a robotic automation provider that can accommodate such islands of automation.

Supply Chain Cost

Due to the huge economies of scale and a bundle of industry-leading supply chain strategies,
Amazon has been able to keep its overall per unit supply cost to a bare minimum. As a result, it
has been difficult for other companies with far lower sales volumes and only their own
warehouses to compete.

Drones: The Supply Chain of the Future

In 2013, Amazon’s CEO Jeff Bezos announced that his company was developing a drone-based
delivery system called Amazon Prime Air that would be delivering products under five pounds in
locations within 10 miles of Amazon’s fulfillment centers within just 30 minutes or less. There
are, of course, many hurdles to overcome to realize this dream. But Amazon is keeping at it. As
of November 2017, it announced the development of a drone that would self-destruct during
flight, if required, to keep people safe.

Research and regulatory compliance updates continue, but there is no concrete date yet for the
official flight of Amazon's drones. Still, developing the drone-based delivery system is a major
indicator that Amazon is doing everything possible to leverage all of the latest supply chain
technologies to maintain its place as the clear market leader.

Manufacturing Sector
Amazon is not just a retail giant anymore. It now produces a wide variety of products including
batteries, backpacks, Bluetooth speakers, iPhone chargers, dog poop bags and more. Its product
manufacturing arsenal continues to expand to include more and more categories.

Amazon understood that it could produce many of the third-party products it is selling to
customers at much lower prices. The company's high volume naturally lends itself to low-cost
production. As a result, the manufacturing sector of Amazon is making it financially stronger
while grabbing market share from many manufacturing companies. This manufacturing support
for its retail operations provides Amazon with an important revenue growth opportunity.

The Bottom Line

The rate of Amazon’s innovations in supply chain management has been mesmerizing, making it
difficult for lower-volume competitors to keep up. Amazon is forcing its major competitors to
invest more in supply chain automation, lessen the overall product delivery time, increase the
number of warehouses, and even engage in product manufacturing.

Its acquisition of Whole Foods is also a bold declaration of its move to embrace brick-and-
mortar retail, and further emphasizes the convergence of traditional retail and e-commerce
strategies. Most importantly, Amazon’s unique supply chain strategies and continuous
technological innovations have already changed the way supply chain management works. With
impending advances in robotics, drones, and other autonomous vehicles, one can only guess
what innovations are next for Amazon.

How Amazon Is Changing Supply Chain

Management?
Are you an FBA seller or just interested in Amazon logistics? Read this article to learn how
Amazon is changing supply chain management.

How Amazon Is Changing Supply Chain Management?

Aloha, Amazon Seller!

Are you an FBA seller or just interested in Amazon logistics? Read this article to learn how
Amazon is changing supply chain management.

One of the most efficient approaches for businesses to providing the best customer services is to
strategically prioritize supply chain management. This is proven by the impressive Amazon.com
success story. The e-commerce giant, started by its founder Jeff Bezos as a small online
bookstore with a list of 20 products, has grown to an online retail platform with the company’s
revenue amounting to more than 386 billion U.S. dollars in 2020.

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.

What Is Supply Chain Management?

Supply Chain Management (SCM) encompasses all the processes integrating suppliers to
integrate efficiently together to move a product from creation to the customer’s hands,
considering supply and demand along the way.

Describing Amazon supply chain strategy and innovation, Amazon’s AWS writes: “Today’s
supply chains are global networks of manufacturers, suppliers, logistics, and eCommerce/DTC
retailers that work together to deliver products to the end customer. As modern supply chains
continue to expand, they also are becoming more complex and disparate. They require a unified
view of data, as well as the ability to independently verify their transactions, such as production
and transport updates. Solutions built using AWS services, such as Amazon Managed
Blockchain and Amazon Forecast, provide the end-to-end visibility today’s supply chains need
to track and trace their entire production process with unprecedented efficiency”.

Supply Chain Management embraces the following components:

 Planning;
  Information;
 Source;
 Inventory;
 Production;
 Location;
 Transportation;
 Return of goods.

