Amazon used supply chain and logistics management to build an empire. If anyone would have told you a decade ago that Amazon would become the giant that they are today simply because of the Amazon supply chain strategy and innovation, no one would have believed it. It is especially hard for anyone that knows how a supply chain works to believe how incredibly efficient they really are at it.
Luckily Amazon has taken many vendors along for the ride with their FBA program. For a business owner the winning supply chain strategy that Amazon has developed can be just the thing they need to focus less on warehousing and logistics and focus more on growth. There are many things to learn about their supply chain model but there is one thing everyone seems to know now, it works!
It is Incredible
Keep in mind that this business literally got its start in someone’s garage and sold only books in 1995 and in just over 20 years has become a multibillion-dollar business that is ever growing. Even in the early days Jeff Bezos was ingenious. Early on he overcame some obstacles that could have kept the company from ever being a business. The requirement to get wholesale pricing was to buy 10 books at a time. The company did not have enough money to order more than one book at a time, so they would order the one book that the customer ordered and look for 9 books that they knew would be out of stock to get the order fulfilled.
The original model is eerily comparable to what it is today but instead of being the middle man for just books, they are now the middle man for millions of products and companies.
It is predicted that soon 85% of the products that are sold around the globe will find their way onto Amazon! They have put together a winning strategy that is hard to deny and it all starts with their Amazon supply chain model. When you think of the success of Amazon the only word that comes to mind is “innovative”. Bezos took his ideas and ran with it and it really panned out.
Consumers are Happy and So Are Vendors
As an organization Amazon has had a positive impact not only on consumers but on vendors. They make it easy for a vendor to manage their warehousing needs. As a vendor that lists on Amazon, everything from storage to picking to shipping to customer returns can be managed for you. FBA seller strategy has helped many small businesses find success and grow. When you consider the audience that is available through Amazon and then the added value supply chain services it makes sense to consider it as a solution for your business supply and logistical needs. There can be some real cost savings and there is definitely a lot less stress using Amazon as your fulfillment center.
Amazon is the rare organization that can keep all the players interested and provide win-win situations for everyone thanks to their ingenious supply chain strategy.
What is Amazon?
For most people Amazon is the place that they shop but when you look closer at this giant, what is it really? It is an expert at logistical management. It is the middleman for millions of manufacturers and small businesses. It delivers the value that both consumers and vendors are looking for. Amazon is the leader in strategy for supply chain management.
Of course, Mr. Bezos also has a fondness for technology which has also been a winning area for the organization. The supply chain technologies that they use are constantly evolving to deliver cutting edge logistic support. They keep their fees fair to entice more businesses and they literally offer a turn key approach to distribution. Is there anything not to like about this company?
How Did they Do It?
How can someone with a background in hedge funds, figure out a better way to manage a supply chain and logistics than some of the largest corporate giants in the world? According to Jeff it was the books. He learned everything he could from selling those books in the early days and then just started adding more product offerings into the mix but took as much care as he did with that first book.
Amazon’s primary focus has always been on expansion not on profits and today they still move in the same way. They look at their supply chain and consider how they can best expand their process to improve their process.
The Supply Chain
There is no doubt that the optimization of the amazon logistics strategy has truly built this business. Since 2015 it has toppled both McDonalds and Unilever out of the top supply chain efficiency slots. It is actually a very simple model that is highly effective. It is carried out as follows:
- The customer places an order
- A light comes on in the warehouse to indicate that an order has been placed
- Items are pulled with matching bar codes and put in a crate
- A conveyor takes the crate to the shipping/packing area
- The order is shipped
Sounds simple right? Well it is simple for Amazon because they are doing things on such a large scale that it can be done for less. It is a consumer eccentric process. Until a consumer places an order, nothing happens. As soon as a consumer places an order, the information is sent immediately to the warehouse where a red light goes off and pickers get to work. In most businesses placing an order goes through several processes before it ever reaches the warehouse. This consumer direct ordering cuts out a great deal of time in the process. Of course, warehouse optimization also is critical to their success.
The Warehouse Set Up
23 acres is a lot of space! One of Amazon’s fulfillment centers is 23 acres. That is over 1 million square feet or storage and like all the fulfillment centers it is set up for optimization. There are currently 75 fulfillment centers with 25 sortation centers in North America! The size of the operation is tremendous but is managed meticulously. Each fulfilment center/warehouse is set up the same with the same exact process:
- Library-Books and magazines
- Cash Flow-high demand items
- Pallet- full pallets and high demand items
- Random storage – Smaller items and modern demand
- Reserve storage – Low demand items or irregular shaped items
The meticulous set up of the warehouse allows faster picking times and quicker shipment movements. It also makes it easier to train employees in the warehouse. Amazon’s strategy has been a winning strategy in that they have done something no other company has been able to do successfully.
Location has played a critical role in their success. Not only are the warehouses big and optimized but they are strategically located in proximity to large metropolitan areas. For the smaller populated areas there are warehouses too, but they are smaller and contain more of the most wanted items and less of the less ordered items.
The simple approach to logistics has seemed to really make its mark. For a company that is only 20 years old it has grown well-beyond anyone’s predictions or expectations and looks like it is having a profound influence on how others are doing business and managing their supply chain.
We wonder if Mr. Bezos’s was as organized in his garage where the business got its start!
Two Day Shipping May be a Stretch
The two-day shipping benefit available to Amazon Prime members was a big part of the successful Amazon distribution strategy but surprise number 3 is that the program is not really gaining the traction that it once was. No one wants to see Amazon fail, okay there may be some people that would like to see them fail, but that two-day shipping promise has fallen short and a lot of people are sitting back and putting on their “I told you so face”. While Amazon has no immediate plans to do away with the program, there are some estimates that there are a lot less products that are available with the 2-day shipping guarantee than there was at the start.
There are a few reasons that the 2-day shipping has run into issues, primarily the carriers that are delivering the goods are having a hard time keeping up. Will the 2-day promise end? Absolutely not! As a matter of fact, in many areas there is a “same day” delivery option (largely available in the larger cities closest to the fulfillment centers).
The latest move according to the rumor mills is that Amazon is setting up their very own delivery network, that means complete and total accountability and it also means more items will return to the 2-day prime guarantee. Their ingenuity and approach to solving logistical issues is at the very least impressive.
Consumers are Happy and So Are Vendors
As an organization Amazon has had a positive impact not only on consumers but on vendors. They make it easy for a vendor to manage their own warehousing needs. As a vendor that lists on Amazon, everything from storage to picking to shipping to customer returns can be managed for you. FBA seller strategy has helped many small businesses find success and grow.