Amazon Supply Chain Guide

26 Aug, 2020

Have you ever wondered about the logistics behind Amazon? Or, do you just order products and think a stork delivers them on your doorstep?

Hundreds of millions of people regularly order billions of materials from Amazon every year. How do those goods and materials reach the customers (most times within a day or two)? How does Amazon keep up with the rush during the holiday season?

Amazon Supply Chain is in charge of packing, shipping, and making sure you get your goods in a timely manner. They have spent years honing their craft and perfecting all aspects of supply chain from inventory support to expedited shipping and delivery to your front door.

If ordering from Amazon is like asking Santa Claus for a present, then the supply chain represents the elves who make the deliveries happen. While consumers only see what’s available on the Amazon webpage, there are thousands of people working behind the scenes to make sure inventory is in stock, packaging is done correctly, and drivers can deliver the goods to consumers’ homes.

What is Amazon Supply Chain?

Buyers and sellers have different takes on Amazon Supply Chain. For buyers, they just need to know, “how fast can by order safely be delivered?” Sellers, on the other hand, are affected by the supply chain in a few different ways, and have some choices to make:

  • Sellers have a choice – do they want to fulfill orders themselves, or pay Amazon to do the sorting, packaging, and shipping of materials? 
  • Fulfillment by Amazon (FBA)  – In this option, sellers pay a little more money, but they take advantage of Amazon’s fulfillment centers for all products sold on the Amazon Marketplace. This means, Amazon warehousing will take care of everything related for getting the goods to the consumer.
  • Sellers can also use their own fulfillment by merchant (FBM) – this is a viable option if sellers do not handle a lot of materials. If you have low inventory, and do not sell often, then sellers can probably handle packaging and shipping their items without assistance from Amazon 

Supply chain as a whole should be thought of as “cradle to grave.” In other words, from the time a product is created and manufactured until the day the product goes obsolete and ultimately is disposed of. Everything in between is part of the supply chain. Inventory levels, forecasting future orders, warehousing and stocking, delivering the items to your doorstep, and yes, even projecting what items will be replacing the existing items as new improvements are made. 

Amazon has teams of people focusing on each step of the supply chain process to make sure that the ordering process for both buyers and sellers is perfectly seamless.

How Amazon Supply Chain Works

Keep it simple – while not an official motto, that is the backbone of Amazon’s Supply Chain. While they deal with hundreds of millions of orders, they actually try to simplify their process so it as easy as possible to process each of those orders.

The process starts with a customer order (if you do not count the behind the scenes inventory planning that goes on before then). After the order, a red light is lit in the warehouse, indicating to the worker what products have been ordered. The barcode is then matched to the order that was placed. 

Amazon has an amazing warehouse and distribution network. The company has strategized all aspects of warehousing from where the buildings are physically located to how to design the inside in order to maximize efficiency. 

The fleet that delivers Amazon products has been fine-tuned. What started just by outsourcing to UPS, has morphed into Amazon’s own air fleet, truck fleet, and even drones. Amazon tractor trailers actually carry over 2,000 boxes at any given time, and these trucks are used to move packages from fulfillment centers to sortation centers. From there, the packages can be shipped out based on location and delivery requirements. 

Amazon was one of the first companies to optimize humans and automation. This means that they have robots that do some of the work – getting boxes off shelves, etc. But, everything is overseen by a human to make sure there are no errors.

How Amazon Supply & Demand works

Amazon has actually introduced a new method for keeping track of inventories and ensuring no sellers run out of products, the Probability Level Demand Forecast . Forecasting is a key component of supply and demand because it allows Amazon and its vendors to forecast and project when inventory will run out of stock based on historical demand rates and purchases.

image

Supply and demand can be tricky in some ways, but easy in others. There are some things that can skew demand – for example, a global pandemic. The pandemic has shifted demand. In the summertime, people might normally be buying materials for travel and vacation, but now the world is shut down so they are buying more cleaners and face masks. That has made planning for supply difficult.

However, in normal times, Amazon uses algorithms and data to successfully predict inventory levels and maintain supply levels. Demand levels can normally be forecasted fairly easily – some materials are bought more often in winter than summer, for example, and Amazon stocks and maintains supply levels accordingly. 

The Components of the Amazon Distribution Strategy

The quickness and efficiency of Amazon’s Supply Chain has made them the leader of the pack in the distribution industry. The distribution strategy can be complex, but Amazon has broken out each level into different categories. There are various components that make up their supply chain:

Amazon Supply Chain: Warehousing

Warehousing strategy is important because Amazon tries to predict which items will sell most frequently and place those in strategic locations in their warehouses. 

Even the locations of the warehouses themselves are placed deliberately, located frequently near major metropolitan hubs so packages can be delivered quickly and easily to many people.  

Amazon warehouses are some of the best run warehouses in the world. From the people that run them, to the robots that pick materials off the shelves, Amazon has spent a lot of time and money making sure these warehouse perform optimally.

Amazon Supply Chain: Purchasing and Ordering

The ordering process is actually part of the supply chain process. Amazon wants its buyers to be able to shop and order with ease, that’s why they have features like “order with 1 click.” The company makes it easier than ever to add items to your cart or to order immediately with saved settings in your account.