Amazon managed not only to efficiently put together these components in the unique Amazon
supply chain model but also elaborated a proactive Amazon supply chain strategy accurately
forecasting the logistic flow processes.

How Amazon Is Changing Supply Chain Management?

1. Revolutional Amazon's Distribution Strategy

More than 15 years ago, in 2005, the e-commerce giant introduced an Amazon Prime service.
With this paid service, Amazon’s customers were provided a guaranteed delivery of their
products to the shoppers within two-day. This two-day shipment option made possible due to the
efficient Amazon supply chain management allowed the marketplace to override their
competitors and dominate the online retail market.

The next breakthrough was launching a free two-hour delivery with Amazon Prime Now service
enabled due to the innovations in Amazon's supply chain.
Amazon Prime delivery service

2. Efficient Supply Chain Management Practices

Amazon declares itself a customer-centric company providing the best customer experiences. For
that purpose, the Amazon supply chain model is built up to ensure quick and efficient logistics.
Combined advanced Hi-tech solutions, a wide warehouse network, multi-layer inventory
management, and optimized transportation help Amazon reach that goal and reach millions of
happy customers across the world.

Reversing the Inventory and Logistics Logics

While previously companies implemented a strategy of outsourcing logistics and insourcing

inventory, Amazon radically changed that, offering many products located in the warehouses of
other parties, but managing their very efficient Amazon supply chain to get those products and
get them to their destinations. Amazon’s two-hour or same-day delivery services is possible due
to its dependence on its own logistics.

Delivery Options for Customers

Amazon offers a variety of delivery options to its customers. Among those are Prime delivery,
one-day delivery, first-class delivery, and free super-saver delivery, etc.

Push-Pull Strategy and Last-Mile Logistics

Amazon’s warehouses are efficiently placed close to main logistically important areas and city
centers. This allows the platform to apply a pure push strategy for the products in Amazon
warehouses, thus forecasting demand for that region. It is combined with a pull strategy selling
the third-party seller products, applying an order-by-order fulfillment model.

Strategic warehouse logistics also ensures that the product’s last-mile distance from the local
receiving centers to the customer is optimized, thus minimizing shipment time.

Classes and Zones

Amazon has 110 fulfillment centers in the US with 800,000 people employed, united into the big
effectively operated network.

Depending on the function, warehouses are divided into five storage areas:

 Library prime storages storing books and magazines;

 Pallet prime storage storing full-case products that have a very high demand;
 Case flow prime storages storing high-demand products picked in less-than-case quantities;
 Reserve storages storing irregularly shaped and low-demand products;
 Random areas storing smaller, moderate-demand items.

Bigger Warehouses

Amazon ensures they have a sufficient number of large enough warehouses to contain as much
inventory as they need to make sure they will always be able to fulfill any order at any time.

Enhanced Automation
Automation is a crucial element of shipping supply chains. The robots of Amazon Robotics are
picking and packing deliveries fast, 24/7. As of 2020, Amazon installed 45,000 warehouse robots
automating delivery processes.

Supply Chain Cost Minimization

Determined by big scale and high-tech economically-based supply chain strategies, Amazon
managed to substantially reduce a per unit supply cost. That became their strong competitive
edge and increased the sales volumes, in turn, improving the supply chain economics.

3. Continuous Fulfillment

As said, extensive high-tech strategies applied across all Amazon warehouses, including
automation and robotization, allow for the smooth round-the-clock processing of the shipments
delivered to each of the fulfillment centers. The same also allows for the transparent monitoring
of each inventory unit’s status. The system is set up to process orders immediately so that the
product is picked up from the warehouse and sent down the line right away.

4. Diversified Delivery Fleet

To deliver orders at the shopper's door, Amazon bundles different transportation methods and
delivery partners to keep up with the speed and demand. Amazon-branded trailer trucks deliver
more than 2,000 boxes at a time to the warehouse sortation centers, where packages are
distributed by location and the required delivery speed. From there, items are distributed to the
most efficient transportation mode ranging from Amazon trucks and planes to partnered carriers
such as UPS and the U.S. Postal Service.

To meet Amazon’s two-day delivery window for Prime members, Amazon employs its airplane
fleet, which takes flight from more than 20 airports around the U.S. Each plane has the capacity
to carry 30 or more containers, filled with hundreds of boxes. By ground, the company utilizes a
fleet of trucks, vans, bikes, and even robots for last-mile delivery.

Amazon is also introducing Amazon Prime Air, a drone-based delivery system delivering
products under five pounds in locations within 10 miles of Amazon’s fulfillment centers within
just 30 minutes or less. This solution also includes self-driving cars. The testing and regulatory
compliance updates are in progress.

Amazon Prime Air, a drone-based delivery system

5. Advanced AI Solutions

Amazon AWS company implements advanced computer-based technologies of Big Data

processing, involving artificial intelligence solutions, blockchain and cloud technologies, etc.

Amazon Managed Blockchain

The Amazon Managed Blockchain Quick Start allows customers to set up and manage a scalable
blockchain network with just a few clicks and eliminates the overhead required to create the
network, and automatically scales to meet the demands of thousands of applications running
millions of transactions.

Improving Forecast Accuracy with Machine Learning

The Improving Forecast Accuracy with Machine Learning solution generates, tests, compares,
and iterates on Amazon Forecast forecasts. It automatically produces forecasts and generates
visualization dashboards, providing a quick, easy, drag-and-drop interface that displays time-
series input and forecasted output.

Data Lake on AWS

Data Lake on AWS is an automated reference implementation that deploys a highly available,
cost-effective data lake architecture on the AWS Cloud along with a user-friendly console for
searching and requesting datasets.

6. Amazon Manufacturing

A retail giant is involved in a variety of projects, including its own production. It now produces,
for instance, batteries, backpacks, Bluetooth speakers, iPhone chargers, dog poop bags, and
more. Expanded to the increasing number of categories, Amazon manufacturing allows them to
diversify their revenue channels, at the same time offering marketplace’s customer's low-cost
production.

How to Easily Manage Your Amazon Inventory?

Tracking the real-time status of your inventory in the Amazon warehouses and monitoring your
storage fees is important for your product performance optimization.

SageSeller’s Inventory Manager Dashboard allows the seller to track and control the stocks of
goods in the Amazon fulfillment centers. Inventory Manager displays real-time inventory and
stock data in one place.

With this dashboard, you can see FBA/FBM fulfilled products separately down to each SKU for
your ultimate performance.

Monitoring of your inventory with the Inventory Manager Dashboard helps avoid stockouts and
overcharging for storage fees.
Tracking the real-time status of your inventory shows when and how much stock you should
reorder. The status of the inventory is marked as Reorder Now, Reorder Soon, Overstock, and In
Stock, and the date and quantity of the inventory you should order are calculated, as well as
estimated costs and profits.

With SageSeller’s Inventory Manager Dashboard you can:

 Monitor your inventory and stock data in one visual Inventory Manager dashboard;
 The inventory manager displays real-time numbers of each product and unit in stock, its status,
and condition;
 See your FBA/FBM fulfilled products separately;
 Easily get detailed data re. your stock status: in stock, reorder, stock out, and overstock for each
SKU and select your preferred parameters;
 See your data in a convenient format and easily process it by account, type, or status;
 Keep track of the cost of stock and cost price of each unit and item in a convenient way;
 Set the period to get your main inventory parameters: stock cost price, estimated profit, cost of
sales, etc.;
 Set SageSeller’s alerts to reorder products, re. stock-outs etc.

Enjoy your sales and don’t forget about your business analytics. Keeping track of your figures is
key to your account health and maximizing your profits.

Get your easy and visual business analytics with SageSeller’s dashboards. Try them now, it’s
free.