The Subscribe and Save feature is another excellent component of Amazon. This is great for buyers and sellers. Buyers know that they do not ever have to worry about running out of dog food, toilet paper, or other products that they cannot live without. Sellers have the luxury of knowing their materials are being ordered reliably, taking care of the worry that you will not make any sales.

From a supply chain perspective, Amazon needs to analyze inventory levels and forecasting future sales. If they do not spend time with metrics and numbers, there would be a risk of running out of stock on items that are bought frequently or a part of subscribe and save. Fortunately, the team at Amazon has perfected the art of inventory management, and it is a rare time when and item is “temporarily out of stock.”

Amazon Supply Chain: Delivery

Amazon Prime has changed delivery forever. In 2005, when Amazon launched this new service, even they could not have predicted how much it would take off. Guaranteed two-delivery on hundreds of thousands of projects catapulted Amazon above its competitors.

After competitors started catching up and offering free two-day delivery, Amazon’s Supply Chain changed the world again by offering delivery in some cases in as little as an hour or two. 

Nowadays, customers have several different delivery options to choose from:

  • Prime Delivery – available to Prime customers at no extra charge, these items are delivered within two days 
  • One Day Delivery – non-Prime members can pay an extra fee for one day delivery of materials
  • First-class Delivery – this can be used for special tracking of items that require special mailing

No matter your delivery needs, Amazon has proven they can meet any time demand. If you have any questions about the delivery options with Amazon, you can contact our free personal assistant, who is available to help you with any Amazon questions 24 hours a day, 7 days a week. 

Amazon is so confident in their ability to deliver on time that they offer guaranteed delivery on some of their fast delivery speeds and select products. This guarantee backs their plan for delivery excellence, and the consumer never has to worry about when the product he ordered will arrive. 

Amazon Supply Chain: Technology

Amazon has actually introduced drones and other technology to their supply chain. Pick and Pack robots are key to Amazon’s success, as these robots actually get materials off of shelves and prepare them for delivery. Robots are also used for stacking and sorting through inventory.

Amazon Prime Air is one way in which the company is embracing technology, employing drones to deliver your packages by air in some regions of the world. This program is not fully deployed yet, and is just in trial stages, but this is the future for Amazon. In some of the United States biggest metropolitan areas, drones will be able to drop off packages within 30 minutes of your order.

As technology continues to develop, Amazon will continue to monitor new trends, and look for ways to improve their processes even more. While the use of drones is still in trial phases, which is one way you could see mass improvements from Amazon in the future. Most major cities in the United States might one day be able to use drones to deliver products within an hour to the doorstep of the purchaser.

Our personal assistant can answer any unique questions you have about Amazon’s future use of technology as the environment keeps changing. 

Amazon Supply Chain: Manufacturing

Manufacturing is another way in which Amazon is leading the industry. Amazon long ago transitioned from just being a retail conglomerate, and now they also manufacture and produce items as well. While Amazon continues to expand and add more products to its manufacturing line, here are some of the items they currently produce:

  • iPhone chargers
  • Bluetooth speakers
  • Certain types of batteries
  • Backpacks 

While there is still room for third-party sellers on Amazon, Amazon has actually learned that they can produce some of those products themselves, thus eliminating the middle man. Amazon has essentially been able to manufacture unique products at a cheaper cost than some sellers can, thus increasing profits, but also lowering the prices for the customers, leading to more sales and increased revenue.

If you see “sold by and ships by Amazon” you will know that they are managing the entire sales process of an item, and it is not a third-party seller manufacturing the items and then using Amazon to package it and ship the material.

Many of the items Amazon manufacturers are in the technology sector, as they have capitalized on that industry, knowing that most people have smart phones and other gadgets. This was intentional branding on their part, and has helped Amazon maintain its lead in the retail world. This is one of the reasons Amazon stock continues to climb the charts.

Leading the Pack

Amazon’s supply chain has to be better than any other supply chain in the world because of the sheer amount of volume of both customers and ordered placed. Hundreds of millions of people are buying hundreds of millions of products.

Amazon has pioneered the use of robots in warehouses, and are fine tuning the use of technology for deliveries. They have even partnered with USPS and other carriers to expand their delivery capabilities, making deliveries even faster than before. 

Final Thoughts

There is a reason Amazon is the worldwide leader in supply chain. As the years have gone by, Amazon has expanded. Yet, as they have expanded they have actually become more efficient. Optimizing the right use of technology and human interaction has allowed Amazon to make efficient use of their warehouses. 

It is a true rarity when you order something from Amazon with expedited shipping, and they fail to deliver. Rain, sleet, or snow do not slow down deliveries, nor do busy holiday seasons or the global pandemic. As a buyer, you can buy from Amazon with confidence knowing you are getting quality materials delivered in a timely manner. As a seller, there is no better brand to unite your product with than Amazon. And, as a global supply chain competitor, you can do worse than to mimic your corporate policies after Amazon’s supply chain. 

Now that you know more about Amazon’s supply chain, you should be even more confident as a buyer or a seller with Amazon that products will be delivered undamaged and in fast time.